Deathbed IHT planning: are there any last-minute strategies to avoid inheritance tax?

Thursday, September 15, 2011 | Posted by: Naomi Smith
Categories: Personal, Protecting your wealth | Tags: tax planning, inheritance tax, IHT, will, Naomi Smith, gifts, estate planning, BPR, Business Property Relief, IHT planning, deathbed planning, death duties, death taxes

The concept of death taxes can come as a surprise to many. If you haven’t done any estate planning and you are looking for a quick fix, what options are available?

Many things in life are unexpected and it is not uncommon for people to find themselves in the situation where inheritance tax (IHT) planning becomes an urgent matter. With most IHT planning ideas requiring you to survive seven years from the date of the gift, it can be difficult to find IHT planning options for those who don’t have that luxury. There are, however, some options; let’s discuss a few.

Investing in business property
Investing in shares that qualify for Business Property Relief (BPR) can be the answer for some. In order to qualify for the relief, you need to hold the property for at least two years. A range of shares qualify for BPR, from private trading companies and Alternative Investment Market (AIM) shares, to specially designed ‘BPR’ investments that are available through investment advisers. Our Financial Planning team can advise on the range of investment products available and the risks associated with each investment.

Some people, however, do not have two years to wait, and will therefore need to consider another strategy.

Providing for your loved ones
It is possible to leave assets in your will to your spouse or civil partner (provided that you are legally married), without a charge to IHT. Even if the will did not provide for this, it is often possible to enter into a deed of variation, allowing more of the estate to pass to the spouse/civil partner. This can be great if someone hasn’t done any will planning. But what if you need to provide for a loved one who is not your spouse? For example, an elderly relative or a child?

There is a little-known provision in the tax legislation that allows gifts to be made during your lifetime for the purpose of maintaining your family. These provisions can be used where someone has a limited life expectancy, to give assets required for the maintenance of a minor child (or certain trusts for their benefit) without an IHT charge arising on death. The exemption will be limited to what can be shown as being reasonably required to maintain the child up to the age of 18 (or until they cease full-time education or training if this extends beyond the age of 18). However, that can be quite a substantial figure, once the costs of educating and maintaining the child over a number of years are calculated.

These provisions can also apply in respect of gifts made to dependent relatives, who are either unable to support themselves because of old age, or some other disability or long-term illness.

Ensuring that you fall within these provisions is a complex task and anyone considering this route should seek professional tax advice.

Complex inheritance tax planning ideas
Grant Thornton offers bespoke inheritance tax planning ideas, which can allow you to save IHT without the need to survive seven years. These ideas are quite complicated and most suitable for people who have a significant amount of assets. But for the right person, this kind of tax planning can be an excellent option.

Who should I contact?
Doing IHT planning at the last minute is never ideal, but if you find yourself in that situation, there are options available. If you need advice on this issue, please do get in contact with me:

Naomi Smith
Tax Manager
Grant Thornton UK LLP
T +44 (0)117 305 7620
E naomi.smith@uk.gt.com

Image: © openDemocracy

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