Background

Mike and Jane are age 75 and 73 respectively.  They are in reasonably good health, although Jane had cancer a few years ago but is now in remission.  They have three daughters.  Their estate is currently valued at £3 million, made up of £750,000 home, £250,000 split between a few bank accounts, £350,000 in a self invested personal pension and the remaining £1.65 million in an investment portfolio.  They have no debt and receive a good level of income relative to their outgoings.  Any capital requirements are met from their investment portfolio.

Objectives

  1. To reduce their Inheritance Tax liability which, before planning, stood at £940,000.
  2. To have access and or control of their capital.

Considerations

We discussed the usual options available when considering IHT planning, including gifting capital to their daughters or taking out a whole of life assurance policy. Neither of these options were deemed suitable. Firstly, two of their daughters have been through acrimonious divorces so they did not wish to risk losing any further family money to other people, however, by gifting capital direct to their daughters would not satisfy the clients’ objective of retaining access and control therefore this option of gifting capital was discounted. Secondly, Mike did not wish to put Jane though any further medical examinations, which would be requested given the high level of cover and also Jane’s medical history.

Recommendation

Given Mike and Jane’s knowledge and experience of investments, we discussed solutions which utilised business property relief; this would provide them with access and control of their capital but also enable them to benefit from the capital being outside their estate for IHT reasons after just 2 years as opposed to them waiting 7 years as would be the case where capital is gifted.  Since they didn’t want to gift capital directly to their daughters, they were happy paying capital into a trust.  By utilising a combination of solutions, we were able to reduce Mike and Jane’s IHT liability by £140,000 after 2 years and a further £100,000 after 7 years.  Whilst their remaining IHT liability was still relatively large, they felt happy that they had started to plan ahead and asked to discuss IHT planning further at our annual review to consider further planning options.

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