Inheritance Tax  

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
CPD
Approx.60min
In and outs of liability mitigation

Introduction

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 

 

In this special report

CPD
Approx.60min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. According to Mark Brownridge what is the annual investment limit for EIS?

  2. According to Mark Brownridge, an asset-backed EIS investing in businesses with physical assets is at the higher end of the risk spectrum. True or false?

  3. According to Shona Lowe, which of the folllowing does NOT get in the way of making the best use of one's reliefs?

  4. For a couple what can the nil rate band for residence go up to, according to Shona Lowe?

  5. According to Ned Francis, potentially exempt transfers are the worst way of gifting assets. True or false?

  6. According to Ned Francis, when do assets invested in IHT-qualifying investments fall out of one's estate?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To understand the importance of estate planning
  • To grasp the significance of using tax-efficient investments
  • To understand how potentially exempt transfers work

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