It doesn’t have the most polite name, but a CYA file will cover your you-know-what in case of a problem related to your business venture. You never know what you’ll face — a financial inconsistency, a legal dispute, etc. — so you should keep backup copies of all of your important papers in the same place. And […]
The post How One File Can Protect Your Business From Anything appeared first on The Work at Home Woman.
This Wednesday, Aug. 8, is National Frozen Custard Day, and that means free — or nearly free — sweet and creamy treats!
There are a few places celebrating National Frozen Custard Day with some sweet deals and freebies, but first: What exactly is the difference between frozen custard and ice cream?
While ice cream is usually made with milk, cream and sugar, frozen custard is made with all of the above and egg yolks, which give it a thicker, creamier texture. In fact, frozen custard is so dense and creamy, it’s often referred to as a “concrete” or a “concrete mixer” when you add in more sugary good stuff like cookie dough and chocolate chips.
Now that you know what makes frozen custard so sweet and creamy, here’s where to get it for cheap or even free on National Frozen Custard Day.
BurgerFi is celebrating National Frozen Custard Day with totally free frozen custard! Stop by your local BurgerFi any time on Wednesday, Aug. 8, to enjoy a free small custard. And no purchase is necessary — all you have to do is show or mention this offer to receive your free frozen treat.
Do something sweet while enjoying something sweet on National Frozen Custard Day at Freddy’s Frozen Custard & Steakburgers. Freddy’s is celebrating with single cones, dishes and custard cookies for 99 cents apiece, and the chain is making the day even sweeter by donating 50 cents for each item sold to the Kids In Need Foundation.
Although the name might not imply it, Rita’s Italian Ice also offers frozen custard and is celebrating National Frozen Custard Day all day with promotional-size frozen custards cups for 99 cents apiece.
Nothing makes a Wednesday better like frozen treats, so don’t forget to grab yours on National Frozen Custard Day!
Jessica Gray is an editorial assistant at The Penny Hoarder. She admits national day celebrations are the bane of her imaginary diet.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
You’re at a job that’s comfortable and secure and, frankly, fairly easy in many ways. There might be a few elements that you don’t really like, but for the most part, it’s fine.
Here’s the catch, though: you’re still pretty unhappy at work. You don’t enjoy going to work. You don’t enjoy most of the things you do at work. The little problems at work are like little pebbles in your shoes, building a minor issue into something that’s almost intolerable. Perhaps you simply yearn to be doing something different, maybe something a little more challenging or something that’s a little less stressful.
Does this sound like you?
It certainly sounds like my own situation several years ago. I held down a job that was about 20% interesting tasks, 20% meetings, 15% tangling with bureaucracy, 25% maintenance, and 20% travel. I really enjoyed the 20% of my work that was interesting and I enjoyed my relationship with my coworkers, but I basically dreaded the rest of the job.
I tried a number of different approaches, most of which I’ll talk about below, but eventually I decided that a career change was the right decision for me. I now work from home as a freelance writer, and it was perhaps the best professional decision I’ve ever made, flipping those percentages around to a proportion that I am very happy with (I’d call it about 70% interesting work, 0% meeting, 10% tangling with bureaucracy, 20% maintenance, and 0% travel). (However, that path came with a catch: it involved a big drop in income for quite a while – an issue we’ll get back to in a bit.)
At the same time, I have a few friends – and quite a few readers – who find themselves at a similar crossroads, and simply switching careers isn’t necessarily the best option for them. Every situation is different – some people in this situation are young and some are old, some have a ton of financial responsibilities while others have few, some have skills that are easily transferable, while others do not.
Here are six strategies you might want to consider if you’re in a comfortable place in your career but you’re yearning for a change.
The first and most obvious option is to simply stick with your current job and current career trajectory. While this might not seem like a great choice, if you do it in a smart fashion, it can be quite worthwhile. Your job provides security and good pay and benefits and it’s at least comfortable if not exciting.
There are a few things you can do here to accentuate the positives and minimize the negatives without putting your job at risk, though.
First of all, you can simply start spending a little less and putting more away for retirement. Just bump up your retirement contributions at work and look for a few simple ways in your life to cut back, like buying store brand dish soap. Having a financial target can put a light at the end of the tunnel like nothing else.
