Inheritance Tax Planning

Background

Gerald and Jemima (age 73 and 72), asked PMN to review their Inheritance Tax (IHT) position.

Increasing house prices and strong investment returns had resulted in their estate creating a significant potential IHT liability.

Gerald and Jemima's overall objectives were:

  • To minimise inheritance tax and maximise the inheritance of their three children.
  • Ensure that they retain sufficient funds to maintain their lifetsyle.
  • Consider the implications of the recently introduced 'Residential Nil Rate Band' (RNRB).
  • Consider scope for making gifts to their children within their lifetimes.

PMN's Approach

  • We always aim to use a combination of tax planning options. 
  • The starting point was to update their wills and lasting power of attorneys.
  • We created a bespoke cash flow forecast to calculate Gerald and Jemima's likely future expenditure.

Recommendations

  • Having determined the amount of surplus cash, this excess was gifted to their three children.
  • After a 7 year period, these gifts will be exempt from inheritance tax.
  • By gifting in their lifetimes, Gerald and Jemima were able to see the benefit of these gifts for their children.
  • A Business Property Relief scheme was established which becomes exempt from inheritance tax after 2 years. 
  • Finally a whole of life policy was established to meet the remaining inheritance tax liability with the proceeds being paid into a trust, to provide the executors with a tax free lump sum to pay the tax bill.

Review Process

  • At each review, we have benchmarked the actual inheritance tax liability against the original expectation.
  • We have taken account of changes in legislation, including the recently introduced Residence Nil Rate Band.
 
This case study is an example only, and financial advice should always be sought before making any investment decisions.
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