5 scary facts for Halloween: why a lack of financial education is truly frightening

Children in England are now being taught about money as part of the national curriculum and we found some startling statistics which demonstrate the importance of financial education …

  1. 42% of young people aged 14-25 were unable to identify the difference between being overdrawn or in credit on a bank statement. The survey by money education charity Pfeg also found that 13% didn’t actually know what an overdraft was.
  2. 28% of the same group didn’t realise it would be better to opt for a low APR than a higher one when taking out a credit card or loan.
  3. According to research prepared for the Guardian, one man saw a £200 payday loan increase to £1,851 in just three months. It’s just one example of how these loans can spell disaster if you don’t understand the terms – and there is now one payday loan lender for every seven banks or building societies on Britain’s high streets.
  4. The Money Charity reports that every 4 minutes, 51 seconds, someone is declared insolvent or bankrupt in the UK.
  5. 15 celebrities were named in a Telegraph feature on stars who have been declared bankrupt (and this is by no means a comprehensive list). With names ranging from Donald Trump and former Westlife member Shane Filan to Neil Morrissey and Kerry Katona, it adds to the impression that being in debt has become more socially acceptable.

Sources: Pfeg, The Guardian, The Money Charity

What can you do to help?

For ideas on how to teach your children or grandchildren about money, take a look at our infographic and read our blog about fun money-related apps and games.

To find out more about what will be taught in schools, take a look at our at-a-glance guide to what has changed from this term.

Back to School – Money is Now on the Curriculum

This blog is intended to provide information, not financial advice, to help you make an informed decision about savings and investments. We do not offer financial advice. You should contact a financial adviser, who may charge a fee, if you want financial advice.

7 tips to make you inheritance tax-smart

We’re set to pay more than half a billion pounds of inheritance tax completely unnecessarily, according to research by professional advice firm unbiased.co.uk*. With a few smart moves, you can make sure this money goes to your loved ones instead.

The basics

You will have to pay Inheritance tax (IHT) on everything in your estate above the tax free allowance (the amount up to which there is no IHT to pay). For an individual, this is £325,000 in 2014.

As your estate includes assets such as property, money, investments, insurances and valuables, as well as any jointly owned assets, it’s fairly easy to break through the tax free allowance.

It can also be expensive. IHT is charged at the rate of 40%, so you can quickly rack up a hefty bill. For example, an estate worth £500,000 would generate a 40% IHT bill of £70,000.

Most of us would prefer that money to go to our family rather than the taxman and, ultimately, the Treasury. Thankfully, with a little planning on your side, this bill can be avoided, or at least reduced considerably. For a start, that half a billion pounds we mentioned could be eliminated.

Ringfence your life insurance

This is where unbiased.co.uk’s eyewatering statistic comes from – £530 billion will be wasted this year because individuals have not put their life insurance policy ‘in trust’. This effectively means that you are putting your policy in a trust to benefit a specified person or people (the beneficiaries) and it is not included as part of your estate. For that reason, it will not be included when IHT is calculated.

This is actually quite easy to do – you simply ask your life insurance provider for the paperwork to put your policy in trust. This is also known as a policy ‘written in trust’. It’s as simple as that.

6 more ways to legitimately reduce your estate and reduce your IHT bill

1. Leave it to your (official) spouse

Anything you leave to a husband, wife or civil partner who has their permanent home in the UK is exempt from IHT. In addition, married couples and civil partners can transfer their tax free inheritance tax allowance, so the surviving spouse’s nil rate band is increased by any their partner didn’t use. Effectively, this could double the amount that remains free from IHT.

2. The £3,000 rule

You can give away gifts, including money, worth up to a total of £3,000 in every tax year. It takes seven years for larger gifts to become exempt. You can also carry forward the previous year’s £3,000 allowance if it wasn’t used.

3. …And the £250 rule

On top of the £3,000 annual exemption, you can also give away as many gifts worth up to £250 to as many people as you like, although this allowance cannot be used with other exemptions when giving to the same person.

4. A generous wedding gift

Weddings and civil partnerships are one way to instantly reduce the size of your estate. A parent can give cash or gifts worth up to £5,000, a grandparent up to £2,500 and anyone else up to £1,000.

5. Regular payments are allowed

If you give away a regular gift out of your income, and this doesn’t affect your lifestyle, this can be immediately outside your estate too. This exemption is often overlooked but could potentially allow you to give away a decent chunk of your income to your family through a regular allowance.

6. Decide which cause gets your money

Rather than putting your hard-earned savings into the national melting pot, you could choose to donate them to a favourite cause – this can be done while you are living or in your will.

Anything you give to charities, national institutions such as museums, universities and the National Trust or to a UK political party with at least two MPs is instantly outside your estate – it’s an exempt gift.

Make it as easy as possible for those left behind

If you document everything you do, especially when you’re making gifts, this will make it easy for your executors to claim any exemptions.

It’s also important to have a valid will in place. This could reduce the amount of IHT you pay if your spouse is a beneficiary or if you leave an exempt gift as specified above – but even if it doesn’t, it will ensure your estate is divided in line with your wishes.

Without a will, your estate will be divided in line with the rules of intestacy and could mean that your children may inherit part of your estate before your spouse or civil partner dies – which may not be your preference. By making a will, you can ensure that everything goes to who you want.

Please note: This blog is based on our understanding of inheritance tax and is intended to provide basic information, not financial advice, to help you make an informed decision when planning for the future.

The content of this article is for information purposes only and does not constitute financial advice. We do not offer financial advice. If you’re unsure as to the suitability of a product you should seek advice from a Financial Adviser. You may have to pay for this advice.

Source: unbiased.co.uk