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In the previous 2 notes in this series we have discussed the basic assistance required help an elderly person manage their finances, plus a couple of different options to help pay for their care.

Today I wanted to discuss more tax planning around inheritance tax.

Last week the Government announced that revenues from inheritance tax were £5.4 BILLION for the tax year 18/19. Yes, you read the correctly £5.4 BILLION. The expectation from HMRC is this figure is set to reach £10 BILLION by 2030. Whether you agree with this or not, these are enormous amounts of family wealth that are being transferred across to HMRC.

I would argue that with just some basic understanding of how this tax works, most families could certainly look to reduce their inheritance tax bill and increase the wealth staying in the family.

Here are the key areas to look out for:


1- Life insurance

If your elderly relative still has life insurance, are these written into trust? If not, then the funds will pay out to the deceased’s estate (thereby becoming subject to inheritance tax). If written into trust, the sum assured will bypass the deceased’s estate and be paid directly to the beneficiaries – dare I argue, where it’s meant to be paid.

The best thing about this is the policy can be written into trust at any time – even if the life cover is very old. The policy provider will normally have a trust document that can be completed. So simple, yet so effective.


2- Investment properties

Whilst your elderly relative is still living in their main property then not much can be done with that for inheritance tax purposes, however investment properties are different. If your relative doesn’t rely on the income then these properties can be gifted to another family member (or multiple members). As this is not technically a sale, then there is no stamp duty charged. However all other legal costs of selling a property should be considered. After 4 years the inheritance tax liability of this gift will begin to reduce and after 7 years it’s gone provided the elderly relative is still alive.


3 – ISAs

ISAs are fantastic tax-free options for income and growth whilst a person is alive. However on death they are counted as part of the estate and therefore liable for inheritance tax. One option to consider is switching this ISA into another ISA-based investment that qualifies for Business Property Relief (or BPR). BPR ‘s main advantage is these assets will become EXEMPT from inheritance tax after only 2 years, versus the normal 7 for a gift. Another benefit is that the investment will always be held in the elderly relative’s name (because they’re not giving the funds away) and they can always access them again if required.


4- Cash and shares

There are a couple of options we could look at here. First we could look at using trusts as a way of managing the assets. Trusts can be particularly useful as you can structure them to invest the money how you would like, but also pay you an income (which is classed as return of capital) back from the trust. This allows you to receive an instant reduction in your asset value and not wait the full 7 years. Another option could be to look at using BPR again, potentially through a potentially more stable investment such as asset-backed loans. This is a little more complex which needs to be discussed in further detail.

The above are just a few different ideas a family could consider when thinking about options around inheritance tax.

Every family situation is different, so if you would like any specialist advice in this area, please feel free to give me a call.

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