Passing on your wealth

Understanding taxes & reliefs

Tax is one of the biggest concerns when transferring wealth to the next generation. Without careful planning, HM Revenue and Customs could be the main beneficiary of your estate, and many are not aware of the main taxes, the reliefs and solutions available.

Protecting and preserving your wealth is at the core of what we do; we will provide suitable recommendations that will assist you in meeting your financial goals and ambitions.

Understanding trusts

Placing assets into a trust is a safeguarding option to ensure assets are reserved for a particular beneficiary, such as a family member, rather than being spent. Once a trust is setup, you are no longer their owner – the trustees are – and the assets are not treated as part of your estate, meaning that after a qualifying period, they will not be subject to Inheritance Tax when you die.

Trusts can be used for many purposes. We can advise on whether a trust is the best option for you, or if alternative options may be more suitable for your individual circumstances.

Let’s look at our client ‘Mary’, aged 70.

• Mary is a widow, her late husband Stanley passed away 18 months ago leaving all assets exclusively to Mary.
• They have two adult children.
• The family home is valued at £750,000 with no mortgage.
• Mary holds investment of £350,000 and cash funds available of £250,000.
• Mary also has an existing second death whole of life insurance policy with a value of £200,000 payable upon death, not currently in trust.
• Mary receives ‘fixed’ pension income totalling £30,000, which meets her needs.
• Although Mary does not rely on investment or cash funds, she wishes to retain a degree of control of capital.

Before receiving advice upon death, the family will be faced with:

• Inheritance Tax Bill due on estate of £220,000
• Net estate £1,330,000

Mary received holistic advice from a specialist at WH Ireland including:

• Investing £200,000 of un-needed cash funds, utilising IHT exempt investments via an in-house specialist portfolio.
• £350,000 investments settled into a Loan trust, allowing Mary to retain the option of accessing capital if necessary and future growth outside of the estate.
• £200,000 life insurance plan placed into appropriate discretionary trust allowing the proceeds to be paid directly to intended beneficiaries rather than the estate.
• Advice to utilise £3,000 annual gift allowance, including last year’s unused allowance carried forward (and in future coming years).

After planning received via WH Ireland Mary then passes away just over 2 years later. Let us assume the IHT investment has grown by 6% net of fees.

The family are now faced with:

• Reduced Inheritance Tax bill due of £55,200
• Net estate of £1,494,800 (inclusive of £200,000 WOL lump sum)
• In addition to gifting in total of £12,000 using annual exemptions
• Plus additional growth of the loan trust is received free of inheritance tax.