Estate Planning - Private Client

• Equalisation of estates still a sensible course of action – provides financial security for surviving spouse and greater scope for tax planning

• Ownership of the matrimonial home – co-ownership is usually better; ownership as beneficial tenants in common may provide more scope for tax planning but may have practical problems

• Consider impact of other taxes i.e. income tax and CGT

• Income tax – try to maximise use of each spouse’s lower rate tax bands

• CGT – transfer between spouses at consideration which gives no gain and no loss; can be sensible to make a preliminary transfer between spouses so that each can make a lifetime gift and utilise exemptions.

• Consider the availability of reliefs, e.g. one spouse may qualify for BPR but not the other, so would not be sensible to transfer such an asset to the non-qualifying spouse – better to leave such assets to children by will.

• Any unused NRB will transfer to the surviving spouse on the other’s death

• Tax implications of transfers into trust

• Will usually be a LCT for IHT purposes and the income deeming provisions mentioned above apply to trusts set up for minor children (s.20 ITTOIA 2005)

• BEWARE THE RESERVATION OF BENEFIT RULES!

• Always consider as a tax efficient method of reducing the assets in the estate

• Availability of charity exemption for IHT: lower rate of 36% IHT if >10% of estate given to charity

• e.g. pensions

• pension trustees are not obliged to pay it to the deceased’s estate

• no IHT liability

• ongoing pensions to spouse and dependants not part of deceased’s estate

• Defined in IHTA 1984

• e.g. reversionary interest – a future interest under a settlement created before 22 March 2006

• Straightforward but inflexible inexpensive

• If circumstances change, property given away cannot be recovered

• No control of the property

• Lack of flexibility

• Higher operational expense

RESERVATION OF BENEFIT RULES

• Apply where an individual disposes of any property by way of gift and either:

• Full possession and enjoyment of the property is not bona fide assumed by the donee at or before the beginning of the relevant period – s.102(1)(a)

• At any time in the relevant period the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor by contract or otherwise – s.102(1)(b)

• Relevant period = the period ending on the date of the donor’s death and beginning seven years before that date, or if it is later, on the date of the gift

• Consequences:

  • A gift that is not fully given away because the donor keeps back some benefit for himself is charged to IHT as though they remained in the donor’s estate

  • e.g. a donor gives his home to his adult children (who live elsewhere) and continues to live there tax-free

• Exceptions: