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Inheritance Tax Planning

Inheritance tax can be charged at a rate of up to 20% on certain gifts during your lifetime and, after you pass away, it can be charged at a rate of up to 40% on the value of your estate in excess of the nil-rate band.

So if you want to ensure your loved ones can benefit from your estate it’s important to plan for inheritance tax as soon possible, as procrastination on this matter is likely to cost you money.

Pro-active inheritance tax and succession planning can help protect your assets for the future and have a significant impact on the value of assets for your beneficiaries. We can provide you with a wide range of bespoke inheritance tax solutions, from inheritance tax and Will review services, to tailored tax planning for your estate (including trusts).

The type of inheritance tax planning devised will depend on the type of assets involved (i.e. property, cash, collectables, or business interests, e.g. shares) and, most importantly, your preferences for how and when your estate should be passed on.

The Problem

A landlord was keen to transfer his rental property portfolio to his children during his lifetime in order to mitigate inheritance tax, but was concerned that there may be significant capital gains tax implications on disposal.

The Solution 

After considering a number of different options, we concluded that a family trust route would be the most appropriate and tax efficient way to help our client achieve his goals.

This involved an outright gift of properties to the value of the annual exemption, meaning that no capital gains tax was chargeable on transfer.

We then arranged for our client and his wife to gift into trust the properties up to the value of their nil rate bands. The properties with the lowest gains in proportion to their value were transferred first so that they could benefit from an uplift in base cost, thereby reducing the capital gains tax liability on a future sale.

As our client intended to continue managing the properties, we suggested that he establish a property management company owned by him and his wife. They could then charge management fees to the trust and rental profits will be available through dividends.

The Result 

Provided that both clients survive seven years from the date of gift, the properties will be outside of their estates and they will have saved Inheritance Tax of approximately £260,000.

By extracting rental profits via a property management company, our client will continue to profit from the properties without invoking any anti-avoidance measures.

The Problem

The Will of a deceased’s estate with gross assets over £5 million contained complex provisions for determining the charitable legacy to be paid by the executors of the estate.

The executors and solicitors administering the estate needed assistance to determine the amount of the charitable gift.

The Solution 

After carefully examining the terms of the Will and the principles of the cases of Re Benham and Re Ratcliffe, we concluded that grossing up was not necessary to calculate the size of the residuary legacies and in particular the gift to charity.

As the charitable gift was more than 10% of the net estate, the reduced rate of IHT of 36% could be applied, saving the estate £170,000.

We also identified that a number of shares had been sold at undervalue and that loss relief could be claimed, saving a further £10,500.

The Result 

After finalising our calculation and the inheritance tax return, it became apparent that the estate had already overpaid inheritance tax and was, in fact, due a refund. HMRC duly issued a probate summery to the estate and the refund was issued shortly thereafter.

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