Another tactic is to master contentment. Don’t spend your time dwelling on the irritating aspects of your life. Rather, spend your time looking at the good things in your life. One practical way to work on this is to start a gratitude journal. Each day, simply list five things about your life that you’re grateful for, particularly things you noticed within the last day, and intentionally not repeating anything more often than once per week.
A third tactic is use your non-working time with more purpose. Rather than coming home and crashing, find something purposeful to do with that time. Volunteer work? A serious hobby? Community involvement? Figure out a thing or two that you really want to get involved with in your life and start committing time and energy to it rather than just going home and vegetating.
Benefits: You keep your pay and benefits. You keep the security.
Drawbacks: You’re still stuck where you are and generally unhappy with it.
Strategy in a Nutshell: Start spending less than you earn and saving aggressively for retirement, perhaps even an early retirement.
Even the best job in the world can sometimes become boring and routine, and for people who relish challenges, that can lead to a sense of unhappiness. The solution is pretty easy, though: find a new challenge within the framework of your job.
If you want to largely keep things as they are but would like some new challenges at work, just sit down and talk to your boss about helping you find those new challenges. What kind of projects can you take on? What kind of tweaks to your current work can you handle?
My strong recommendation is to have a realistic and well-considered idea of what you might want to actually do at work that you’re not currently doing. What kind of project do you have in mind? Spend some time envisioning what exactly you’d like to be doing and, perhaps even more importantly, how it would benefit the organization more than it would cost the organization.
For example, in my previous job as a programmer, I would often take on different side projects and fill up as much as half of my week with them. I’d contribute to key open source projects that we relied on. I’d rewrite and optimize some of the underlying software libraries that we used, just to make everything a little bit faster. I’d thoroughly document everything and, near the end of my tenure there, I converted all of that into a wiki. The goal was to find new challenges as much as I reasonably could and it helped greatly.
Trust me: if you are a valued employee who has a record of producing good work, your boss will likely be supportive of your desire to find new challenges at work. Just make sure that you have some clear ideas and an explanation of how they’ll be beneficial to the business without detracting from your other responsibilities.
Benefits: You keep your pay and benefits. Your job is still pretty secure. You’ll take on some new and interesting challenges.
Drawbacks: You might have a little less security than simply doing nothing at all, as there is a risk that you fail at the new projects if you and your boss don’t pick appropriate ones.
Strategy in a Nutshell: Meet with your supervisor and keep a positive tone about your current job, but ask for new projects and challenges.
It may be that you don’t dislike your career as much as you dislike the circumstances of your particular job. Perhaps you’re frustrated by workplace dynamics, or maybe you find yourself doing uninteresting tasks while being regularly turned away from interesting and cutting edge tasks.
If that sounds like your situation, changing jobs within your career path might be a good move. It does come with some risk – you might find that the new workplace is somehow worse than your current one – but there are a number of ways to mitigate that risk and a number of strong benefits of switching to a new job. Let’s consider both.
First of all, there’s a good chance that you may be able to increase your pay by switching jobs. This is a common tactic for people, particularly early in their career, to bump their pay. They jump from job to job, seeking a higher salary. This strategy can still hold true later in one’s career as well. The key, of course, is to not let an increase in pay inflate your lifestyle. If you see a big increase in pay due to a job switch, keep your spending the same and set up a very healthy 401(k) or Roth IRA contribution to gobble up most of the increase.
Second, the actual process of switching jobs can add a bit of risk to your current job. During the process of interviewing, word can get back to your current employer regarding your job search, which can put you on shaky ground at your current job. A good approach here is to start your job search by talking to people you trust in your own professional network and see what they know of. Often, when you use a good mutual contact as a reference, you can get in with a position without your current employer knowing about it.
Finally, don’t burn bridges during this type of transition. Do everything you can to make the transition as smooth as possible. Give notice of your exit and stick by that notice. Don’t destroy any relationships on your way out the door, even if the relationships aren’t all that strong to begin with. You may end up in a situation where you need to move back to this previous employer or may need a relationship with one of your fellow employees there. Don’t destroy those things in a desire to vent all of your feelings as you exit.
Benefits: You have a good chance at increasing your pay. You get a fresh start within your current career path.
Drawbacks: There is some risk in switching jobs, both in the applying and interview process and whether the new job is a good fit for you.
Strategy in a Nutshell: Quietly check your professional network for opportunities. Apply for new jobs when they truly seem like compelling opportunities. Don’t burn bridges at your current job.
