Inheritance Tax (IHT) liability is avoidable if you are willing to take a risk.
The simplest planning is to make outright gifts and make sure you survive the gifts by 7 years. Not only does this give rise to the risk of incurring the IHT liability upon your estate if you do not survive 7 years (although you will incur this liability if you do nothing!) but also the risk that if you do survive you may not have enough remaining funds to enable you to enjoy the remainder of your lifetime in the manner that you would wish.
If you make the lifetime gifts to your beneficiaries via a Trust this may give rise to IHT (albeit at the lifetime rate of 20%) but does avoid the risk that the monies passed under an outright lifetime gift might be squandered by the recipients or seized by non-family members resulting from divorce settlements or seized by business creditors.
The use of Trusts is complex and professional assistance might be required.
If you think that you are probably going to survive for 2 years you might wish to consider investing in shares that qualify for exemption from IHT due to business property relief (BPR). Such shares are free from IHT after 2 years of ownership but you still have ownership of the shares should you need to realise them to provide for your care costs etc.. These types of investment are considered high risk as they relate to investing in shares in unquoted trading companies although it is possible to acquire such shares that qualify for BPR but are deliberately structured to minimise the investment risk. You will need to consult your IFA before making investments such as this.
If you run your own business the assets of which already qualify for BPR, you ought to consider transferring any assets that you hold personally e.g. business premises that you let to your company into the ownership of the business thus obtaining exemption from IHT on the asset transferred.
If you are contemplating an impending sale of your business consider the immediate increase in the exposure of IHT on your estate at the point of sale. Prior to sale you own a business that due to BPR is free from IHT but following the sale you hold the cash proceeds that are fully exposed to IHT. Consider reinvesting the proceeds of sale in say AIM listed shares that qualify for BPR (not all do!) as a holding operation as they will immediately restore your freedom from IHT (as long as you invest soon after receipt of the sale proceeds) and then give you time to fully consider the effective long-term use of the money for the benefit of you and yours.
Being UK tax resident but non-UK domiciled is no longer as favourable for UK tax purposes as it once was but there is still the opportunity to obtain exemption from IHT by way of establishing an Excluded Property Trust. This can be an expensive exercise in terms of professional costs and a plethora of offshore tax avoidance rules need to be considered. However, if you have non-UK origins this is an area to carefully consider before you become deemed to be domiciled in the UK for IHT, after which the opportunity will be lost.
For those people who do not share the view that structured tax avoidance is morally repugnant there is an IHT solution available that it is claimed provides an immediate relief from IHT and you can continue to own your assets, including your home, without being caught by the gifts with reservation of benefits rules. This type of planning is not for the faint hearted.
Where to get advice
We are restricted in the advice that we can provide as tax advisers but can arrange for advice to be obtained from other competent professionals in terms of:-
- investment advice on BPR qualifying shares or other investments
- legal advice including Will-writing and Trust Deed production
- specialist providers of offshore Corporate and Trust services
- promoters of more aggressive tax avoidance solutions
We would be happy to undertake an estate planning exercise for you and would like to hear from you how we can provide this service to you. We can prepare an IHT report following a meeting. If there was enough demand we could arrange a meeting which we would attend together with the fellow professionals referred to above. If you have friends or family that you feel might benefit from this service please feel free to make them aware of the advice that we can provide.
For a comparatively small cost, you could obtain a significant increase in the amount that your beneficiaries will receive from your lifetime achievements; at least you will obtain the comfort of knowing that you have done all that you could have done to reduce the burden of IHT upon your estate.
Do not sit back and hope that a future Chancellor of the Exchequer will see fit to abolish IHT or make the decision to increase the nil-rate amount from the current figure of £325,000 to £1 million.
Please contact Patrick Hope at our Chertsey office (telephone number 01932 564098 or using the contact form below) to let us know what we can do for you.