It’s important to know if you have enough money to your end, but what if you’ve just got too much?

04 November 2019

I appreciate that actuarial tables and projections may not be in your top 10 of gripping reads. I quite enjoy them, but many might argue that I need to get out a lot more. It is important to project income forward and to make assumptions about how long you may live (my actuarial tables suggest an average for men to age 87, women to age 90) to ensure you've got enough money to see you to the end. In our experience, post retirement, the need for funds increases as you launch into the experiences, travels and suchlike that have been on the waiting list all these years, particularly whilst you are likely to remain in good health. Spending slows in the mid-seventies as many of the agenda items on the life experiences list have been ticked off, with spending rising in the eighties as significant health and long-term care costs can be required. Even when noting these, it is not uncommon to find some individuals with significant surplus income. What could you do? If you do nothing, inheritance tax at 40% might be paid on the unused funds, but you could gift it away to save inheritance tax straight away.

You can use your annual gift allowance of £3,000 each year and go back one year if not used in the previous tax year, but some can go further, using the surplus income rule to gift away funds to the family. If used correctly, the income gifted can fall outside the estate with immediate effect.If after applicable tax, you have surplus income over and above what is needed to maintain your standard of living, this can be given away and should usually fall outside the estate immediately. This income can be gifted either directly to the recipient or into a Trust and you might wish to establish a family Trust to achieve this. The calculation to ensure that any surplus remains such should be documented each year.

The identified income can be gifted directly to family members, possibly by standing order, or can be gifted to a suitable trust to be invested for future use by the beneficiaries. For some, the thought of giving away funds directly to relatives does not appeal. This may be because the beneficiary is too young, even unborn (e.g. future grandchildren), or through concern that they may not use the money as you would intend. This might be a good reason to use a Trust, and your legal advisers can help establish an appropriate arrangement. Suitable gifts can be made to a Trust, usually with the Trustees deciding how future funds are distributed across a group of beneficiaries (named or as a class, such as grandchildren). This can offer a solution to gifting now, whilst maintaining control over the funds in the future.

A family Trust would normally be established by a suitable solicitor and we can refer enquirers and clients to contacts we maintain who can achieve this. Once established, we can then make recommendations for the investment of the regular income payments (monthly or annually as example) to meet the settlors and Trustees' requirements. The agreed gifting should be kept under review as times and needs change. An example might be if long term care costs were required and excess income is no longer surplus.

If you would like to consider these opportunities a stage further, then please contact the team at Chapters Financial in Guildford. No individual advice is provided during the course of this blog.

Keith Churchouse FPFS


CFP Chartered FCSI

Chartered Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899