In the last few years it has been rare to get some good, though sombre news (given the subject matter) according to the January 2022 Cost of Dying report, the cost of funerals has gone down for the first time since 2004.
The report states that the average total cost of dying (which covers the funeral preparations, venue hire, etc) is £8,864 which is down 4.3% since 2020. It also states that the average cost of a basic funeral has also gone down by 3.1% since 2020 at £4,056.
It’s a difficult subject to think about. But with this rare decrease in expenses, now might be a good time to take advantage of the news and start getting your affairs in order, especially if you haven’t done so regarding funeral planning.
Though it remains to be seen whether the cost of funerals will rise back up or continue to fall. Here are some things you can do to protect yourself and your loved ones from these costs, giving you more control of your money and assets, making sure it goes to the right people.
Get a Prepaid Funeral Plan
Taking advantage of these lower costs will mean more money saved to help both yourself for the rest of your life and your family.
The decreased cost of funerals doesn’t mean that you have to pass away this year to take advantage of them. It simply means looking into prepaid funeral plans.
A prepaid plan is a method of protecting yourself from the cost of a funeral going back up again. It essentially locks in place the price you pay, so if this year turns out to be the outlier and prices do go back up, it’s a great time to think about talking to a funeral director and working out a prepayment plan.
Besides in cases of old age and terminal illness, death can sometimes come unexpectedly. We don’t all get a chance to plan ahead with things such as prepaid funerals. But at least the news of lowering prices will soften some of the devastating blow of loss, and hopefully the trend continues.
Costs and the cheapest options
You could wish to opt for a direct cremation and instruct loved ones to celebrate your life in their own way, without the need for venues or services. However, this all depends on your beliefs and wishes about burial or cremation.
In fact, whilst the cost of funerals has gone down, the cost of direct cremations has gone up by 6% since 2020, to an average of £1,647.
Costs of funerals do vary by factors such as location, with London funerals being the most expensive at an average of £5,385 and Northern Island being the least expensive at £3,056.
Avoid inheritance tax
Another way to protect yourself from rising costs and taxes is to avoid inheritance tax.
Initially, an inheritance tax was introduced as a way to prevent the wealthy from just perpetuating their wealth – meaning that the children of the rich stay rich, giving them an unfair advantage. Inheritance tax acts to redistribute this wealth so a percentage of this inheritance money goes to the state to benefit everyone else in society.
However, due to rising costs of property and other assets, more and more people that wouldn’t or shouldn’t be considered “wealthy” by any means, are being hit by this tax. Meaning that the loved ones you leave behind miss out due to this “penalty”. The best estate planning books suggest that due to frozen inheritance tax bands, more and more people who wouldn’t consider themselves as middle class even, are falling into the tax bracket of this tax.
The inheritance tax threshold of an estate is currently at £325,000 as of 2021/2022 so if the value of an estate is below this, the tax won’t apply. However, if the value is above this, it is subject to a 40% tax.
The good news is that inheritance tax is not particularly difficult to mitigate, reduce or avoid (legally) with a bit of good financial planning. The main strategy for avoiding inheritance tax is to give away your wealth several years before death.
This could be done in several ways, such as transferring your wealth into a trust which is not controlled by you, or even by making an outright gift to a loved one. These strategies all come at a cost – a loss of control. Only a genuine loss of control will result in avoidance of inheritance tax, therefore you need to come to terms with the risk that your money may not be used in the way you originally intended. If you could still control this to a high level of precision, then you’re probably not using a method that HMRC would agree would take the assets outside of the IHT tax base.
However, another way of giving away your wealth is to spend it in advance. Once spent on a funeral plan, a life insurance policy premium (written into trust) or another pre-paid item with special T&Cs, the terms of the plan may mean that the benefits of the plan can be paid directly to your loved ones. This is another way to move wealth from your bank account to your loved ones without it forming part of your estate. You should seek financial advice before engaging in any tax strategy and be aware that rules could change between now and your passing.
To try and avoid IHT, you would need to make sure your Will states that everything is left to a spouse, civil partner, or charity. There are also other ways to avoid the tax, including giving gifts. Read more on the HMRC website here.
Though it is said nothing in life is certain but death and taxes, there are ways to make sure your estate is fully in your control, giving you peace of mind that the ones you leave behind will be well looked after.