IS INHERITANCE TAX AVOIDABLE?

TODAY’S BLOG

IS INHERITANCE TAX AVOIDABLE?

News this week that the taxman is set to take a record amount of inheritance tax for 2018/19 is perhaps not too much of a surprise. Most years the amount of inheritance tax paid rises. Arguably the least popular tax – sometimes called death duties, this is the tax that applies once you die to your worldly wealth.

It is generally the case that if you are married, it is only paid once the both husband and wife have died. This final day of reckoning, tax-wise generated £4.5billion in the first 10 months of 2018/19. A new record high.

It is surprising that despite complaining about the tax, most people do little about it. IHT is one of the few taxes that is avoidable by arranging your affairs sensibly in advance.

5 QUICK TIPS

1. Consider taking out an insurance policy to pay the bill. Admittedly this has a cost and does not remove the bill, but it does enable your real wealth to be passed on to those you want to receive it, rather than the Chancellor. A simple joint-life second death policy placed into Trust will suffice.

2. Have a Will and review it. This will ensure that your estate is passed to the right beneficiaries and you may also nominate charities. Gifts to charities are exempt from any inheritance tax.

3. Know your limit. Everyone has a limit known as the nil rate band. This is the first £325,000 of an estate – the net value (assets less liabilities). If you have a property this can be increased (complicated but it will increase). Couples double up on these. You can find more detail within out FREE app about this.

4. Consider using IHT exempt investments, this is really not for everyone, but is certainly a possibility. The most basic being business owners have certain exemptions – technically known as BPR, as does owning woodland or some aspects of farming. You can also hold some AIM listed shares which will be exempt – but be warned all these options have pro’s and con’s.

5. Spend money from the right places. Under pension reforms, it is possible to pass on the balance of a pension fund free of inheritance tax. So if you have the option, you may wish to use up other investments that will be subject to IHT first. Context is everything and thought needs to be given to this from an income tax angle and investment approach.

There are other options too, so if you would like to discuss how you can reduce inheritance tax please get in touch. However, if you are married and have a net estate worth less than about £1million you probably wont have any inheritance tax.

And finally a reminder about our app, which is loaded with all this information.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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IS INHERITANCE TAX AVOIDABLE?2019-02-21T18:40:24+00:00

Inheritance Tax and BPR

Inheritance Tax and BPR

You will recall that I have been blogging about various HMRC inheritance tax forms,  and last week I also discussed Power of Attorney and the Court of Protection. Today I am high-lighting some planning opportunities that address these issues in a practical way using BPR – or Business Property Relief.

Inheritance Tax (IHT) is the second most resented tax in the UK. IHT is currently payable at the rate of 40% on an individual’s estate which exceeds the ‘nil rate band’, currently £325,000. Estates which comprise a family home and few other assets can incur a large tax liability. There are many options available to those who wish to mitigate their estate’s IHT liability. Trusts and gifting are the most common strategies employed, but both take 7 years in order to be fully effective. For clients who are elderly or unwell, this is often too long a timeframe.

Business Relief, or Business Property Relief (BPR) as it is commonly known, is a UK IHT relief that was introduced by the Government nearly 40 years ago (7 April 1976). It was designed to allow business owners to pass on businesses to beneficiaries without incurring an IHT liability. In 1996, it was made more widely available to private investors and now allows any qualifying investment held for at least two years, and at the time of death, to benefit from 100% IHT shelter. Most unquoted, UK registered companies will qualify for this relief. This two year timeframe makes this form of planning the quickest way of sheltering assets from IHT.

BPR and Power of Attorney

Another area when BPR could be of use is when Power of Attorney (POA) is in place. Take a look at this example.

Mrs Jones is 70. Her son has Power of Attorney (POA) over her financial affairs and due to her poor health, he can make financial decisions on her behalf. Gifting and trust planning may not be possible in this case, because a number of restrictions exist to avoid attorneys abusing their positions. One of the main rules states that attorneys cannot give away access to a donor’s (Mrs Jones) funds, without applying to the Court of Protection for approval. Trust work and gifting both involve a change of ownership and it would be difficult for Mrs Jones’ son to successfully put either in place. It may also be unsuitable given the 7 year timeframe and Mrs Jones’ health status.

Mrs Jones’ son could, however, invest in a BPR qualifying company/a portfolio of companies on her behalf. Since the investment remains in her name, he has not changed the ownership for the funds and since a BPR investment only requires 2 years to become effective for IHT purposes, it may be the most suitable option.

Unquoted companies are usually riskier than those listed on a major stock exchange. Whilst there are a number of risks associated with investing in unquoted companies, many investment companies offer BPR investments that target capital preservation. These investments involve companies with long-term, index-linked and stable cash flows.

Want to know more? just get in touch.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Inheritance Tax and BPR2017-01-06T14:39:22+00:00
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