8 min read

Bill Gates’ Fortune

Multi-billionaire Bill Gates is not short of a penny or two. And while his children are going to be looked after when he dies, he has decided against leaving his $81 billion fortune to them.

A little boy carrying a big fish while a fisherman applauds.

Why is Bill Gates not leaving his fortune to his kids, and is it a good idea?

While to some this might seem like a miserly thing to do, Bill says he only has his children’s best interests at heart, wanting them to develop their own lives and not rely on his wealth.

But it raises questions of what to do with your wealth?

What to do with it

There’s been a rise in recent years in ‘skiing’ – Spending the Kids Inheritance.

A lot of parents, who are living longer and healthier lives, are spending their hard earned cash while they can.

Pop-star Sting recently told his children that they won’t be getting much of an inheritance as he’s spending it all.

Apparently, the former Police frontman has lots of financial commitments and claims that there is not much left after those – despite being worth £180 million.

While none of us are as rich as Sting or Bill Gates, leaving any sizeable sum to your children could have a huge effect on their lives.

New research suggests that more than four million UK adults are actually relying on an inheritance for their financial future [1].

In the survey of 2,000 adults, 6% said they felt they do not have to save for the future because they will eventually inherit property, money or other assets.

A third expected that either they or their partner would inherit money or property of some value.

“Although 43% said inheriting money would be helpful but not necessary, only 13% would rather their parents or in-laws spend their money on themselves than pass it on.”

Warren Buffet, another multi-billionaire, said that he would be giving 99% of his wealth to charity. Although he recently announced a £600 million gift for his children, this was money that was to go into their charitable foundations.

It’s also worth pointing out that just 1% of his $44bn fortune is still $44 million – not a bad inheritance.

Taxing issues

One of the main things you need to consider is Inheritance Tax. While it might seem complex, it can be fairly straightforward in many cases, and there are some tips on how to make the most of what you leave behind.

Everyone gets £325,000 worth of Inheritance Tax exemption [2]. This means that if all your assets – cash, property, businesses etc. – come to less than £325,000 after debts have been deducted, you don’t pay tax. Anything over this is taxed at 40%.

If you die before your partner, your assets will transfer – tax free – if you leave it to them. It also means that your £325,000 of tax exemptions transfer to them.

However, if when you die you want to leave, say, £100,000 to your children, this will be taken off your tax exemption, so your spouse will only get £225,000 of extra exemption.

Reducing Inheritance Tax – exemptions and reliefs

There are a few ways you can pass on assets without having to pay Inheritance Tax and there are also ways to reduce the final amount.

Give some to charity.

Bill Gates plans to give most of his money to charity. Any gifts you make to a ‘qualifying’ charity will be exempt from Inheritance Tax.

If you leave at least 10% of your estate to charity, HMRC will reduce the rate of tax due from 40% to 36% [3].

Give gifts.

Use the annual exemption – you can give away gifts up to £3,000 per tax year and these will be free from Inheritance Tax.

Small gifts – you can make small gifts up to £250 in any tax year to as many people as you like tax-free. So for example, if you’ve got a big family with seven grandchildren, this means you could give them a total of £1,750 each Christmas.

Plan ahead.

If you survive for seven years after making a gift to someone, the gift is generally exempt from Inheritance Tax – no matter what the value. Therefore, you could give a large gift to your children early on (and hope you don’t die within seven years).

Please note that none of the above should be seen as advice. You can get full information on Inheritance Tax from HMRC’s website or by speaking to your tax adviser.

Using life insurance to pay the Inheritance Tax bill

Taking out life insurance can provide funds to pay Inheritance Tax on your death.

In order to do this, you would need to set up a whole of life insurance policy and stipulate that the policy is held in trust, which means the cash will be paid into the trust. When you die, the policy pays out to the trust, which pays all or part of your Inheritance Tax bill.

Emotional reality

So far we’ve talked about money, but there is another side to the coin – the personal side.

As the figures show, some children might be relying on an inheritance, so make sure you talk your decision through with your children before you blow it all on a trip to Australia.

Whether you decide to go down the Bill Gates route and give it all away, spend it all on holidays or give it to your kids, it will have a huge effect on their lives. Let them know why you chose your route.

And if your children complain just remind them of Leona Helmsley’s grandchildren. The socialite and billionaire gave her dog $12 million, while her two grandchildren got nothing.

[1] Go Compare (30 September, 2014), “More than four million Brits are banking on inheritance for their financial future” [online]. Available from www.gocompare.com
[2] HMRC, “Inheritance Tax – the basics” [online]. Available from www.hmrc.gov.uk
[3] HMRC,”Reducing your Inheritance Tax bill by giving to charity” [online]. Available from www.hmrc.gov.uk

Note: Whilst we take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions.