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Case StudyInheritance TaxSummary:We helped some clients to realise that their assets weregrowing too quickly and that they would never beenable to spend the capital put aside. Therefore we put inplace a programme to ensure that they kept theirdesired lifestyle while passing excess capital to familymembers thus avoiding inheritance tax at 40%.

Background:An existing client had previously asked us to managetheir money in line with their income goals. However, atan annual review we highlighted that they actually hadtoo much capital for their needs and were in danger ofpaying inheritance tax at 40% on their death.Therefore, we decided to change the emphasis of theirplanning to provide flexible solutions to legally andsafely avoid inheritance tax, whilst retaining the right toreceive an income from their assets.

Problems/Challenges:As with all inheritance tax cases it is not possible toachieve complete avoidance of tax without somecorresponding trade-off. For example, it is actually veryeasy to avoid inheritance tax completely by giving awayassets. In this case however, the clients wished toretain control over their assets and retain access tocapital.

In addition, they still needed to achieve an income fromtheir assets and were reticent to give assets away if thiswould affect their future lifestyle.

Our approach:The first point was to establish their goals andaspirations for the future and this also encompassedtheir extended family such as children and grandchildren. We also discussed their wider interests suchas involvement with local charities. This gave us agood foundation to understand where their priorities layin relation to the future distribution of their assets. Wecombined this with an analysis of their lifestylerequirements for the future aiming to retain access toenough capital for any eventuality (such as care fees).

Then we worked on a financial plan to ensure that theyhad enough income in the future to meet their needswithout the risk of running out. We agreed aprogramme of gifts over time to various family membersand charitable institutions. This made use of available

exemptions with the aim of giving away their excesscapital without fear of running out of money.

With the remainder of their estate we were able torecommend a variety of solutions which would enablethem to avoid inheritance tax over time whilst still retainingaccess to their capital should they need it and also givingthem a sustainable income.

We referred them to a specialist solicitor who we workedwith to ensure that their affairs would be efficientlyhandled on their death whilst still paying the minimum tax.

Outcomes and Impact:The clients were able to make informed decisions abouttheir future financial stability and also to help a number offamily members financially from their excess assets. Thismeant that they had the enjoyment of seeing their moneybeing usefully employed by their family whilst they werestill alive.

They did this whilst still ensuring that they retained controlover their assets and income and made sure that theirstandard of living would not worsen.

We were careful to ensure that all the options wepresented to the clients were cautious, tried and tested,and approved by the tax authorities. This meant that, asfar as we were able, we could ensure that their planningwas applicable to the longer term and would not becomeobsolescent.

Continuing Support:Each year we schedule two reviews with the clients. Thefirst is to re-evaluate their financial situation and revisetheir financial plan so that we can take into account anychanges to their circumstances and re-assess whetherthey remain on target to meet their long-term goals.

The second meeting reviews the clients’ investmentportfolio and aims to keep it on track towards its goalswhile taking the least risk needed to do so.

Please contact usfor further details:

Woodruff Financial PlanningThe Colchester Centre, Hawkins Road,Colchester, Essex CO2 8JX.Email: advice@woodruff-fp.co.ukFax: 01206 266885

Tel: 01206 266882www.woodruff-fp.co.uk