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a regular pattern of such gifts and to document them correctly.


Trusts


If you put money into a trust and (crucially) you and your spouse can’t benefi t from that trust (but rather, say, your children and grand- children can benefi t) then the value leaves your estate immediately. Trusts also provide other benefi ts such as asset protection – meaning you can safely leave value for your children’s future benefi t without the risk of them losing half of it in a messy divorce, for example. It sounds easy, but it’s anything but, and there


are lots of traps to be aware of, so professional advice should always be sought.


Combining tax efficient investment strategies and IHT planning Off shore bonds: Instead of investing in their own name, individuals can invest through off shore bonds, essentially making them the policy holder of a life assurance product that won’t pay out for maybe generations. If structured correctly, the income and gains within the bond roll up entirely tax free and


It is worth being aware of potentially triggering


capital gains tax (CGT) liabilities when making gifts, and also, beware gifts with reservation (GWR) rules that mean you can’t just give away your house to your children and continue living in it and hope to avoid IHT – unless you’re willing to pay your chil- dren market value rent for the pleasure. One option lots of clients look at is insuring the


IHT exposure for that seven-year period – which can be surprisingly cheap, even for people well into their sixties.


Gifts of business assets Provided certain conditions are met, assets used in a trading business or shares in a trading company benefi t from relief from both CGT and IHT. T e result is that any gain is held over and not taxable until the asset is disposed of by the recipient, and for IHT purposes it means no exposure even if you don’t survive seven years (as long as the recipient still owns the shares, or – for other business assets – as long as those assets still qualify for IHT relief). Similar rules allow you to put unlimited value


into trusts, again with no immediate CGT or IHT consequences.


Gifts out of normal income If a gift forms part of your normal expenditure, is made from your income (salary, dividends, rental income etc) and leaves you with enough to main- tain your normal standard of living, then the gifts are exempt from IHT and not subject to the seven-year clawback. It is important to be able to demonstrate


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you can even take back 5% of the original capital tax free every year if it is needed. Properly constructed, policies are set up as thousands of ‘mini policies’ which can be gifted so your chosen heirs benefi t from the tax-free growth. Such gifts are potentially exempt from IHT (the seven-year rule) and are not a disposal for CGT purposes. Family investment companies (FICs): T is normally involves setting up a UK company, lending money to it, and the company makes the investments you would otherwise have made in your own name. T e company pays no tax on dividends, 19% on interest and gains (albeit soon 25%), and allows you get your money back tax free as loan repayments – a signifi cantly lower tax burden than investing personally. Shares in the FIC typically have little value on Day One (its investment assets equalling its liabilities to you) but that will change as the investments start to perform, and that value falls into your estate. However, shares could be gifted to your children or a trust for their benefi t; their initial low value means the IHT and CGT consequences should be negligible. Care is needed, however, when deciding how the loans are structured so take professional advice.


Final thoughts IHT is impacting on more and more families and can massively reduce the value you can pass to the next generation. It’s a complex area of tax with lots of booby traps but with proper care and good advice – particu- larly when using trusts or specifi c investment products – considerable protection from IHT can be achieved. And remember, ‘deathbed planning’ is all but impossible – so don’t leave it too late!


For more information, contact Trident Tax on 0207 952 2921 or via www.tridenttax.com


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