This is a surprisingly effective strategy if you have a job that doesn’t require much of your effort to do well. Many people find themselves in a “maintenance” position that they can handle easily and thus only have to actually “work” a small number of hours per week, or the work that they do doesn’t require intense effort on their part.
If that sounds like you, start considering your work as something you do to support the main focus of your life, rather than letting the work be the focus.
I have a friend who has a job as a loan officer at a bank. His focus, however, is on his church and his community, where he is a leader. He focuses his thoughts and energy on those two communities, even doing tasks related to them while at work if there’s nothing else to do. He views his job purely as a way to obtain the resources he needs to do the things he cares most about.
This can be a great strategy to use if you have something else you want to focus your energy on, whether it’s something that will never return a financial reward (like charitable work or community building) or something that requires a very long runway (like writing science fiction novels or designing board games).
The challenge, of course, is that it can become obvious at work that your focus isn’t on the workplace. If you’re able to maintain your quality of work while doing this, then that’s great; if you’re not, then you can end up putting your job at risk. The real risk is when your work starts slipping and you don’t notice it because your focus is elsewhere. Be attentive to performance reviews if you’re taking this approach.
Benefits: You keep your pay and benefits. You can focus your energy and thoughts on something else that’s more important to you.
Drawbacks: Your job is probably going to become less secure, especially over time, as you move close to doing the minimum at work.
Strategy in a Nutshell: Find another area of your life to focus on. Figure out ways to use downtime at work to accentuate that focus. Stop worrying about work when you’re not there. Spend less than you earn and save the difference so that you have a cushion against the risk of a downturn in your career.
Some people have the entrepreneurship bug and dream of starting their own business where they can set their own hours and decide for themselves what needs to be done. The dream of owning a restaurant or a lawn care business or a comic book store or a Youtube channel runs deep in some people, but they believe they don’t have the opportunity to make it happen.
The truth is you can always make entrepreneurship happen. There are always avenues to use your spare time doing something you enjoy by your own rules and make money. It might take a long time and might not earn a lot of money per hour (especially at first), but it gives you a sense of control and self-determination that you can’t get as an employee, and some people yearn for that.
For those who don’t want the risk of entrepreneurship, another side gig option is to simply take on a second job or some form of consulting related to your career path. Those opportunities are safer, but in many career paths, they won’t earn as much as your main career path.
Naturally, the disadvantage here comes from figuratively burning the candle at both ends. It takes a lot of time and energy to make entrepreneurship work, and the same is true for a second job.
Benefits: You keep your pay and benefits. You gain some interesting challenges and likely some additional pay.
Drawbacks: You run the risk of burnout as you’re essentially adding a second job to the mix. You likely slightly decrease your security at work as your effort devoted to work slips a little.
Strategy in a Nutshell: Find something that meshes your skills with something you’re interested in. Dive into doing that in your spare time. Worry about making money later – start by doing something of value first.
A final option is to simply reboot your career by going back to school for education in a new career path that’s more in line with what you’ve discovered about yourself since your teen years (where many people made career choices before realizing who they actually were).
For example, one member of my family went back to school in her forties, transitioning from a career in microbiology to a career in nursing. Another friend of mine rebooted his career from teaching into computer programming.
For most, this kind of reboot requires returning to school for some type of education or training. Not only is this often expensive, it also may require a period of no employment, which can be really challenging. Of course, you may be able to obtain much of the education you need during the evenings or weekends to flex around your current career, and community college prices can help lower the costs.
Another concern is that your new career may not be as lucrative as your current one (of course, the opposite may also be true). If this appears to be the case and you’re considering this path, you should cut back on your spending now rather than later and get your finances in healthy shape for this change. Set it as a goal a year or two from now and spend that time planning carefully, minimizing debt, and maximizing savings.
Benefits: You keep your pay and benefits, at least for a while. You’re heading toward a more meaningful and enjoyable career path.
Drawbacks: Your new career might pay less and have fewer benefits, especially at first. The costs of schooling might be intense.
Strategy in a Nutshell: Start spending less than you earn and start saving for the cost of your career change. Figure out what you’d like to study. Seek out evening classes that can get you started on that educational path without causing you to walk away from your current job.
If you spend your days dreaming of a big career change in your life, there are many options for making that dream happen. Perhaps you can start from scratch with a fresh education or by starting a side gig. Maybe you can alter your current path by seeking new responsibilities and challenges or finding a new job. Or, perhaps, the best option is to simply stay put.
