Buck the Trend and Save Inheritance Tax

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Inheritance Tax (IHT) receipts have reached their highest level since 1986.  However, those with an IHT liability have several options for minimising the tax bill their beneficiaries will face on receipt of their inheritance.  In practice, what can be done depends on the type of assets held. 

Liquid cash and investments offer the most potential for IHT planning.  Options include outright gifts, gifts into trusts, or to other plans such as loan plans that allow you to retain access to the capital if your circumstances change or discounted gift plans that pay you an ongoing ‘income’ from the capital.  A further option is investing in businesses that qualify for Business Property Relief; typically small companies that are unlisted or listed on the Alternative Investment Market (AIM) and not the main stock exchange. 

Surplus income can be used to take out an insurance plan that will pay off the tax liability on death.  A whole of life insurance plan is typically used for this purpose and it needs to be written in trust so the payout goes to the beneficiaries, who can use it to pay the tax.  When the insurance premiums are paid out of surplus income they are IHT-free under the ‘gifts from excess income’ exemption. 

If you hold a personal pension you can nominate beneficiaries of your choice who can take lump sum withdrawals, income or just leave the funds invested depending on their needs, all typically IHT-free.  

Where the main residence is the main asset, there are fewer options as the value is tied up in the property.  The only circumstance in which the main residence can be gifted while the occupant continues to live there is if rent is paid to the new owners at the full market rate. 

Please note this article does not constitute personal financial advice.  For financial advice please contact Richard Higgs CFP FPFS on (0117) 3636211 or richard@haroldstephens.co.uk

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