Mrs A, a divorcee who approached us for help with reducing her Inheritance Tax bill. She has a valuable house in London and a small portfolio of buy-to-let properties. Her income is relatively modest in spite of her large Inheritance tax bill – approaching £200,000 – and as she is now retired, she does not wish to take on a further monthly liability in the form of an insurance premium. One of her properties has recently been sold as there have been issues with finding reliable tenants and the capital value has increased dramatically.
This means there is a sum of around £250,000 available which could be used to make effective Inheritance tax plans. Mrs A feels it is unlikely she will need access to capital, except in the event of Long Term Care needs which would be funded by the value of her home. However, she will need income from this pot of money.
A Trust arrangement has been put in place which holds the £250,000 in a Bond paying out a regular income and the Inheritance tax benefits are immediate as the Trust allocates a portion of the investment as the “Settlor’s fund” and this portion should fall outside Mrs A’s estate immediately. In this particular case, the Settlor’s fund is 54.6% of the total. The remaining £113,500 will fall outside her estate over a 7-year period, resulting in a saving to her estate of £54,600 straightaway and a total saving after 7 years of £100,000. In addition, any growth that has been in excess of the income withdrawals will also fall outside Mrs A’s estate immediately.
The value of investments can go down as well as up and you may not get back as much as you invested.
Tax advice with no investment element is not regulated by the Financial Conduct Authority
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
This particular type of arrangement may require HMRC approval after death.
Professional financial advice should be sought before taking any action and no action should be taken based solely on this case study.
If you would like any help regarding your Inheritance Tax bill, please call us on 01903 882007 or get in touch via the contact form.