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Welcome to Swindells Who we are
Swindells LLP. Chartered Accountants & Tax Advisers.
Welcome to Swindells Who we are
Swindells LLP. Chartered Accountants & Tax Advisers.
Swindells Financial Planning Ltd.
Welcome to Swindells Who we are
Swindells LLP. Chartered Accountants & Tax Advisers.
Swindells Financial Planning Ltd.
Two locations
Our clients A typical client might be:
Four doors away
On the other side of the world
Those who make best use of our services:
Multi-national companies
UK trading companies
Lottery winners
Families with significant Inheritance Tax issues
High Net Worth Individuals
What do we want to achieve today? Understand our Inheritance Tax exposure
Try to reduce the amount of IHT our families have to pay.
IHT is easy to avoid: give everything away.
But in real life that’s not practical, so we need to look at alternatives.
Often there isn’t just one all-conquering answer to clear all IHT…
A Real Life Case StudyCash 325,000
Main Residence 650,000
2nd Property 325,000
Investment Bonds 200,000
Total Assets 1,500,000
Husband dies £nil IHT
Then wife dies £340,000 IHT
How are we going to achieve that today?
How are we going to achieve that today?
Jonathan Cooper DipPFSExpert Paraplanner
Offering expert holistic wealth & tax planning giving you the confidence to lead the life you want.
Jonathan will be looking at Flexible Trust Planning and how you can gift surplus cash away but retain the use of it if you need it again!
How are we going to achieve that today?
Duncan Orr, CFP Director of Swindells Financial Planning
A Trusted Financial Adviser and Investment expert providing clients with insight and inspiration.
Duncan will be looking at Business Property Relief and how non-business people can claim relief.
How are we going to achieve that today?
Robin Stevenson, CTA, STEP Tax & Private client partner of Swindells
Director of Swindells Financial Planning
Over 30 years experience in tax and trusts
(ex Baker Tilly and BDO Stoy Hayward)
“I’ll run through the case study again at the end to make sense of what’s been discussed.”
The family wealth protection & IHT reducer account(aka – the flexible reversionary trust structure)
Why might you be concerned?Maybe you want to… Look to reduce your inheritance tax bill Make sure your wealth is going to whom you want it to Make sure your wealth stays in your family Start planning for IHT but you are not ready to just give your money away Be sure you can still access your money in the future if your plans change Be able to give money to who you wish when you want, not just after you die Still have control over your investments and potential for growth Take action now as you know doing nothing could just make the problem worse
You would like to….. Start the clock on reducing your inheritance tax bill
Without giving away your money for good
Whilst potentially growing in value what you leave your family
And….. Still have access to your money if you need it
Have the ability to give your family money when you want to
Keep the money in the family, where you want it to remain
What could you do? Inheritance tax is “optional” – there are HMRC accepted ways to reduce your inheritance tax bill, they are not contentious nor illegal
Tax law can change – but by staying within the rules now means you are acting with best intent
Start planning now – waiting may just compound the problem and limit your options
Why Swindells? We are experts in tax planning and wealth management and will provide you with the trusted advice, support and on-going relationship you need when planning for your family’s future happiness
An example
£100,000 invested in the account
The 7 year clock is ticking (chargeable lifetime transfer)
Any growth on the £100,000 is not in your estate from day 1
Divided into several segments of equal value
£2,000
£2,000
£2,000
£2,000
£2,000 £2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000 £2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
Each year some of these segments can be withdrawn by you or left alone
£2,000
£2,000
£2,000
£2,000
£2,000 £2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000 £2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
Year 1
2 3 4 5 6 7 8 9 10
For example - end of year 1
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000 £2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
Year 1
2 3 4 5 6 7 8 9 10
You need no money from the account
Trustees put these segments back to the end of the line, for potential future use
11
£2,000
£2,000
£2,000
£2,000
£2,000
End of year 2£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000 £2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
2 3 4 5 6 7 8 9
You need no benefit now…
Trustees earmark two segments for the holiday in three years
10
and put the rest to the end of the line for future use
but you do want to save for a special holiday in three years
£2,000
£2,000
11
End of year 6£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
1 2 3 4 5
You need some money back
Trustees pay one segment out to your
son 6
£2,000
£2,000
£2,000
7
and also want to help your son buy a house
Son
Also pay three out to you
then defer one to the end of the line
£2,000
£2,000
£2,000
£2,000
£2,000
£2,000
8 9 10
£2,000
£2,000
£2,000
£2,000
£2,000
What you should be aware of Should you die within seven years, the value of the gift may be liable to
IHT
The amount placed into the account should be limited to the available nil rate band if 20% lifetime IHT to be avoided
There will be nothing left for your heirs should all the segments be taken out each year
The investment growth element on what is taken out may be subject to an income tax charge
Summary Outside your estate after seven years Any investment growth is immediately outside your estate You can take money back each year, but only if required You can pay money to your beneficiaries at any time Beneficiaries can be altered at any time No underwriting is required You are in control Flexibility
Any questions?
