Gifting, Trusts, Life Assurance, AIM and pension contributions.
Succession planning can be challenging in many businesses and Landed Estates can present an even more complex set of issues which need to be discussed and considered in full during the financial planning process. Here we will look at a variety of planning tools available to consider in relation to Inheritance tax mitigation for Landed Estates.
Gifting capital to the next generation outright is a simple method to beginning a ‘7 year clock’ ticking which will lead to the value of the gift falling outside of the Estate for inheritance tax purposes. However, this can also bring concerns about lack of control regarding how the capital is used once it’s received.
Equally, gifting out of normal income to the next generation can also prove a simple, and immediate, method of preventing further significant capital build up – however this does need to be carefully managed and recorded.
Life assurance, which can pay out the amount equal to the expected inheritance tax bill, can be a simple method of providing protection against loss to the Estate for future generations. It is vital that any cover is appropriate, taken out on the right people and correctly set up to pay out the sum aside from the Estate, rather than potentially adding to it. For this specialist advice should be sought. Life assurance can also prove useful when there may be more than one child in the next generation and there may be the desire to offer some additional inheritance, with appropriately set up cover, to siblings who are not in line to directly inherit the Estate themselves.
For invested capital, or indeed new capital available, the AIM (Alternative Investment Market) can provide a suitable solution. Shares in the AIM market currently benefit from Business property relief after a period of only 2 years and this may offer the later planner some alternatives to attempt IHT mitigation. Again, it is vital that specialist advice is sought to ensure that all the necessary risks are fully understood before taking any steps in this direction.
Finally, pension contributions – which are often overlooked in this domain, provide the current custodian of the Estate the ability to benefit from tax relief now on contributions, and the funds are held outside of the Estate for IHT purposes (subject to specific pension contracts) and therefore can effectively potentially ‘save’ a further 40% on the inheritance tax bill in the long-term.
All of the approaches described, together with other opportunities which may be appropriate to also consider, require careful planning and a full understanding of your current circumstances and objectives.
At Armstrong Watson we provide specialist advice in relation to all aspects of Inheritance Tax Planning. We provide personalised Independent Financial Advice to help our clients achieve prosperity, a secure future and peace of mind. We can provide a full review of your financial affairs and discuss the opportunities available to you with our compliments in the first instance. We can also now do this remotely by video or telephone, as well as face to face.
To discuss any of the information within this article please contact Kerry Chaloner on 01609 702000 or email kerry.chaloner@armstrongwatson.co.uk
