Tax and Estate planning Tips

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Published on
3rd June 2020

Here are five key tips to consider when Estate Planning:

Review your will and any current family trust structures

Currently there is a lot of change surrounding will structure and trusts, so it is the ideal time to review them and seek professional confirmation that they still achieve the expected inheritance tax (IHT) savings, whilst fulfilling your wishes in terms of how your next generation will inherit your wealth.

Consider the use of inheritance tax friendly investments

Certain investments available in the UK offer investors attractive reliefs against inheritance tax once they have been held for a certain period of times. These can be very attractive to many individuals that don’t want to give away monies before death.

Decide about the family business – don’t put it off any longer

If you are in your 60’s or 70’s and still have equity control of your family business, you must act now. With current government intentions there is a good chance that favourable reliefs for Inheritance Tax (Business & Agricultural Property Relief) will be reduced.

The rates of relief were not always 100% and could easily be reduced in the next Budget, meaning a possible return to rates of 30% and 50%, which could expose many valuable businesses to a tax charge that could be mitigated by using the currently more favourable reliefs available.

Consider a family trusts – they still have a part to play in transferring wealth to the next generation

Major tax changes to trusts in 2006 reduced the attraction of family trusts. The main restriction was the amounts that could be transferred into trusts (usually restricted to £325K). However, families can still use these limits on a seven-year rolling cycle, meaning that significant amounts of wealth can be gifted by a married couple or civil partners. This will reduce your IHT estate if planned for in good time.

Additionally, the use of trusts for vulnerable family members should never be overlooked. Often special IHT and other reliefs are available for disabled beneficiaries and if structured correctly they will also be efficient for means tested benefits too.

Stop accumulating income!

What is the point in voting dividends from a successful family company which are then just “accumulated” in your estate, leaving them vulnerable to a 40% IHT charge on death?

With proper corporate planning, dividends can be paid on a more flexible basis, often to shareholders with totally different needs, such as school or further education costs or nursing care needs.

If not dealt with “at source” these dividends and any other “excess income” need to be gifted to your beneficiaries on a regular basis, if IHT savings are to be achieved.

Whatever you do, ensure you avoid a double tax charge on your dividends of up to 78%.

Get an Inheritance Tax “health check” and put your mind at rest

By using the latest modelling software tools, it is possible to project what your estate will accumulate to and how much will ultimately be liable to IHT. After this, the next step is to consider all options which reduce your expected liability, without impacting on your future financial security.

Modelling the creation of trusts or lifetime gifts into your plan will reassure you that sufficient funds remain under your control for the rest of your lifetime and that HMRC will not “dig too deep” into the wealth you have worked so hard to create.