Business Property Relief (BPR)What is it and why might you use it?
Main IHT planning barriers
Access - Loss of control or access
Time – 7 years
Complexity
Age/Health
Risk – Tax risk, Investment risk etc..
Research suggests….. You want solutions that are;
Fast
Offer access to capital
Simple
No medical underwriting
No age restrictions
Focussed on preserving capital
What is Business Property Relief (BPR)?
BPR provides relief from Inheritance Tax (IHT)
Introduced in 1976 to allow owners of small businesses to pass business assets to beneficiaries without paying IHT
It reduces the value upon transfer of certain types of qualifying assets by 100% after a 2 year period of ownership
It is available for lifetime transfers or for relevant business property included in an individual’s estate on death
Business Property Relief: Qualification Criteria
BPR only given on a transfer of “relevant business property” (Section 105 IHTA 1984)
Shares in companies on the Alternative Investment Market (“AIM”) are treated as unlisted for BPR purposes (100% relief)
Unlisted shares in trading companies (SPVs) – no minimum holding (100% relief)
Quoted shares in a trading company if donor has voting control (50% relief)
Land, buildings, plant and machinery owned by donor and used by either his partnership or company he controls (50% relief)
Why Business Property Relief? Fast – Investment becomes 100% exempt in just two years
Access to capital – via regular income or ad hoc withdrawals
No age or health restrictions
Simple – Packaged/managed solutions
Capital Preservation (with downside insurance) or Growth options (with insurance)
Capital gains pregnant assetsThe client is aged 81 with a share portfolio worth £520k and a holiday home worth £480k. She inherited the shares in the 60’s from her godmother and the house from her husband 10 years ago. They are both pregnant with significant capital gains.
Neutralising CGT pregnant assets Capital gain from both invested
into EIS Original capital invested into BPR All IHT exempt after 2 years CGT deferred £140k IHT saving £400k Potential income tax relief of
£150K
Gain(£320,000)
Capital(£200,000)
Gain(£180,000)
Capital(£300,000)
EIS
£150,000
£500,000Shares House
IHT BPR Service
£500,000
Overview
Large investment bondsThe client is 69 with substantial savings into an investment bond. They have significant retirement income from pension and investments. The investor is now more concerned about Inheritance Tax but wants to avoid the income tax bill that will arise with the encashment of the investment bond.
Encashment of Investment Bonds Bond proceeds part invested into EIS Income tax relief on EIS neutralises
liability Could also be used to defer other
realised gains All assets IHT exempt after 2 years Income tax saving £27k Potential IHT saving £116k
Overview
EIS
£27,000
£90,000
Investment Bond
£290,000
+Income
tax liability £27,000
BPR Service
£200,000
Client ISA portfoliosThe clients are a married couple with a £1.4m estate. This is comprised of a £700k house, two £300,000 ISA portfolios each and £100,000 held on deposit and in premium bonds. They are looking to minimise their IHT liability, specifically on their ISAs.
Mitigating IHT on ISA portfolios Partial encashment of ISAs
creates no tax liability ISA holdings part invested into
AIM shares Remainder invested into BPR
Service IHT exempt after 2 years Total potential estate IHT saving
£240,000
ISA
ISA
ISA
£300,000
AIM ISA BPR Service+
£150,000 £150,000
Overview
Power of Attorney (POA) The client is a widow aged 89, mentally infirm but physically in good health. She is living in a care home and has liquid assets of £550K. Her nil rate band and that of her late husband will be used by main property. Her son has POA and is beneficiary of her will.
