Inheritance TaxMay 24 2017

In and outs of liability mitigation

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cisi-logo
CPD
Approx.60min
  • To understand the importance of estate planning
  • To grasp the significance of using tax-efficient investments
  • To understand how potentially exempt transfers work

In and outs of liability mitigation

  • To understand the importance of estate planning
  • To grasp the significance of using tax-efficient investments
  • To understand how potentially exempt transfers work
pfs-logo
cisi-logo
CPD
Approx.60min
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Introduction

By Melanie Tringham
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Estate planning has become a frequent topic of conversation between advisers and their clients, especially as property shows no signs of losing its value.

The changes to the nil-rate band on inheritance tax that came into effect this April, only apply in certain circumstances, but outside of this there are many ways to mitigate one’s inheritance tax liability.

Perhaps the most important thing to remember is that it makes a big difference getting one’s estate planning in early. 

For example, it is all right to gift one’s property to loved ones before one dies, and it is tax-free as long as the gift happens seven years before one dies.

However, here there are pitfalls, as sometimes people gift too much away, too soon, and live the remainder of their lives in penury, obviously underestimating their life expectancy. 

Another option is to invest the money into tax efficient investments, which take the assets outside one’s estate after an initial short period of investment, but these can often be risky. 

In this Special Report, we offer a brief guide on how to navigate one’s way around Enterprise Investment Schemes, which are one type of product that can help to mitigate one’s inheritance tax liabilities. Another option is putting one’s assets into trust, or taking out a life insurance policy to pay for the inheritance tax bill, based on the value of one’s estate.

Estate planning involves plenty of work for the hardworking financial adviser. He or she just needs to convince the client of the importance of doing the work.

As the concept of passing on one’s estate has moved up the political agenda with the so-called ‘dementia tax’ announced in the Conservatives’ manifesto last week, so the importance of taking advice has become more pressing.

Passing on one’s estate to one’s relatives is an important issue for many people, so it is crucial to get it right.

The most important point to remember is that inheritance tax is one of the easiest taxes to avoid, and there are so many ways to mitigate it that it should always feature on the list of tasks to tackle when a financial adviser is dealing with an ageing client with substantial assets.

Melanie Tringham is features editor of Financial Adviser 

 

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