Inheritance Tax Planning

Case Study

Background

Mr and Mrs B had an estate of £2 million pounds in value. They were concerned about the amount of inheritance tax their children would face upon their passing.

They wished to retain an income during their lifetime while mitigating their tax bill.

The Nil Rate Band (NRB) threshold for IHT is £325,000 each. The Residence Nil Rate Band (RNRB) was introduced in April 2017 and can be worth up to £175,000 each when passing a main residence to direct descendants. Combined, this gave them up to £1,000,000 in joint tax-free allowances. However, this left an estate surplus of £1,000,000 exposed to 40% Inheritance Tax — an expected tax bill of £400,000.

The Solution

Vance Financial Management explored a Discounted Gift Trust (DGT) solution. A DGT allowed Mr and Mrs B to gift a capital sum into trust for the benefit of their beneficiaries while retaining a regular income stream for life.

The capital placed into the trust reduced the taxable value of their estate immediately via an underwritten 'discount'.
The remaining value of the gift fell outside their estate entirely after seven years.
The regular income retained by Mr & Mrs B was tax-free up to 5% per annum of the initial investment amount.

Mr and Mrs B enjoyed complete peace of mind knowing that their tax burden was significantly mitigated while receiving a reliable income to maintain their lifestyle.

Estate Preservation

Discounted Gift Trusts

Reduce Your IHT Exposure

Evaluate how trusts can protect your wealth for future generations. Contact David Vance today.

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