Using Trust Planning to Save Inheritance Tax

This case study demonstrates how Goldstone Wealth was able to advise and assist one client with their investment requirements.

The problem:  Paying tax unnecessarily on your investments

The benefit:  Mitigating Inheritance Tax, reducing income tax and reduced investment risk

Suitable for:  Those wanting to reduce Inheritance Tax liabilities.

Do you know which type of investment would best suit your individual situation? Knowing the risk, rewards and tax implications of certain investments is the best way to ensure you make the right decision for your circumstances and the safest way to protect your finances.

Here is a classic case where minimising the effect of tax allowed an investor to take less risk.

Margaret, a 70 year old client inherited £300,000 from her friend via her will. In discussion with Goldstone Wealth, Margaret confirmed that she did not require the use of this capital but would like some of the income it might yield to help pay for holidays abroad and trips to England to visit her daughters.

Margaret already had assets of £325,000 which meant that any further inheritance would take her over the ‘nil rate band’ for inheritance tax purposes. Her Will left everything to her two daughters and son would have meant that the £300,000 she had inherited would have been taxed on her death, a cost to her estate of £120,000 in inheritance tax. Margaret wanted to invest the money because she was keen to take an income from it above bank interest returns. She also wanted to keep control of the money while she was alive, but wanted to minimise the chance of losing the capital either to the taxman or through investment risk.

A special deed was drafted that subsequently created a Trust. The trustees then purchased an investment that would not be taxed as it grew in the Trust. Margaret wanted little risk for the investment so the trustees purchased an investment that met her attitude to risk in a cautious portfolio selected by her adviser at Goldstone Wealth. Margaret was a beneficiary of the Trust and also a trustee, thereby retaining her control of the assets and also giving her access to it should this be necessary. A monthly withdrawal of £300 from the investment was set up giving Margaret the income she needed to help her enjoy time with her family in retirement.

Based on current legislation, providing Margaret survives 7 years this will ensure that her children will pay no inheritance tax on this investment saving them around £120,000, whilst at the same time she can continue to enjoy her retirement. Even after 3 years, when inheritance tax taper relief starts to be applied, inheritance tax savings should start to be made.

Contact Goldstone Wealth today for all of your inheritance tax and trust planning advice needs.