estate planning

HMRC has recently published research into inheritance tax (IHT) reliefs and estate planning, which has prompted speculation that business relief may not continue on such favourable terms.

With potential change on the horizon, it makes good sense to lock in the relief at the earliest possible opportunity. You may know that the rate of IHT is 40%, but it is important to keep in mind that business assets may qualify for business relief from IHT.

To qualify you need to hold the business asset, whether shares, a partnership interest or asset, in a sole tradership for at least two years. It must also be predominantly a trading business - property investment and some other excluded activities do not qualify.

For example, if you are a business owner you should consider whether you could make a lifetime gift of any of the business interest or shares, as such a gift could be outright or to a lifetime trust. A gift of business assets to a trust is particularly attractive, as the relief means that there is no IHT entry charge (20% on amounts over £325,000). Importantly, you can continue to control the business assets by being the trustee of the trust while putting in place effective succession planning.

If you are married, there is merit in including a trust in your Will to receive any business assets that you have which qualify for business relief. This trust will lock in the relief when the assets pass into the trust. It is common that after a death, a ‘cross-option’ agreement may be triggered which will replace any business assets with cash proceeds. In such circumstances, the Will Trust would ensure business relief is secured and the cash proceeds are in the trust and do not inflate the survivor’s estate.

Your spouse can then have access to as much or as little of the trust fund as needed from then on. Loans can even be granted by the trustees which are even more tax efficient as they are repaid on second death, reducing the IHT liability further. Upon second death, the assets in the trust can pass IHT free to the children or other beneficiaries.

If you have business assets in your estate that may qualify for business relief, the above estate planning is relevant to you and could significantly reduce your IHT liability.  


For further information please contact Camilla Bishop, Senior Associate at DMH Stallard
T: 01273 744228


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