The case study below is based on the effective planning we have put in place for one of our existing client.
Mr and Mrs Green had the following assets in 2003:
With combined assets over £1m they had significant potential liability to Inheritance Tax.
Planning Stage 1
Sadly Mr Green died in September 2004. His Will effected a Discretionary Trust for the then IHT Nil Rate Band of £263,000 with the remaining assets passing to his wife.
Planning Stage 2
In June 2007 Mrs Green had enjoyed good investment returns and a now growing Inheritance Tax liability.
Her assets have remained around the £1m level and therefore a potential IHT liability of £280,000 (taking into account an IHT nil rate band of £300,000)
Mrs Green receives secure pension income in excess of her day to day living expenses and has access to sufficient cash to meet her requirements. We therefore recommended that £300,000 (the IHT Nil Rate Band at the time and hence no immediate charge to tax) was gifted into a new Discretionary Trust to benefit her children and grandchildren in the future, with the monies being outside of her estate after surviving a period of 7 years.
| Assets 2008 | Personal £ | Trust 1 £ | Trust 2 £ |
|---|---|---|---|
| Property | 250,000 | – | – |
| Cash | 200,000 | – | – |
| Investments | 250,000 | 295,000 | 300,000 |
| Total | 700,000 | 295,000 | 300,000 |
Planning Stage 3
By January 2014 Mrs Green had seen her assets continue to grow in value and an ever increasing Inheritance Tax liability.
Mrs Green has more than sufficient income, sizeable capital assets and her family are well provided for through the two existing Trusts. A large proportion of Mrs Green’s estate will be liable to Inheritance Tax in the future and some further consideration to minimising the impact on her family was required.
We recommended that a proportion of Mrs Green’s investment portfolio was transferred into AIM listed securities through a specialist AIM IHT portfolio. Whilst the shares are higher risk in nature (single company shares in smaller companies), they provide the potential for growth and income and benefit from Business Property Relief after a holding period of 2 years.
| Assets 2016 | Personal £ | Trust 1 £ | Trust 2 £ | AIM £ |
|---|---|---|---|---|
| Property | 275,000 | – | – | – |
| Cash | 200,000 | – | – | – |
| Investments | 110,000 | 395,000 | 425,000 | 220,000 |
| Total | 585,000 | 395,000 | 425,000 | 220,000 |
Mrs Green now has a reduced liability to Inheritance tax of around £100,000 with successful planning in place, having moved £1m outside of her estate and available for her children and grandchildren.
If you require further information, please contact us:
Email: enquiries@boolers.alt-design-dev.co.uk
Telephone: 0116 2407070
Website: www.boolers.alt-design-dev.co.uk
This case study is for illustrative purposes only and should not be construed as advice or guidance. It is based on our understanding of current taxation, law and practice (August 2016), which is subject to change.