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Inheritance Tax Solutions - 2-Year Qualifying IHT Plan (With Growth Potential)

2-Year Qualifying IHT Plan (With Growth Potential)

How can I protect my assets from IHT but still have access to all my capital (without involving Trusts) combined with strong potential investment returns.

Client Circumstances

  • Mr Smith is 68 years old and has an estate (including house, investments and savings) of £1m
  • He does not wish to lose access to or gift any capital but wishes to reduce his IHT bill
  • Mr Smith wishes to continue to receive income from the investment
  • If Mr Smith does nothing his Inheritance Tax bill will be £200,000, equivalent to almost 25% of his assets
  • Mr Smith feels he can invest some capital in the hope of growing the value and he is willing to take some risk
  • Assume Mr Smith benefits from the new Residential Nil Rate Band of £175,000 on death

Recommended Solutions

  • Mr Smith to invest £300,000 into the Alternative Investment Market (AIM) based Inheritance Tax Plan

Benefits from advice given

  • After two years, Mr Smith’s investment is removed from his taxable estate
  • Mr Smith can withdraw money without affecting the Inheritance Tax relief he will receive on the remaining amount in the investment
  • Mr Smith can continue to hold the investment himself, so he retains control and access
  • If Mr Smith was confident that he did not need access to the capital, he can gift all or part of the investment into a discretionary trust, whilst still able to receive income each year and avoid the 20% entry tax on Discretionary Trusts
  • Interestingly, even if the recommended plan fell by 20% on death the reduced value to beneficiaries still represents a greater return to the beneficiaries than doing nothing (by £60,000)
  • Can include optional downside protection so the full value is paid out to the beneficiaries
  • After 2 years Mr Smith has eliminated a significant part of his Inheritance Tax bill (a saving of £120,000)

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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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