Inheritance tax planning case study
Anthony Whitwell
8th November 2012
Outcomes:
• Identify Variation scenarios vs. the TNRB
• When a property worth £x is not worth £x
• Maintaining accurate records
• The power to loan
• Find a good trust and tax solicitor!
The Chichester Family
Ron--------Ivy
Sue
(Graham)
Peter
and Ann
Colin
(Su Lin)
Chichester!
Ron
One half of 12
Cathedral Close
Cash
Total
NRB £325,000
£300,000
£400,000
£700,000
Will:
1. All to Ivy
2. Then to Sue & Colin equally
DOV:
1. 2% share of Cathedral Close
to Sue & Colin
2. £28,000 to Peter and Ann
3. £285,000 on NRB
Discretionary Trusts
4. Residue to Ivy on life interest
Ron
• 2% of 12 Cathedral Close to Sue
• 2% of 12 Cathedral Close to Colin
• Cash legacies
• NRB D.T.
• Residue to Ivy comprising:
• 96% of 12 Cathedral Close
Cash
Total:
6,000
6,000
28,000
285,000
288,000
87,000
700,000
Ivy
•
•
•
Ivy owns 98% of 12 Cathedral Close.
Discount reduces MV of £600,000 to £529,200
£285,000 invested with IFA increases to
£347,500 by Ivy’s death. Ivy a beneficiary but
value excluded from her estate. Exit in 10 years
and CGT issues
Residue on life interest trusts and LA
assessments on £375,000
Tax Benefits
% gifts to Sue & Colin. Tax cost
Gain on fragmentation
Exclusion of NRB D.T.
Total tax saving
£12,000
IHT
£4,800
£28,320
£139,000
£167,320
cf. 40% of £325,000
£130,000
Ivy - Lifetime Planning
Excess Income
Rules & records
Net income £31,500
Regular payments £2,500 pcm
Trust & loan. Use of funds…
Tax saving
£12,600 pa
Ivy - Lifetime Planning
• DGS – immediate discount
• BPR – 2 years
• Insurance for IHT – in trust please!
Ivy – Lifetime Planning
New Will and Trusts
Will
Estate £2.2m
Net £1.3m
Ivy Trust 1
£325,000
Ivy Trust 2
£325,000
Ivy Trust 3
£325,000
Ivy Trust 4
£325,000
Ron’s
NRB DT
DGS
£320,000
£347,500
DGS
£250,000
DGS
£300,000
Ivy Trust 4
£325,000
Ivy Trust 3
£325,000
Sue & Family
Loans £3.117m
+BPR £200
Total £3.317m
Life Ins Trust
£300,000
Ivy Trust 2
£325,000
Life Ins Trust
£300,000
Ivy Trust 1
£325,000
BPR
£200,000
Sue and Graham
Personal Estate
£ 650,000
Loans
£3,117,000
BPR
£ 200,000
Total
£3,967,000
What really happened ….
It’s not all about TAX!
• Bankruptcy
• Divorce
• Business failure
• Cash Management
and finally …
Questions, questions, questions ….
AND
Some Answers!