Case study

Roger is a healthy 64 year old who has never made any lifetime gifts of capital. He has two adult children and four grandchildren. His wife has recently died leaving her estate of £800,000 all to Roger. She had never made any lifetime gifts. Roger’s other assets are:

• Majority shareholding in the family trading company worth £2million (eligible for business property relief at 100%)
• Investments, cash etc £400,000
• Family home £700,000

If Roger were to die and assuming he leaves his entire estate to his children his IHT liability would be £658,000.

Some IHT planning could reduce this significantly. Many factors need to be considered including his need for income and capital during the remainder of his life and the impact of other taxes particularly capital gains tax. However, the following could be considered.

• A Deed of Variation to redirect £255,000 of his wife’s estate to the children or possibly a discretionary trust of which Roger can be a beneficiary. This will enable her nil rate band to be used.
• Setting up a nil rate band trust for the children or grandchildren. It may be possible for Roger to repeat the exercise again in seven year’s time. On this basis he would remove a total of £510,000 from his estate.

Roger may wish to consider some lifetime planning with the family home. This is a rather more difficult area and assuming Roger wishes to carry on living in the property can involve some complex planning. It is not something to be undertaken by the faint-hearted!

However, the potential IHT saving just from the Deed of Variation and setting up a nil rate band trust would amount to £204,000.