Inheritance tax planning case study

Anthony Whitwell8th 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

Chichester!

Ron

One half of 12

Cathedral Close £300,000

Cash £400,000

Total £700,000

NRB £325,000

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 NRBDiscretionary Trusts

4. Residue to Ivy on life interest

Ron• 2% of 12 Cathedral Close to Sue 6,000• 2% of 12 Cathedral Close to Colin 6,000• Cash legacies

28,000• NRB D.T. 285,000• Residue to Ivy comprising:• 96% of 12 Cathedral Close 288,000

Cash 87,000

Total: 700,000

• 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

Ivy

% gifts to Sue & Colin. Tax cost £12,000

IHT £4,800

Gain on fragmentation £28,320

Exclusion of NRB D.T. £139,000

Total tax saving £167,320

cf. 40% of £325,000£130,000

Tax Benefits

Ivy - Lifetime Planning

Excess Income Rules & records

Net income £31,500Regular payments £2,500 pcmTrust & 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

WillEstate £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

Sue & FamilyLoans £3.117m

+BPR £200Total £3.317m

DGS£320,000 DGS

£250,000

DGS£300,000

Ron’s NRB DT

£347,500

Ivy Trust 4£325,000

Ivy Trust 3£325,000

Ivy Trust 2£325,000

Ivy Trust 1£325,000

BPR£200,000

Life Ins Trust£300,000

Life Ins Trust£300,000

Sue and Graham

Personal Estate £ 650,000

Loans £3,117,000

BPR £ 200,000

Total £3,967,000What really happened ….

It’s not all about TAX!

• Bankruptcy

• Divorce

• Business failure

• Cash Management

and finally …

Questions, questions, questions ….

AND

Some Answers!