IHT Legacy Planning For Landlords – CASE STUDY

Make 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.

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.

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More