John and Toni – a couple in their mid 60’s – sold their business and are enjoying retirement. Both are following hobbies they never had sufficient time to enjoy whist working. Our Cashflow Modelling Tool painted a happy picture when we first ran their numbers: They had no mortgage on their home and their portfolio of investments was more than adequate for their needs:  A perfect retirement situation.

There was one problem when John and Toni were the shareholders/Proprietors of their Business the  Business value did not form part of their estate (due to them qualifying for Business Property Relief) The subsequent sale has changed that equation. So although the first £650,000 of their estate is free of Inheritance Tax (IHT), anything above that £650,000 would be subject to a 40% IHT charge on the death of the last of the couple to die. Our initial calculations showed that the potential IHT bill was over £500,000.

John and Toni understandably wanted to avoid giving  their money to the Taxman instead of their three children and five grandchildren. So, they needed a method of legally mitigating IHT, allowing them to pass their assets onto their family. But crucially, John and Toni still wanted a degree of access to the assets, in case they needed them.

A trust is often a reliable solution to this type of challenge. Placing funds in a trust typically deems them to be outside of an estate and therefore trust assets are not subject to IHT. Usually the money needs to be in the trust for seven years and cannot be withdrawn, so once the commitment has been made – similar to gifting money to children – the clock starts ticking.

For some people this isn’t an issue, but many – like John and Toni – prefer to see some sort of accessibility to their investment, rather than it being simply a way of ensuring that wealth is passed on to the next generation with minimal tax charges.

Clifton Nash solved the problem: We invested their money in a tax efficient offshore bond. Then we set up a trust. There are lots of different types of trust – and we were able to use our expertise to select the most appropriate one for their needs. Remember, John and Toni wanted a trust to provide not only protection of assets from their estate, but also to provide them with access to capital.

The outcome for John and Toni – following our involvement – was that they ring-fenced their assets in a trust so that that their money would escape IHT. And, because we used a certain type of trust, John and Toni are able to enjoy access to the capital  from it too – as agreed by the trustees. As a result of our advice, implementation and review, John and Toni’s family will pay at least £200,000 less in Inheritance Tax.

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Tax planning advice and Trusts are not regulated by the Financial Conduct Authority

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.