Case studies
Inheritance Tax Planning
Edward and Alice came to us looking to reduce their inheritance tax liabilities. Their aim was to leave as much of their estate as possible for their daughter, but they were cautious about investing money in a risky way.
Edward and Alice are 82 and 81 respectively and are married. They are retired and live comfortably on their occupational and state pensions.
They own their main residence and have considerable savings and investments totalling around £703,000, which Edward has managed himself over many years.
Edward and Alice were introduced to us by their daughter, as they were concerned about inheritance tax. They wanted to explore the options for reducing this liability, which was a significant six figure sum.
Both Edward and Alice are fairly cautious people; other than a small share portfolio, they had never invested in anything other than cash-based accounts. They were concerned about the prospect of taking risks with their money.
Their overriding aim was to reduce inheritance tax liabilities and leave as much of their estate as possible for their daughter. Because of their age and their desire to get a plan in place, they wanted any advice to have an impact as soon as possible.
We completed a budget planner and cashflow model, establishing the level of income that Edward and Alice needed to achieve their objectives. We discussed their attitude to investment risk, their experience with investing and their capacity for loss, in order to ensure any recommendations were suitable.
We concluded that they should take the following actions:
- Invest £340,000 into a portfolio of Business Property Relief-qualifying investments.
- Utilise their annual exempt gift allowance of £3,000 per donor.
- Consider making gifts to their daughter out of surplus income.
As long as Edward and Alice both live for a minimum of two years, and they continue to hold the BPR-qualifying investments, their inheritance tax liability will be removed. This will save their estate over £130,000.
Edward and Alice still retain sizeable cash reserves, which more than meet their emergency fund requirements. These would also cover care fees for a considerable length of time.
Edward and Alice retain the ability to access their BPR investment portfolio in the event that additional capital was ever needed. They also have the option to switch on an income stream from their investments.
Their investment portfolio is at the lower end of the risk scale to reflect their cautious approach.
