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Inheritance Tax Solutions - 2-Year Exemption with Capital Gains Tax deferral and Income Tax relief (With Growth Potential)

2-Year Exemption with Capital Gains Tax deferral and Income Tax relief (With Growth Potential)

How can I protect my assets from IHT but still have access to my capital and also reduce my Capital Gains and Income Tax liability?

Client Circumstances:

  • Mrs Stopher is a widow, 64, with an estate value exceeding the IHT free amount by £300,000
  • She inherited 100% of her late husband’s estate
  • Mrs Stopher is about to retire and her pensions will provide the income she needs
  • She has just sold her investment property portfolio for £300,000 with a capital gain of £160,000
  • Mrs Stopher is a higher rate tax payer in the current tax year with an Income Tax liability of £30,000 per annum
  • She does not want to lose access to or gift any capital to her family at this time
  • If she does nothing her Inheritance Tax bill (about 13% of assets) will be £120,000 Plus Capital Gains Tax bill will be £41,692 Plus Income Tax liability of £30,000 per annum.

Recommended Solutions:

  • Mrs Stopher to invest £200,000 into appropriate Enterprise Investment Scheme (EIS) this tax year
  • Mrs Stopher to invest £100,000 into appropriate EIS in the next tax year
  • EIS to be held for 3 years to maximise tax benefits

Benefits from advice given:

  • After 2 years, Mrs Stopher’s investment is removed from her estate
  • Mrs Stopher can withdraw money without affecting IHT relief on remaining amount invested (although CGT and Income Tax relief will be lost on monies withdrawn within 3 years)
  • Mrs Stopher continues to hold the investment herself, so retains access and control
  • Mrs Stopher can defer her CGT liability
  • Mrs Stopher qualifies for Income Tax relief on 30% of the investment
  • Mrs Stopher can reinvest after 3 years into another EIS to continue CGT deferral and gain further Income Tax relief
  • The total IHT saving after 2 years £120,000 Plus immediate CGT Saving £41,692 Income Tax saving previous tax year £30,000 Income Tax saving current tax year £30,000 Income Tax saving next tax year £30,000 Total Savings £251,692
    Please note: Only the amount of tax paid can be reclaimed.

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Future Servicing

We will look to carry out a regular review of your circumstances, objectives, needs and portfolio performance to ensure all arrangements continue to be suitable and advise of any changes that may be appropriate.

This example is for illustrative purposes only, based on current legislation and tax allowances. Tax rules and regulations are subject to change.

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