IHT Legacy Planning For Landlords – CASE STUDY

by Mark Alexander

2 weeks ago

IHT Legacy Planning For Landlords – CASE STUDY

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IHT Legacy Planning For Landlords – CASE STUDY

This case study explains how a couple could save their loved ones £2 million of inheritance tax for less than £10,000 in professional fees, and a further £500,000 of IHT for just £322.48 per month.

Paul and Shirley currently have a net worth of £1,250,000 after deducting all of their IHT nil rate band allowances and correctly structuring their wills to make maximum use of them. Therefore, their IHT liability if they were both to die today would be £500,000.

This case study looks into fixing two problems. The first being how to cap their IHT to the current level and the second being the cost to insure the current liability.

Let’s suppose the majority of their current net worth is in a property company worth £5 million gross (£1.25m net after deducting £3.75m mortgage liabilities). If Paul and Shirley live for another 20 years, and their portfolio doubles in value over that time, their exposure to IHT would be £5 million more than it is today.

The good news is that for comparatively very little cost (under £10,000 in most cases), the entire future growth in value of their property portfolio can be taken outside of their estate. This is achieved by creating a new class of company shares, which can be gifted now whilst these new shares have minimal value. All future growth then accrues to this new class of shares. However, as they are non-voting shares, Paul and Shirley can continue to run their business as they always have. If Paul and Shirley’s property portfolio has doubled in value by the time they die they will still own the same value of shares as they do today, however, the additional class of shares owned by their beneficiaries would be worth £5 million. Paul and Shirley would have saved themselves £2 million of IHT by using this structure.

The above doesn’t solve the problem in regards to their current net worth. For that, a whole-of-life insurance policy which pays out enough money to fund the IHT on the second death may well be a viable solution. The policy should be written into trust so the payout remains outside the estate and doesn’t add to the IHT problem.

To give you an idea of costs I obtained a quote based on £500,000 of cover for myself and my wife.

My date of birth is 12/01/1968 and I am a smoker.

The date of birth of my wife is 25/10/1973 and she is a non smoker.

The premium came out at just £322.48 per month.

Remember; this is whole-of-life insurance so the policy only ends if it is cancelled it or when it pays out. Even if the youngest of us (my wife) lives to be 100 years old (56 years from now) the insurance premiums paid would only be just over half of the value of the payout required to pay the IHT. This is a ‘no-brainer’ is it not? Especially when you consider that we could both die after paying only one premium and our beneficiaries would have all the money they need to fund the IHT bill due on our estate at its value today. Either way, it is incredibly good value for peace of mind if you want to leave your legacy to your loved ones intact.

I don’t profess to be an expert on IHT planning (YET!) but I’m getting there very quickly as a result of mixing with people who are experts and have been implementing planning of this nature for their landlord clients for decades.

My plan, over the next six to 12 months, is to integrate an IHT planning service as part of our Landlord Tax Planning consultation process. For the time-being, to test the appetite of our readers for this service, I am offering IHT planning consultations free-of-charge. I will complete initial fact-finds and then check the strategies I have in mind with the advisers I am already in contact with. They will complete further analysis where necessary and I will then provide you with details of the savings to be made, the strategies recommended and their quotes for implementation. If necessary, these advisers will also meet with you at no cost to fill in any gaps and help you to complete any necessary paperwork. And don’t worry about me working for nothing, I will receive commission for business resulting from my introductions. It’s a win:win scenario for everybody.

If you would like to know more please complete the short form below. I will then send you an email outlining the information I will need to begin to progress matters.

Landlord IHT Planning Expression Of Interest Form

Please note; this FREE service does not include extend to other forms of tax planning such as incorporation advice or other forms of restructuring for optimal income tax and CGT planning. You will be redirected to a page explaining that service when you submit this form.


April van Es

2 weeks ago

What was the insurance called which covered £500k for the premium of £322.48?

Mark Alexander

2 weeks ago

Joint whole of life second death policy.

That particular quote came from Zurich but our recommended IFA always checks the whole of the market before recommending a provider.


A week ago

This is perhaps not the bargain it first appears.
When you take into account the compounding effect on the premiums if you were to invest these elsewhere then the insurer is the winner, based on average life expectancy.
Also the impact of inflation on the IHT bill should not be overlooked, meaning the IHT liability could easily have doubled by the time of the second death as asset values increase, so you will have under-insured.
A better strategy may be to consider putting assets outside of your estate using a trust (or simple gifts), as those assets and their growth can then escape IHT.

Mark Alexander

A week ago

Reply to the comment left by at 08/08/2017 - 09:34I agree with the second part of your suggestion and have in fact outlined one of the strategies to cap future growth in estate values.

Whilst i follow your logic in regards to insurance premiums, yes of course the insurance company intends to win. That is the very nature of insurance. However, you could die just one month after purchasing the life insurance, in which case the insurer definitely loses. The purpose of insurance is to transfer risk to a third party. We all have the same choices when it comes to insurance, we either pay the premiums or risk paying the price, or in this case passing the price of our inaction to our loved ones instead of taking responsibility ourselves.

Paul Mullally

A week ago

Reply to the comment left by at 08/08/2017 - 09:34I carried out a comparison myself between paying the insurance premiums versus investing the same amount (with re-investment of the gains as accumulation units). The crossover happens sooner than you might think. In my case, it was 31 years. However, if you invest personally, then all it does is add to the value of your estate and thus increase the IHT bill even further.

The other key thing to consider is the affordability of the premiums. Fine now whilst we're all earning, but maybe not so when your 75 and eating through your pension remembering that they come out of your net income. Insurance companies also know this and when asked, I was told that the majority of these policies are cancelled before term.

An alternative would be to use a "Relevant Life Plan" policy which allows the premiums to be paid by the company making it a business expense as opposed to a personal one. This effectively just "kicks the ball down the field" for the term of the policy, but it does at least give you time to reduce the value of your estate by utilising your gift allowances and other means.

Mark has touched on another very useful point about utilising growth shares as a way of building wealth outside of your estate. Very clever, well done on that one.

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Oh The Irony Of It All