Inheritance Planning Review

Welcome to Inheritance Planning Review; we are Inheritance Tax Specialists and Independent Financial Advisers, dedicated to offering professional advice to help families reduce their liability to inheritance tax.

If you believe you or your loved ones may leave an estate which would attract a tax bill then it may be worth assessing the situation to see if you can save your family some money. We have a team of specialists who are based all over the UK and have been received awards for their work, such as the Money Marketing Inheritance Tax Planner of the Year. Our advisers regularly run Inheritance Tax seminars to help clients understand the rules around inheritance tax, review how much their potential tax bill would be and then offer solutions to mitigate this where possible. Our team would only offer solutions which fit in line with a clients affordability and their requirements to retain control of their income and capital.

All recommended strategies would fit in line with guidelines and rules set out by HMRC with regards to Inheritance Tax because without professional planning from a regulated adviser, a family may be liable to large unnecessary tax bill.

Many factors need to be taken into account when considering an inheritance planning solution. It is extremely important to ensure professional and appropriate advice is taken from an independent and fully qualified individual.

Inheritance Planning Review are a team of specialists and independent advisers from Chartered Financial Planners AISA Professional, regulated by the FSA.

Why is Inheritance Planning so important?

The process of inheritance planning is usually undertaken by individuals who wish to reduce their liability to inheritance tax after they pass away. Inheritance tax (also known as estate tax) is due on the value of an estate in excess of the 'nil rate band' (currently £325,000 per person, fixed until 2014). This would include all assets such as any property, investments, chattels and trusts or gifts which were set up seven years before the client passed away. It would also include any share of businesses which do not receive Business Property Relief. Inheritance tax would be charged at 40% on the value over and above the £325,000 threshold. As an example, suppose somebody dies with an estate of £800,000 then there would be a tax bill of £190,000 due within 6 months of passing away (£800,000 minus current nil rate band of £325,000 is £497,000 taxed at 40% is £190,000). If they owned a property which makes up the majority of this £800,000 then it may need to be quickly sold so that there is enough cash to pay the tax bill. In some circumstances this could cause problems and upset because the property may have been a family home passed down through generations. One solution which many people talk about would be putting their home in someone elses name but continuing to live there. However this would be considered a 'Gift with Reservation of Benefit' and it's very likely that HMRC would still consider the house as part of the overall estate.

Current rules state that married couples are able to use both of their nil rate bands on second death and therefore have a joint nil rate band of £650,000 and will only be liable to pay Inheritance Tax after both partners have passed away. It would be the responsibility of their executors or personal representatives (usually the children) to ensure that the first spouse's unused Inheritance Tax threshold (nil rate band) is transferred to the second spouse when they die. If a partner has already passed away and used some of their nil rate band before 2007 then there may still be a percentage of unused allowance which could be utilised to reduce the overall inheritance tax bill.

An Inheritance Tax bill is usually paid using funds from the estate. The trustees are usually responsible for paying Inheritance Tax on assets within, or transferred into, a recognised trust. If there was a gift made within the previous seven years before death then the value of this gift would form part of the estate. However this would be subject to a 'taper relief' depending on when the gift was made over the previous 7 years. For example if assets are given away 3 years before you die then the full 40% inheritance tax would be due, whereas if the gift the gift was made 4 years ago then only 80% of the full tax liability would be due.

Making a Will and keeping it up to date is very important and should this should always be considered at the same time as your Inheritance planning review.

What options are available and which strategy is most appropriate for you?

There are many inheritance planning solutions which could be considered when looking to mitigate your liability to Inheritance Tax. However it must be remembered that strategies can vary significantly depending on factors such as the overall value of the estate, a persons age, their need for immediate income, their future income requirements, how soon they would need access to capital and so on. You will find that most inheritance tax planning solutions are very different as it's rare that two situations are exactly the same, so for this reason it is recommended that you seek professional and independent advice to ensure you follow the most suitable strategy.

Here are some examples of some of the options which could be considered:

1. Pay money into straight forward trust, which would be known as a Gift, for the benefit of your family. This would take 7 years to fall completely outside your estate and would mean giving up access to the capital and income.
2. A discounted gift and income structure could offer an immediate reduction to an inheritance tax liability. With this arrangement you would take out a life assurance bond which you place in trust and retain the right to regular fixed income either monthly, quarterly or yearly. An assessment is made as to how much income you would receive based on your life expectancy and a 'discount' is offered. This discount is a reduction in the Inheritance Tax liability if you were to pass away within seven years of making the gift.
3. A Loan Trust would allow access to the original capital but place all future growth outside your estate.
4. A gift and loan trust arrangement would involve using an investment bond and loan trust. An example of this type of arrangement you make a small gift of say £10 and then loan the trustees a much larger sum. This arrangement is more suitable if you would like to take a regular income.
5. Maturing policies in trust is a very popular solution. This allows a client to place money in trust for their chosen beneficiaries whilst retaining the right to yearly maturing proceeds. If you not require the maturity proceeds, which become available on the anniversary, then your trustees can extend the maturity date, either by another year or longer. The value of your original gift into trust is outside your estate after seven years, whilst any investment growth is outside your estate from day one.
6. Some clients may prefer a quicker solution and it is possible to place an asset outside your estate after just 2 years using Business Property Relief. This method would avoid having to use a trust which would mean the client would retain access to the capital in future.

The above are just a few examples of the various options which could be considered when looking at an inheritance planning solution. A combination of the above options may form the best strategy but it would depend on specific circumstances and requirements.

Inheritance planning is something which should not be ignored or put off until another day as in many cases the solution would need at least a few years before it will achieve its objectives. The sooner you review your options, the more chance your family has of reducing their tax bill and potentially avoiding other problems when an estate goes through probate.

What are the rules around Reliefs and Exemptions?

When gifting an asset they usually become known as a 'Potentially Exempt Transfer' (commonly referred to as a PET) and only after 7 years will they be considered completely outside your estate liable to inheritance tax. However on some occasions your assets can be gifted without forming part your estate, these include anything passed to a spouse during your lifetime and any payments made to a registered charity. You are also able to make gifts of £3,000 each year, which is known as an annual exemption. You are able to make wedding gifts of £5,000, small gifts up to £250 to as many people as you like. In addition to this it is possible to make payments out of regular expenditure, assuming this does not reduce your estate significantly, and there would be no liability to inheritance tax on these payments. Owners of farms, woodland, businesses and National Heritage property would not have to pay inheritance tax on the value of these assets but each situation should be reviewed to ensure the property qualifies for this relief.

If you are considering an Inheritance planning strategy it is important to consider how much access you will need to income and capital in order to sustain your retirement needs. Gifting assets may cause other problems in the event of bankruptcy or divorce of the beneficiary, or even if the person dies after receiving the gift it may then form part of their overall estate, aswell as the donors estate and therefore be taxed twice.

How can Inheritance Planning Review assist you?

Our highly qualified team of Independent Financial Advisers specialise in Inheritance Planning solutions. We aim to assist clients to review their inheritance tax liability and then review the most suitable strategy specific to their circumstances. All independent advice is fully compliant with UK legislation and regulated by the FSA.

To speak to one of our specialists please contact Inheritance Planning Review.

Inheritance Planning Review offer an initial consultation phone call with an Independent Financial Adviser to discuss your situation.

Please contact us to book in an appropriate time 0843 317 9569.