Josh Gupta, CFP™ Chartered MCSI
Chartered Wealth Manager/Planner

Background

Mrs Gray was widowed 2 years ago. Before he passed away, her husband dealt with the finances. This left her well-provided for with substantial assets of approximately £2.5 million including their home. 

Problem

Unsure of her financial future now that her husband is no longer there to manage the finances, Mrs Gray wanted to ensure that she wouldn’t run out of money. Another area of concern was she didn’t want the family paying Inheritance Tax unnecessarily.

Solution

Fiducia recommended a detailed cash flow analysis to add clarity and bring peace of mind. This process illustrated that she should have enough income and capital and led to IHT planning without affecting her ability to meet projected expenses. Fiducia also advised her to take out Whole of Life Assurance. By writing life assurance under trust, it is likely that the entire proceeds of the claim could pass to the children tax-free. This would enable them to pay the inheritance tax eventually due on her estate. Another recommendation was to explore Business Property Relief through holding AIM shares using ISA wrappers. The advice to the client was that whilst this would increase the risk on part of her assets significantly, this should provide IHT relief after 2 years to reduce the tax eventually due. Lastly, Fiducia recommended a Holdover Relief Trust, creating a discretionary trust using her general investment account. This started the 7-year clock with potential substantial savings made in IHT once the 7-year period had elapsed. Although there will be some income tax liabilities within the trust, the potential IHT and CGT savings should outweigh these.

Case study learning points

  • Careful planning provided potentially substantial savings in the IHT liability.
  • Even though there were insurance costs and tax payable within the trust, the overall benefit should far exceed the expenses.
  • More importantly, a combination of the above strategies provided much needed peace of mind to Mrs Gray. She could focus on spending time with grandchildren rather than worrying about her finances.
Josh Gupta, CFP™ Chartered MCSI
Chartered Wealth Manager/Planner

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