Location: - Hampstead, NW1

Client: - Married couple aged 55 and 58 with 2 children aged 23 and 24 living independently.

Problem:
£304,000 inheritance tax bill

Having recently taken voluntary redundancy as a route to retirement the retired husband had a lump sum of £110,000 in addition to the family home worth £700,000 and other assets worth £250,000 approx. As things stood with the mortgage being repaid and a combined pension income of £35,000 life was rosy barring inheritance tax.

With a combined estate of 1,060,000 and a will structured to pass all assets from one spouse to another before going to the children. This would trigger a £304,000 inheritance tax bill on the second death of the couple.

Solution:
The solution chosen was firstly to restructure the will to pass a value of the property equal to the nil rate band at the time into a trust on the children’s behalf. This immediately removed the potential of £120,000 of that inheritance tax liability.
Then the non-property assets less £10,000 left for emergency funds were paid into a discounted gift trust. This served to achieve three things. Firstly it immediately removed £68,000 of potential inheritance tax liability from the estate. Then over 7 years it removed a further £72,000 of potential inheritance tax from the estate.
Finally it returned to the couple an annual sum of £17,500 which they either used for
living costs or as gifts to their children.

This obviously still left a small inheritance tax liability of £44,000 which the couple dealt with via a simple life cover policy written in trust to ensure that there was no loss to their estate having paid the tax with the funds from the insurance.

Benefit:
Immediately the planning removed £188,000 from the inheritance tax liability saving the estate £188,000 on the 2nd death.

After 7 years a further £72,000 was removed from inheritance tax liability saving the estate £260,000 on the 2nd death from that point. Immediately any money that is paid in inheritance tax comes from an insurance policy not the estate.