Tax advice – inheritance tax mitigation
We have arguably one of the most complicated and invasive tax systems in the world and also one of the most expensive to run. From the moment you are born to the moment you die and in some cases beyond the tax system erodes your wealth and your estate.
At Spectrum Wealth Management we believe when a tax allowance is permitted that these rare tax breaks in an otherwise heavily taxed existence need to be taken advantage of, many of the allowances available are not taken advantage of and the average person could save thousands in tax over their lifetime by just following the rules.
We particularly specialise in mitigating inheritance tax which occurs when you die if you do not seek out the legitimate methods to mitigate this pernicious tax your beneficiaries stand to lose a significant amount of your estate to the tax man, we believe it is important to leave a legacy not a liability.
We can help our clients navigate this complicated system and where possible communicate what allowances are available to you and how best to use such allowances to your advantage.
Frequently Asked Questions
There are numerous ways to achieve inheritance tax (IHT) mitigation some methods are very simple such as ensuring the transfer of nil rate bands from present and previous marriages and civil partnerships. Other methods can include the use of potentially exempt transfers (PET) and chargeable life time transfers (CLT).
Different types of trusts have been developed for the sole purpose of mitigating or even the removal of an inheritance tax (IHT) liability consideration should be given to gifts held in trust, discounted gift trusts (DGT) even the less known inheritor trust solutions and loan trusts.
Other forms of investments that can be used to mitigate inheritance tax are investments that include business property relief such as enterprise investment schemes (EIS) and investments in equities traded on the alternative investment market (AIM) where these equities also benefit from business property relief not all do so professional independent advice is paramount.
Recent developments now mean alternative investment market (AIM) share portfolios can be held in an individual savings account (ISA) this has not always been the case and those with sizeable individual savings account (ISA) assets had to compromise the income tax and capital gains tax efficiency of individual savings accounts (ISA) in order to mitigate am inheritance tax (IHT) liability this is no longer the case. You can keep the income tax and capital gains tax benefits of an individual savings accounts (ISA) and now also benefit from inheritance tax (IHT) mitigation also.
It is worth noting not all the solutions available are suitable for every client circumstance and there is no one size fits all approach for example investments which attract business property relief are considered extremely high risk investment strategies and professional financial advice is in our opinion mandatory.
There are methods that can used to reduce your income tax situation for example you have a personal pension allowance each tax year dependent on your level of income using this allowance can reduce the amount of income tax you pay.
Usual tax allowances should always be used if the funds are available such as individual savings accounts (ISA) alternative methods strictly speaking do not reduce your tax bill but can give you tax rebates such as venture capital trusts (VCT) and enterprise investment schemes (EIS) these schemes although high risk strategies and must be maintained for a minimum of five years if you wish to retain the tax rebate they do provide very attractive tax benefits.
Some offshore investments allow for tax deferral or roll up, some also reduce the amount you would pay in tax but do not reduce your tax position just make your overall tax bill slightly more palatable there is no silver bullet and many of the tax avoidance schemes available prove to be expensive gambles that do not in the long term save tax and you could end up worse off.
For impartial estate planning and tax advice we can help you build a robust strategy on how to reduce your overall tax bill.
A common problem is how to leave money to a minor and also ensuring it is used for “sensible” purposes, with constructive use of trusts you can retain the control of the funds as a trustee whilst also nominating a minor or other person as the beneficiary.
Being the trustee over the funds you have legal ownership of the assets and also what they are to be used for on the provision the decisions you make are for the benefit of the beneficiaries. As a result the beneficiaries cannot spend the assets without the trustees’ agreement.
Highly technical areas of estate planning need careful construction not all general practitioner advisors or solicitors are knowledgeable enough to deliver a robust strategy specialist knowledge offered by Spectrum Wealth Management is critical.
You have a capital gains tax allowance each year but the average person rarely ever uses this allowance so it is important to first consider any allowance available to you and your spouse, you can also transfer assets to your spouse to ensure their allowance is used.
Bed and breakfasting a method of selling to realise a gain and then buying the asset back the very next day is no longer allowed and you have to wait thirty days before you can re-purchase an asset however you can arrange for your spouse or civil partner to buy the asset back immediately meaning you can realise a gain and then your spouse can re-purchase the asset retaining the asset within the family.
Dependent on the assets you are selling for example those that are classed as perishable are capital gains tax exempt some possessions called chattels also have a reduced capital gains tax calculation.
Consideration needs to be made for hold over relief, taking into account losses which can be used to offset capital gains it is even possible to sell an asset to make a loss this can then be offset against a gain. Also giving or selling assets to a charity below the market value can attract income tax and capital gains tax relief.
Usual methods of mitigation can be used including investing into your annual individual savings account (ISA) and also use of your annual pension allowance through for example a self-invested personal pension (SIPP). Those who can tolerate higher risk investment strategies can invest with an enterprise investment scheme (EIS) which offer capital gains tax deferral.