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WEALTHIER INDIVIDUALS:  Liquid  Assets above the NRB up to ~£1,000,000


It of course makes sense to use the gift exemptions outlined elsewhere on this website even if your estate is worth significantly more than the Nil Rate Band.


However, other strategies may also become more relevant as you move up the wealth ladder although the level at which they may start to become important is often more a reflection of the kind of lifestyle you are leading, your state of health, and how much spare income capacity you have, rather than the absolute size of your overall estate.




1. Potentially Exempt Transfers (PETs)


If you are in possession of assets which are not essential to maintaining you style of life for the foreseeable long-term future and the various exempt gift allowances have been used, one option is simply to give them away to whomever you see fit.


If you do this, they will be treated as Potentially Exempt Transfers (in jargon: PETs), which means that if you survive for seven years after making the gift it will fall entirely outside your estate for IHT purposes.


However, one risk for people with assets in the region of the NRB-threshold is that they will find themselves taken aback by unforeseen twists of fate.


In such situations it can sometimes be a better idea to consider giving away a share of the home directly to e.g. your children, although it will mean that you (and your spouse) will have to pay them the going market-price to rent their share of the property.


The advantage though, is that not only will the gift be outside the estate in seven years' time, but in the meantime the rent paid will also amounts to a transfer of assets to your children.


Property may be an asset but it brings its own liabilities and expenses. So, in many cases it is better for a retired person(s) to have cash in the bank (or liquid investments) and less property to worry about.


2. Gift inter vivos insurance


If you make a PET to a friend or family member but have concerns that you may not survive the full seven years to ensure full tax exemption, it's possible for the beneficiary (or you, if you're feeling generous) to take out a single-premium decreasing life policy to protect against any potential IHT.


The sum assured falls over the seven-year term, mirroring the reducing IHT liability; if you die during that time, the policy pays out a tax-free lump sum to cover whatever is due to HMRC.


You must remember that if you were to give e.g. your son or daughter one of your Rembrandts and he/she sells it and spends all the money and you die of grief before the 7 years are up, they will be liable for the incurred IHT on a retrospective basis even if the money have all gone!


3. Discretionary and other trusts


If you feel reluctant to make outright PETs - whether because you do not fully trust the beneficiaries, or perhaps are concerned about their marriage or business prospects etc. a sensible option is to use a so-called: Discretionary Trust.


Under this arrangement, up to £325,000 of assets can be put into a trust for the beneficiaries without any immediate tax charge. After seven years they will be outside the estate, but the advantage is that you can retain a degree of control over their management and distribution in the meantime.


Another possibility is to use a Flexible Reversionary Interest Trust (FRIT) that enables you or your spouse to receive an income from those assets if necessary at a later date, but with the trust able to make gifts to beneficiaries during your lifetime.


Flexible Reversionary Trusts are complex products and will not be described in further detail here; suffice to say that such policies can be structured as a series of single premium life assurance polices and that some of these trust can invest in any unit trust and thus be matched to your individual's risk tolerance. In addition, regular income is available which increases your overall level of flexibility.


By using life insurance products within a trust, it is possible to avoid any tax returns or the payment of excess tax by the trustees, so it's often cheaper to do this than to use alternatives.


Transferring assets into trusts are generally irreversible and can be very complex indeed. It is therefore essential that professional advice is sought before such endeavours are embarked upon.



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Phone: 01603 452686










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