Whatever it is that you choose, it is far better to have considered the options and settled on the one that works best for you. It’s also worth noting that it’s almost always better to be working for something you care about, even if it’s harder, than to drift through something that just leaves your days feeling empty. The key is to make changes with some financial responsibility and intelligent long term plans.
Good luck!
The post When Your Career Is Comfortable, But You Yearn for a Change appeared first on The Simple Dollar.
During your most challenging, stressful, and uncertain moments, being a single parent can seem like the craziest financial decision you’ve ever made.
I’m talking about those moments when you’re deciding between whether to buy gas for your car or groceries to feed your family (while trying to avoid using a credit card for either purchase yet again). And the moments when you’re staring at your retirement account wondering if you’ll ever make any real headway. Not to mention those long, exhausting nights when many other parents are likely resting comfortably in their beds while you work a second or third job to help make ends meet and pay for the extra things you’d like to be able to give your family.
Becoming a parent is easily one of the most profoundly rewarding things I’ve ever done with my life, and living each day as Aidan’s mom is my deepest honor, one I wouldn’t trade.
But that doesn’t erase the fact that being a single head of household can wreak havoc on your finances, your time, and your career trajectory, presenting challenges dual income households often do not face.
In 1960, nearly 90 percent of children lived with two parents. But by the mid-1990s, the number had fallen below 70 percent and remained there as of 2017, according to Census Bureau data.
Robert Epstein, of New Jersey-based Access Wealth Planning, says single parents typically live with numerous challenges, finances being just one of them.
“Single-parent households face issues that are often heightened by the limitation of not being able to have two earners in the family, as well as the need for one person to combine work, household, and child-rearing tasks,” begins Epstein.
In fact, while the median income of married couples was $85,300 in 2017, it was just $35,400 among single mothers, nearly a third (31.6 percent) of whom faced food insecurity, according to the National Women’s Law Center.
Still, single parenting doesn’t have to be a financial boondoggle. There are countless single moms and dads who have mastered the art of rearing children, budgeting, and living frugally while still leading a full life and preparing for the future.
I’m not talking about the doctors, lawyers, CEOs, and supermodels for whom economic challenges don’t necessarily apply. I’m talking about those who don’t pull in six figures (or more) as a matter of course. For the latter category, here are some of the ways to improve your overall financial picture.
As someone who unexpectedly became a widower left to raise two children, Epstein learned first-hand how difficult it can be to juggle the responsibilities of a single parent. It’s a reality that can inspire a great deal of self-doubt.
“A lot people go through a trauma of one sort or another and lose their self-confidence and then end up not pursuing goals actively,” explains Epstein.
The problem with that, says Epstein, is the longer you wait, the more difficult it is to achieve things, particularly with regard to financial planning, because timing is so important. So, take the time to think about and plan for the future and have faith in yourself and your goals and dreams.
“If you see that you’re not doing something every day to reach your goals, work with someone who can help you do that,” Epstein adds. “Everyone needs someone to talk to, especially about their financial issues because many people have fears about them.”
It’s also a good idea to surround yourself with people who can keep you accountable yet support your financial goals and dreams, says Arizona-based personal finance coach Kalen Omo.
“Being single leaves you more vulnerable to the impulses of life, so have someone or a group of people who can walk with you and motivate you to succeed,” said Omo.
In addition to maintaining self-confidence through the challenges and valleys, it’s critical to gain a clear understanding of your monthly spending.
“It’s remarkable how many people are not aware of what they’re really spending. Maybe it’s tied to the issue of financial fear, maybe they don’t want to think about it,” says Epstein.
Being a single parent is a big responsibility – financially and otherwise. Getting your budget under control and understanding where your money is going and how it’s spent enables you to prioritize, eliminate, or reduce unnecessary expenses and focus on what’s important.
There are any number of personal finance websites and apps that make this easier than ever. Options like Mint, You Need a Budget, Pocket Guard, and Prism (to name a few) allow you to link all your accounts and expenses in one place, so you can easily view the overall picture.
“With one income stream coming into the household, knowing what money is coming in and having the power to tell your money where to go is important,” says Omo.
Another important step toward securing a better financial position is banishing debt: Every ongoing obligation you can wipe out frees up more money each month to do what you need for yourself and your family.
A debt elimination strategy like the snowball method can help: List your debts from smallest to largest, and make the minimum payment on everything except on the smallest balance; throw every extra dollar at that one until you knock it off completely. Then, do the same with the next-smallest balance until it’s paid off, too, and keep repeating the process.
