Inheritance Tax Planning

Following a sustained period of growth in the value of residential property, many clients have estates liable to inheritance tax (IHT) on death. HM Revenue & Customs (HMRC) takes 40% of all chargeable amounts in excess of £312,000. Although it is possible to make gifts to reduce the potential IHT liability, for many this is not an option as they need all their assets to provide them with sufficient income during their lifetime.

There are a number of solutions to this problem and out innovative approach considers many scenarios including:

Insurance

It is possible to take out a life assurance policy to cover a potential IHT liability. This may be simply to cover the seven year liability following a gift, or on a 'whole of life' basis to cover the entire taxable estate.

Discounted gift schemes

You make a gift to a scheme where the assets are held in trust. You reserve the right to draw an income for life. The gift is a potentially exempt transfer, if the donor survives seven years the gift falls outside of their estate. HMRC recognise that the right to income reduces the capital value of the gift for IHT purposes and a factor dependant on age, health and income level is applied to the value of the gift. If you should die within seven year period, only the reduced factor would be added back into the estate.

AIM investing

It is possible invest in AIM (Alternative Investment Market) listed companies (and Enterprise Investment Schemes) and reduce IHT liability. After two years these fall outside of an estate for IHT purposes. By constructing a carefully selected and diversified portfolio, the higher risk nature of an individual stock is reduced. This AIM portfolio may produce some dividend income and importantly, if you need access to your capital, stocks can be sold, though capital realisations would then fall back into your taxable estate.

There is no 'one size fits all' approach to IHT mitigation. Contact us for a multi-solution approach to your estate planning.