Careful planning to save Inheritance Tax and leave a larger legacy

Careful planning to save Inheritance Tax and leave a larger legacy

Why did Charles need our advice?

Charles approached us as he was keen to review his financial affairs.

In his late 70s he wanted to ‘put things in order’ so he could continue his active life safe in the knowledge that his affairs were neat and tidy.

Charles’s wife had died some years before and he had inherited all her assets. Despite her death he enjoyed living life to the fullest. However, he was also passionate about aiming to ensure his loved ones were well looked after when he died.

What did we do?

Once we had got to know Charles and he us, we started to look deeper into his current financial arrangements.

This research produced an unexpected and unwelcome surprise.

The way things were currently set up meant that while some of Charles’s relatives would receive large legacies, others would get nothing due to the amount of Inheritance Tax (IHT) payable when he died.

Charles’s assets consisted of a residential property, a further investment property, which provided an income, as well as some investments and pensions.

We had to break the news to Charles that as things stood, some of the family which he so wanted to benefit on his death would receive nothing. In contrast, over a £1 million would be paid in tax.

Charles was distraught and immediately wanted to act to rectify the situation.

The solution was complex. However, in summary we recommended that Charles:

  • Sell his investment property, which was extremely inefficient for IHT purposes, to create some liquidity. The proceeds were placed in a trust, which paid Charles an income while helping to reduce the IHT liability
  • Make a further investment into a portfolio of AIM (Alternative Investment Market) shares. The value of this investment will be outside of Charles’s estate providing he lives for two years and continues to hold the investment until his death. This type of investment carries a high-risk, and is only suitable for a minority of people. However, it met with Charles’s attitude to risk, hence our recommendation

The investment into the trust had an additional benefit too.

Charles’s estate was so large that it wouldn’t qualify for the additional nil rate residence band when he died. The value of his investment property would have been included in the calculation. However, the trust, which was funded from the proceeds of the sale, will not.

This saved a significant additional sum.

How did Charles and his loved ones benefit from our advice?

Our advice helped cut the IHT payable on Charles’s death significantly. In fact, we managed to increase the amount that he left to his loves ones by an extra £600,000.

Charles is delighted that substantially more of the wealth he worked so hard to build will go to his family.

We continue to work with Charles to consider further measures which will completely wipe out the remaining IHT due on his death.

Are you in the same position as Charles?

If like Charles you are concerned that your affairs aren’t in order, or you believe your estate will pay too much tax when you die, we are here to help.

Call David or Sam on 0115 969 3400. We would be delighted to hear from you.

Please note:

The value of your investment can go down as well as up and you may not get back the full amount invested.

Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.

This case study is for information purposes only and should not be construed as advice. We strongly recommend you seek advice from an independent financial adviser prior to taking any course of action.