Inheritance tax planning Harvey Curtis Case Study

Inheritance tax planning

Robert and Susan are a dynamic husband and wife team who run a successful company. They became concerned about the amount of inheritance tax (IHT) that their two daughters might have to pay when they die.

Robert and Susan have up to date wills that leave their assets to each other and their business assets will be subject to Business Property Relief. On the first death, assets will pass to the remaining spouse and will be exempt from IHT. However, on second death, we established that there will be an estimated estate of £2,000,000.

Robert and Susan each have their full IHT-free nil rate band available so the above estate will be reduced by £650,000 (2 x £325,000 for 2010/11) leaving £1,350,000 subject to IHT at 40%, resulting in a possible IHT bill of £540,000 for their daughters.

As Susan had some health issues, one of our financial planners, Nigel Rowland, set up a whole of life plan on Robert’s life with a sum assured of £540,000. The plan was placed in trust with Robert and Susan’s daughters as beneficiaries, so that on Robert’s death, the proceeds of the whole of life plan will not be part of his estate and can remain within the trust until needed. If Robert dies first, his estate will pass to Susan free of IHT but when Susan dies, their daughter’s will have £540,000 with which to pay the inheritance tax.

If Susan dies first, her estate will pass IHT free to Robert and the whole of life plan will remain in force until Robert dies. If the premiums become too expensive for Robert and Susan to maintain, their daughters can take over the payments as they will ultimately receive the money from the plan to clear the inheritance tax, without reducing their legacy.

Independent Financial Advisors