IHT Planning using POA: Gifting not normally permissible 7 years for trust structures not
realistic BPR investment after 2 years
exempt asset, within estate Potential IHT saving £160K Regular withdrawals available to
help cover care home costs
Investment
portfolio
£400,000
BPR Service
£400,000
3% per annum
Overview
Investment Strategies (Capital preservation)
Asset-Backed Companies
e.g. care homes,hotels, health clubs, secured
lending
Renewable Energy Companies
e.g. solar, hydro, anaerobic digestion
Subscribe through a Service (Special Purpose Vehicle)
Discretionary managed portfolio services:
AND/OR
Example Investments
Underlying investment: Property Lending LLP
Capital preservation: First charge on property, typically < 65% LTV, corporate and personal guarantees with property developer
Predictable return: Loan fees agreed at outset
Liquidity : Loans are asset backed with a normal term of no more than 2 years
Current loan values of £750k to £5.7m Development sites with full planning
permission Only London, South-East and other
affluent areas of UK
Underlying investment: Solar Energy LLP
Capital preservation: tangible asset, benefiting from 25 year lease over site
Predictable return: 20 years ROC subsidy provides over 50% of revenue
Liquidity: significant market for mature generating assets
4 Large scale sites based in Somerset, Oxfordshire and East Sussex
All installations commissioned and exporting electricity
Example Investments
Bridgwater Installation
Eynsham Installation
• Acquired Nov-13 for £6.45m • 64 bed, refurbishment project in Aberdeen• Value creation through:
• Operational management• Refurbishment works
• driving ave. fee rate / occ.• £1.75m new investment (69 beds)
• Entry / Exit valuation multiple arbitrage
• Bearsden (Westerton)• Acquired Feb-12 for £7.75m• 85 bed, turnkey opportunity in Glasgow• Maturing & highly cash generative care home• Refinanced £3m with Barclays in Mar-14• Value creation through:
• Enterprise value / bed arbitrage• Operational management• Opportunity for c. 20 bed extension
CARE CONCERN: IHT INVESTMENTS
• Deeside (Rowan Ct)
AIM share portfolios (ISA) AIM example companies
Majestic Wine
Prezzo
Mulberry Group
Typical Investors Older investors
Investors with health/time concerns
Power of Attorney
Younger investors diversifying their IHT planning
Business owners following company sale
Any questions?
We also have to consider… Future Lifestyle
Care needs
Reducing the value of assets in the estate
Gifting Loss of income/control Risk of capital/bloodline protection Capital Gains Tax (CGT) Potentially Exempt Transfers (PET)/Chargeable Lifetime Transfers (CLT) Gift with Reservation of Benefit (GROB)/ Pre-Owned Asset Tax (POAT) Charitable Donations
Reliefs Spousal Exemption £3,000 pa each Regular gifts out of income Small gifts APR/BPR
Insurance against the IHT liability
We also have to consider…
Gifting into trust
Some general info on trusts:
Settlor = Puts the asset in the trust, and writes the trust deed (instructions)
Trustee = Legal owner of the assets in trust, follows the trust deed.
Beneficiary = Anyone allowed to benefit from the trust.
Discretionary Trust or Life Interest Trust (aka Interest in Possession)
Extremely useful for you to retain control of the asset even after death!
We also have to consider… Future Lifestyle
Care needs
Reducing the value of assets in the estate
Gifting Loss of income/control Risk of capital/bloodline protection Capital Gains Tax (CGT) Potentially Exempt Transfers (PET)/Chargeable Lifetime Transfers (CLT) Gift with Reservation of Benefit (GROB)/ Pre-Owned Asset Tax (POAT) Charitable Donations
Reliefs Spousal Exemption £3,000 pa each Regular gifts out of income Small gifts APR/BPR
Insurance against the IHT liability
Case StudyCash 325,000
Main Residence 650,000
2nd Property 325,000
Investment Bonds 200,000
Total Assets 1,500,000
Husband dies £nil IHT
Then wife dies £340,000 IHT
Case StudyCash 325,000 Into Flexible
Trust
Main Residence 650,000
2nd Property 325,000
Investment Bonds 200,000
Total Assets 1,500,000
Husband dies £nil IHT £nil IHT
Then wife dies £340,000 IHT £210,000 IHT
£130,000 saved
Case StudyCash 325,000 Into Flexible
Trust
Main Residence 650,000
2nd Property 325,000 Trust for children
Investment Bonds 200,000
Total Assets 1,500,000
Husband dies £nil IHT £nil IHT £nil IHT
Then wife dies £340,000 IHT £210,000 IHT £80,000 IHT
£130,000 saved£130,000
saved
Case StudyCash 325,000 Into Flexible
Trust
Main Residence 650,000 Covered by Nil Rate Band
2nd Property 325,000 Trust for children
Investment Bonds 200,000 BPR investment
Total Assets 1,500,000
Husband dies £nil IHT £nil IHT £nil IHT £nil
Then wife dies £340,000 IHT £210,000 IHT £80,000 IHT £nil IHT
£130,000 saved £130,000 saved£80,000 saved
May contain nuts!!! We’ve tried to cover solutions that fit a large number of situations but everybody’s situation is different.
What is sound advice for one might not be for someone else.
What was sound advice back then, might not be anymore.
A Cautionary Tale!Father sold business two weeks before death
BPR relief was sacrificed = £1m IHT billMoral of the story?
… situations change.… tax legislation changes.… make sure your tax planning is up to date… else more than you expect will go to HMRC instead of your family!
But, some say…
As individual circumstances vary considerably from person to person, the views expressed in this presentation are meant only as a general guide, and any specific advice should be sought from your own professional adviser or by contacting either Swindells
Chartered Accountants or Swindells Financial Planning. No responsibility for loss resulting to any person acting as a result of any material in this presentation can be accepted by the presenter or Swindells LLP or Swindells Financial Planning Limited.
