Using Trusts
A suitably worded trust is the cornerstone of good IHT planning. The objectives of the person owning the estate will dictate the type of trust that might be used to pass on assets. However, the reasons for setting up a trust can be greater than just IHT and might include:
- Provision of monies for future generations.
- Preservation of monies which may be diluted due to divorce or bankruptcy.
- Income tax and or Capital Gains Tax mitigation.
- Providing a gift to a child but remaining in control of it until they are suitably responsible.
- Protecting assets from care home fees
Gifting
Gifting is an effective way of reducing your IHT bill, as it removes assets from your estate before your death. In order to qualify, gift making must be handled carefully and without strings. For example, if you were to continue to benefit from assets gifted away, they are likely to be regarded as “gifts with reservation” and as a result fall back within your estate for the purposes of IHT. Timing is also important and warrants advice.
Tax Efficient Funds
The alternative investment market (AIM) provides an opportunity for people looking to minimise their IHT liability. It allows investors to tackle IHT without losing access to, and ownership of, capital. Investing in shares quoted in AIM provides IHT freedom after only two years. For many investors, the decision to buy AIM quoted shares is motivated by the significant tax advantages provided. However, investment in this market does require specialist advice and so a professional advisor should be consulted.
IHT Efficient Life Insurance
Life assurance plans are uniquely placed to provide a tax free cash sum to meet any IHT liability, but because they may also form part of your estate or that of your survivor, they should normally be written in trust, and also set up in your lifetime to take receipt of the cash sum. Under these circumstances contributions to the life assurance plan will be transfers of value, but will generally fall within the normal expenditure out of income exemption or annual exemption.
Wills and Trusts are not regulated by the Financial Services Authority.
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