Income and inheritance tax mitigation Harvey Curtis Case Study

Income and inheritance tax mitigation

A client’s late husband’s accountant introduced her to one of our investment and estate-planning consultants. She had recently been widowed, and had never been involved in the running of their financial affairs. Her pressing need was income, as her widow’s pension was insufficient and she was already drawing from her bank deposits to cover monthly expenditure.

She presented our Financial Planner with a stack of recent correspondence that she didn’t understand. He discovered that her husband had, sometime ago, purchased three investment bonds in their joint names and had two unit trusts in his own name that provided small half-yearly dividends.

The investment bonds were worth in excess of £200,000 (a complete shock to her!) and were free of any trust restrictions. We arranged for her to take a regular monthly withdrawal from these and to transfer the unit trusts into her own name. As a basic rate taxpayer, she has no income tax to pay on the withdrawals or on the net dividends. The income generated enabled her to keep her bank deposit intact as an emergency fund.

Subsequently, we arranged for one of the investment bonds to be cashed-in to fund a discounted gift trust arrangement in favour of her two daughters. This provided her with an income for life, immediately reduced the value of the trust (initially £140,000) for inheritance tax purposes and, after seven years, removed it completely from her estate.

With an income that was now more than sufficient for her needs, our financial planner recommended that she took advantage of the annual gift allowance to pass £1,500 to each of her daughters free of any possible Inheritance tax, and provided her with a draft wording to record each gift.

Independent Financial Advisors