“The goal is to build up momentum in your debt elimination by paying off the smallest, then the next smallest, and so on,” said Omo.
Don’t be afraid to talk to children and be open about the reality of your financial situation. Engage them in discussions about living within a budget, which helps establish proper expectations.
“Explain to your children, ‘You can’t do two dance classes, you can only do one,'” says Epstein. “We didn’t do as many vacations as others in the neighborhood. We took one vacation per year. Neighbors’ kids took two or three vacations per year. But both of my kids, looking back on it, don’t regret it. When you have less vacations, you appreciate the ones you had even more, and your life is rich in other ways.”
What’s most important to the child is your love. If you do everything you can for them, they’re going to appreciate you, and they will also grow up with good values.
Running a household and raising children on your own leaves little time to plot a course for a better future. Not to mention finding the time to do the work to reach that brighter horizon.
“You’re in a situation where your budget is tight, where you’re not able to accomplish all of your financial goals, but you want to make sure you’re going to improve your financial situation in the future, and that takes time,” explained Epstein, who suggests taking courses in an area that will improve your marketable skills.
Educate yourself for the next step, so that in five, 10, or 15 years, you will succeed.
Keep in mind, however, that it may take a few years to complete that education and obtain a position in your chosen field. And beyond that, it may take a few more years before you realize your true earnings potential.
“You want to reach a place where you have the money you need and that gives you internal satisfaction with what you’re accomplishing every day,” said Epstein.
We all want to do as much as possible for our kids, and that often includes helping pay for college, which can be particularly challenging on a single parent’s budget.
But at the end of the day, establishing financial security also means taking care of yourself, so that you don’t eventually become a burden to your children, says Rafael Rubio, senior partner at Michigan-based Oray King Wealth Advisors.
“Everyone is so worried about investing for kids’ college. Yes, that’s good if you can afford it, but it’s important to take care of yourself first,” he explained. “There’s financial aid available for kids to pay for college,” he adds, and federal student loans offer various perks and protections. Meanwhile, you’re pretty much on your own in retirement.
“Your kids are going to be your first and foremost priority, you want to make sure they’re taken care of and fed, but you want to make sure you’re taken care of and fed too.”
The bottom line is that as a single parent household, you can’t and won’t be able to keep up with the Joneses. Nor should you try. It will be frustrating, disappointing, and ultimately self-defeating. And it’s not where true happiness or financial security lies.
“Practice discipline, be frugal, and don’t try to keep up with what you see your friends and neighbors doing,” says Triplemint real estate agent and single parent Tami Kurtz. “Gratitude about kids, health, and a roof over your head can go a long way towards realizing you don’t need everything you want.”
And while you’re at it, make every day count, adds Epstein. There will be ups and downs and twists and turns in life. No one goes through life without difficulties.
“But as you face the challenges, as long as your keep your mind on your long-term goals, you will overcome the inevitable difficulties,” said Epstein. “In the end, you’ll be proud of many things – having raised your child and bettered yourself, and those things will be more important than whether you could buy something or go on vacation.”
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The post Single Parent Finances: Six Tips to Find Financial Success When It’s All on You appeared first on The Simple Dollar.
And one airline is now dealing with a class-action settlement after a lawsuit accused it of overcharging customers to check those bags.
American Airlines charged fees for baggage that should have been checked for free between July 2013 and June 2018, according to the suit.
“American breached its contract with certain customers by charging them to check one or more of their bags, despite promises that they could do so at no additional cost,” the settlement website states.
By settling the case, the airline does not admit to any wrongdoing but does agree to compensate customers.
American Airlines travelers who haven’t already received a refund for incorrectly charged checked baggage may file a claim. The airline will refund all wrongly charged bag fees from the case time frame, plus interest. Depending on what you paid, your refund could range from $18.75 to $200 (plus interest!) per bag.
If American Airlines’ records indicate you’ve been impacted by the glitch, you may receive a letter or email inviting you to submit a claim. Not sure if you deserve a refund? You can file a claim without details about when you flew or what you paid.
To submit a claim, visit the settlement website and submit your form by Oct. 19. You may also submit your claim by mail. Once the settlement is approved in court and claims are verified, refunds will be sent by check or PayPal.
