Don’t forget to spend after you’ve saved

After a lifetime of saving for their future and with rising long-term care costs, it is not surprising that many reach retirement and continue to focus on protecting their finances, instead of enjoying their money. But with one in ten UK households sitting on assets totalling £1m or more, you could be better off spending some of your money now to avoid hefty inheritance tax liabilities, according to Towry, the wealth adviser.
 
Someone who dies with total assets worth £1m could be hit by a £140,000 inheritance tax bill if married or £270,000 if they are single. Therefore, there is great incentive to significantly reduce the size of their estate. There are ways of doing this through trusts and sophisticated financial planning but many people don’t consider the obvious, including enjoying the money themselves.
 
Gifting to family members is a popular option used by those in retirement. But there are strict rules related to this. Generally, any gifts worth over £3,000 per tax year are added to the value of your estate and therefore are not exempt from inheritance tax should you die within seven years of making the gift.
 
Furthermore, if you have set up a Lasting Power of Attorney (where you appoint an ‘attorney’ to handle your affairs should you lose the mental capacity yourself), neither you nor the attorney will have the ability to make financial gifts once you have lost capacity. In these circumstances it may be best to gift early and help your children and other loved ones at an earlier stage.
 
Ian Dyall, estate planning expert, Towry said: “While people may have spent a lifetime building up their income for retirement, it may be that in retirement itself, many are reticent about using some of this money on what is important to them. This could be providing for a disabled relative, helping their children or grandchildren financially, or passing money onto a favourite charity. Whatever your individual circumstances may be, your money is ultimately there to be enjoyed.
 
“It is important to remember that you must still be able to access some money for planned or unforeseen events, such as holidays or long-term health care. Cashflow forecasting allows you to see a clear path for your retirement, be that spending on yourself and your loved ones, while still keeping appropriate levels of money in reserve.”