5 Best Legal Inheritance Tax Avoidance Structures, for Wealthy Families

Legal inheritance tax avoidance structures

Let’s get it out there right away – you don’t need loopholes, or schemes, or any form of dodgy tax planning

You can achieve your goals, whatever they are, entirely within the law, and all HMRC rules and requirements. Off-grid tax planning is simply not necessary

Inheritance Tax planning; doing the right thing

Legacy.Partners has three core beliefs:

  1. Clients come first
  2. Respect for HMRC
  3. Strive for excellence

If our beliefs mirror yours, let’s work together. If not, let’s not..

Inheritance Tax; the planning process

Inheritance tax planning strategy

When done well in advance, Inheritance Tax planning can solve most any legacy planning problem, except one – your inaction. You need to get yourself into gear, and take action, or nothing can result

Plan for what will happen when you die, and how tax will be mitigated, or paid

As you’re reading this blog on Inheritance Tax planning for wealthy families, we’re going to make three assumptions

First, you’re interested in Inheritance Tax planning. Second, you and your family are wealthy. Third, you’d like to uncover some broad principles of structured Inheritance Tax planning, which may enable you to pass your wealth tax-efficiently, to the next generation of your family

Glad we got that out of the way. It means you can focus on big picture planning options, and I don’t need to create a boring list of allowances and exemptions most of which, frankly, don’t achieve much in the bigger picture (and I can’t be arsed!)

Yes, of course we’ll make sure you utilise them all, and you’ll get help with your Will(s) and Trusts, and everything else you need to bring it all together

The key requirement is structured thinking, not piecemeal planning. So, let’s move on to some of the good stuff

1. Inheritance Tax avoidance, here’s a very useful Exemption

UK legislation enables the lesser known ‘Normal Expenditure out of Income Exemption’

Sounds dull? Well, it isn’t!

An Exemption has immediate effect. If your gift qualifies, it’s outside of your estate immediately. You could even do it today, die tonight, and it should be effective for Inheritance Tax!

This, directly from HMRC Guidance: ‘there’s no limit to how much you can give tax-free’ as long as ‘you can afford the payments after meeting your usual living costs’

Simplistically, it means that you can gift any amount from after-tax income, as long as you have ‘enough money to maintain your normal lifestyle’

By way of a practical example, if your income is £1m and your annual expenditure is £100,000 then, in-principle, you can gift £900,000 every year..

Done properly, it’s immediately outside of your estate, and there’s no 7 year clock running

2. Inheritance Tax planning, using Relevant Property Trusts

If you own an investment property business then HMRC will confiscate 40% of it in Inheritance Tax when you die, unless you plan ahead

Fail to plan for Inheritance Tax and that’s the default position, but you could use a Relevant Property Trust to pass investment properties to your beneficiaries, free of Capital Gains Tax and Inheritance Tax, up to the limit of the nil-rate-band, currently £325,000

Where two settlors (husband and wife, or civil partners) jointly transfer properties into a Relevant Property Trust then two nil-rate-bands will be available

Which means you may transfer up to £650,000 of rental properties to your adult children without Capital Gains Tax or Inheritance Tax

Then, you just need to stay alive for the next 7 years

After 7 years, you get a new nil-rate-band, and you can transfer another £650,000, assuming the rules don’t change

Oh, and after 14 years, you can transfer another £650,000 and so on..

That’s just the baseline for planning with Relevant Property Trusts. There’s plenty more to build on, if you know what you are doing..

3. Inheritance Tax planning, and Business Property Relief

There is absolutely no limit to the amount of Business Property Relief any taxpayer can claim where the qualifying conditions are met. It could be many £millions..

Obviously, you should aim to maximise those of your assets that qualify for Business Property Relief

There are two types; Business Property Relief and Agricultural Property Relief

Which means that, where the conditions are met, you may be able to pass on your family trading business entirely free of Inheritance Tax. Beware, however, there are plenty of rules and regulations to meet. Property investment and lettings businesses are unlikely to qualify, but Furnished Holiday Lets might

Business Property Relief is not just for those with existing businesses. There are some types of investment which may also qualify

The best bit? It takes just 2 years to achieve Inheritance Tax exemption through Business Property Relief, which is much better than waiting 7 years for Potentially Exempt Transfers

4. Inheritance Tax planning, ownership vs control

Effective Inheritance Tax planning for your family, likely means you should consider giving up some degree of ownership of your assets

That does NOT mean you have to give up everything and you don’t have to lose control

It is possible, even with a minority interest in a company or partnership, to retain control through the partnership, or shareholder agreement and company articles

In the right circumstance, the retained interest(s) may benefit from Inheritance Tax Business Relief or from Agricultural Property Relief

This is complex subject matter and requires input from an Inheritance Tax planning expert

5. Inheritance Tax, and Investment Properties

There are no specific Inheritance Tax reliefs either for individuals who own properties, or for property company shares, but that’s NOT the end of the story

Be aware that professional UK property investors likely can legally make significant improvements to the tax-efficiency of their existing property planning, including Inheritance Tax, Capital Gains Tax and tax on rental income

Let’s take a simplistic look at one possible option for planning with freehold commercial property. Maybe you could create a leasehold interest, retain the freehold, and give away the leasehold

Perhaps the lessee’s right to possession is postponed for, say, up to 21 years, or your death if that happens earlier. During that time, you continue to receive the rent as you own the freehold

The granting of the lease immediately reduces the value of the freehold, and is calculated by an actuary

If you survive until the 21st year, the value of the freehold reversion to the lease likely will have a negligible value

This is complex subject matter and there’s plenty of additional options to consider, and you’ll need a specialist Inheritance Tax advisor

After reading this far, and if you’re in the mood for some sport, give your existing advisor a call, and see how much they know about things about these 5 topics – just might be a useful gauge of competence for the role of your advisor going forward..!

How to get your Inheritance Tax planning sorted and keep it up to date

Inheritance tax planning

The UK has one of the most complex tax structures in the world, with around 18,000 pages of tax laws, and nearly 1,000 tax reliefs and allowances. You can’t know them all. That’s a job for our team of Chartered Tax Advisors (CTA’s)

At outset, we ask you to visualise the future you want for your family legacy then, with our help, work back to today, using informed choices. Our CTA’s provide you with your legacy planning strategy, and all the tools you need to realise your vision

Once your Inheritance Tax strategy is finalised, and paid for, you may be invited to become a full member of our Resource Optimisation Program (ROP) where our CTA’s will continue to work with you to aim to maintain everything for you while you’re alive, and they’ll even handle probate for your beneficiaries when you die, if that’s what you want..

ROP provides you with 3 options: our CTA’s will implement, maintain and manage everything, or our CTA’s will work with your existing advisors, or you can do it all yourself. That’s ‘Done for you’, ‘Done with you’ or ‘Done by you’

Contact us HERE to talk to an expert, for FREE

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