Lisa Rowan is a senior writer at The Penny Hoarder.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Last week, Rose launched the Rose Scholars Scholarship Competition, which will award one high school student up to $200,000 toward his or her future college expenses. The grand prize scholarship winner will receive $25,000 each semester over four years to be used for tuition, books, housing and food.
The scholarship program will also award two other students up to $20,000 each for tuition and housing costs to cover one year of college expenses.
“Through this initiative, we are hoping to empower the next generation to pursue their dreams,” the Minnesota Timberwolves point guard wrote on his Facebook page Wednesday, announcing the scholarship program.
The scholarship is open to civic-minded U.S. high school students in their sophomore, junior or senior year. A family member or friend could also apply on behalf of a deserving student.
Students need to have a GPA of 3.0 or higher to be eligible for the scholarship and have an SAT score of 1230 or higher and/or an ACT score of 21 or higher. To complete the application form, students must write an essay describing — in 600 words or less — what they’ve achieved in their lives thus far and how this scholarship will “change the game” for them.
Applicants must also upload a photo or video to their social media accounts that shows how and why they’ve been a leader in their community and includes #RoseScholars2018 in their caption.
The application period ends September 30, 2018. Scholarship winners will be announced on or about October 15, 2018.
Nicole Dow is a senior writer at The Penny Hoarder.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
If you hate the idea of HMRC receiving a large chunk of your estate when you die, read these expert tips on how to reduce your ‘death tax’ bill or, better still, leave your heirs with no tax to pay.
Inheritance tax (IHT), commonly known as the ‘death tax’, is a tax on the estate – property, money and possessions – of someone who has died.
It’s a tax dreaded by the middle classes almost as much as the Grim Reaper himself. Yet, surprisingly, it doesn’t affect a huge number of people. According to figures from Her Majesty’s Revenue and Customs (HMRC), for deaths in 2014/15, the number of estates with a liability to IHT was 23,250, which was about 4% of all the estates left on death in the UK (approximately 597,000 in total).
Yet, IHT receipts have increased year on year since 2009/10, on average by 11% each year. Moreover, with house prices having risen, in the South East in particular, an increasing number of people are finding themselves liable for it. According to HMRC’s own figures, approximately £4.8 billion was collected in the 2016/17 tax year.
IHT is normally charged at 40% of the value of your estate above a certain amount, known as the inheritance-tax threshold or nil-rate band, which is £325,000 for the current 2018/19 tax year.
However, married couples can combine their IHT thresholds, meaning that up to the first £650,000 of their combined estate is IHT-free, as any unused nil-rate band can normally be passed on to the surviving spouse.
In April 2017, an IHT tax break was also introduced on the family home. This means an individual can transfer an additional £125,000 this tax year to their direct descendants – rising to £150,000 in the 2019/20 tax year and £175,000 in 2020/21.
Adrian Lowcock, investment director at multi-manager Architas, explains: “This effectively means that, by 2021, an individual will have IHT-free allowances of up to £500,000, and married couples or civil partners, who can inherit any unused allowance from their spouse, could pass on up to £1 million before they have to pay IHT.”
Nevertheless, after years of grafting, saving and paying taxes, most are reluctant to allow the tax authorities to take money from their estate.
IHT law is relatively complex, but there are plenty of legal ways to avoid it. Danny Cox, head of communications at financial provider Hargreaves Lansdown, stresses that “one of the best ways to reduce the amount of IHT that will be paid on your death is to reduce the value of your estate”.
Moneywise reveals three top tips to cut your IHT bill.
Gifts to your spouse or registered civil partner and to registered charities and political parties are IHT free.
In addition, you can gift £3,000 of capital each year, which is known as your annual exemption. If you didn’t use last year’s allowance, this can also be used.
You can also make regular gifts from your income, but you must show that such gifts leave you with sufficient money to maintain your standard of living.
IHT law is complex, but there are plenty of legal ways to avoid it
Wedding or civil ceremony gifts are also allowed. You can give up to £1,000 to a relative or friend, up to £5,000 to a child or up to £2,500 to a grandchild or great-grandchild.
In each tax year, you can also gift up to £250 to any number of people completely free of IHT, provided you’ve not used another exemption on the same person.
You can also reduce your IHT by giving away larger financial sums, but you must live for at least seven years from the date of the gift for it to be completely free of IHT. These gifts are known as potentially exempt transfers and are taxed on a sliding scale known as taper relief (see box, below).
