IHT Legacy Planning For Landlords – CASE STUDYMake Text Bigger
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.
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