Fiducia Wealth Management
Posted in Inheritance Tax on 13.09.07

Funding Inheritance Tax

Inheritance Tax (IHT) is frequently called a “voluntary tax” because in theory it should be possible to arrange your financial affairs in such a way so that your heirs can avoid having to pay any.  Despite the various tools available to financial planners to help mitigate IHT, frequently, at least part of an estate will suffer tax at 40%.

In such circumstances, it may be worth looking at insurance to help ease the burden on the potential beneficiaries.

Take the example of a 70 year old woman who has more than sufficient income.  If she is in good health, then it would be possible to arrange a whole-of-life policy where the sum assured is guaranteed to be paid out on her death, however long she lives, so long as the premiums are maintained.  To arrange a policy that paid £100,000, which in turn could be used to settle death duties would cost circa £350 per month.  Assuming she could afford to do this, would it make sense?

We have to make some bold assumptions here – but if we say that she dies when she’s 90, a total of c£84,000 will have been paid in premiums.  If instead she had saved those premiums and achieved growth of say 5%, ignoring tax, her estate would have grown by £143,861.  Assuming this is all subject to IHT, her beneficiaries would receive a net £86,317.

Some insurance policies will not collect premiums beyond age 90 (while maintaining the cover), so this could almost be seen as a worse case.  With a guaranteed insurance policy, £100,000 would have been paid however soon death had occurred.

This approach isn’t right for everyone, and (as always) there are some further points to consider, but as a principle, insuring against the cost of IHT should not be dismissed.

If you would like to look at the cost and benefit implications do let us know.

If you would like to know more about how we as Financial Advisers can help you with Inheritance Tax visit the Estate Planning section of our website: Estate Planning or send us email at: [email protected]

The information contained in our website is for guidance only and does not constitute advice which should be sought before taking any action. The information is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Fiducia Wealth Management Limited, or any associated companies or persons, its officers or its employees, for any loss occurred in connection with the content hereof and any such action. Professional financial advice is recommended for every case.

Fiducia is a multi award-winning firm of Financial Advisers based in Dedham near Colchester situated in the heart of Constable Country on the Essex Suffolk border.

Fiducia Wealth Management Ltd. Dedham Hall Business Centre, Brook Street, Dedham, Colchester, Essex, CO7 6AD.

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Fiducia Wealth Management
Posted in Inheritance Tax on 13.09.07