Tim Fullerlove, a partner at Wilsons Solicitors, warns, however, that you must not benefit from the money or assets you give away. If you do, even in a small way, your estate will still pay IHT on the asset when you die.
Mr Lowcock adds: “Much IHT planning involves giving away some of your money early and, as such, you lose the benefit and access to that money.
“This needs consideration, because, while you might not need the money today, you could find you might need it later in life, for healthcare, for example.”
One common concern when making large gifts, particularly to younger children, is whether the recipient will spend it wisely. Fortunately, it is possible to give money away while retaining control over its use by way of a trust arrangement.
| Number of years between gift and death | Percentage of gift liable for inheritance tax (%) | Effective rate of inheritance tax (%) |
|---|---|---|
| Less than three years | 100 | 40 |
| Three to four years | 80 | 32 |
| Four to five years | 60 | 24 |
| Five to six years | 40 | 16 |
| Six to seven years | 20 | 8 |
| More than seven years | 0 | 0 |
Source: Gov.uk, 5 July 2018.
Mr Fullerlove explains: “Trusts are a complex topic, but there are a variety of structures that allow you to give money away, achieving the tax savings of a gift, without giving the children or other recipients control over it.
“You, or other chosen trustees, can hold the money on behalf of the recipients and use the funds to support them until you feel they are financially mature enough to have the funds themselves. If you give more than £325,000, on current values, to a trust you will trigger an immediate tax charge – but gifts up to this threshold will, again, be free from IHT if you survive for seven years.”
Some investments also qualify for relief from IHT after two years – although there are risks and the rules can, again, be complicated.
Julia Rosenbloom, private-client tax partner at accountancy firm Smith & Williamson, explains that if you’re a small-business owner, for example, and have held the business for two years before death, then it may be that the value of the business qualifies for business property relief (BPR) at 100%.
However, she warns: “Sometimes the way people operate or structure their businesses, or the assets held by the business, can jeopardise either the amount of IHT relief available or even whether IHT relief is available. Therefore, business owners should review how they manage things, to ensure they qualify for BPR.”
If the business premises are owned (rather than leased), for example, but are held outside the company, only half the business value will qualify for IHT relief, compared with 100% if held within the company structure.
Qualifying Enterprise Investment Scheme (EIS) companies, certain AIM (Alternative Investment Market) shares and unquoted shares also qualify as free from IHT if held for two years.
Unfortunately, BPR is not available for AIM stocks where the business mainly deals in land or buildings or the making or holding of investments.
It is possible to give money away while retaining control of its use
However, if you choose wisely, it’s possible to have AIM shares in an Isa that benefit from tax-free growth and dividends which, if held for two years, can also be passed on free of IHT after death.
Mr Cox points out: “There are packaged schemes offered by selected investment companies that invest in AIM portfolios and unquoted shares for their IHT benefits.”
Of course, all these investments carry additional risks, and Mr Lowcock stresses: “Investors should be wary of jumping into these investments both feet first, as you could easily lose more than you gain from the tax avoidance. Don’t let tax drive your investment decisions; any investment should be sound on its own merit first.”
Ian Dyall, head of estate planning at wealth management firm Tilney, adds that the final step in IHT planning is to ensure that your executors have the money available, prior to the grant of probate, to pay any remaining tax liability.
He advises: “This can often be most efficiently achieved by holding life-assurance policies in trust to pay any remaining liability.”
Tim Fullerlove, a partner at Wilsons Solicitors, provided the following example of how IHT can potentially be avoided.
Mr and Mrs Smith have assets together worth £1.25 million. They both die in 2021 and leave their entire estates to their three children. In the tax year 2020/21, their combined IHT allowances will total £1 million. Their estates will pay IHT on £250,000, resulting in a tax bill of £100,000.
However, imagine that Mr and Mrs Smith have been making tax-saving gifts for the seven years before they die. They have each given £1,000 to each child each year, using up their £3,000 annual allowance and giving away £42,000 between them over seven years. All three children have got married over the past few years and Mr and Mrs Smith each gave each child £5,000 for their weddings, giving away another £30,000. They have felt able to give away another £10,000 each from their income to each child each year, for another £420,000. This means they have given away a total of £492,000 over the seven years.
These gifts are all immediately IHT-free, with no requirement to survive seven years. As a result, no IHT will be due on their estates.
CHRIS MENON is an editor and writer who has contributed financial articles to the Telegraph, Guardian and Independent on Sunday
