IHT Planning Case Study

November 27, 2018

We always talk about IHT planning and what we can do for clients, but sometimes it is difficult to see the substance behind our words. So, what better way to explain things than by taking an example case:

Mr & Mrs Smith are both retired and aged 64 and 67 respectively. They have a house valued at £450k with no mortgage and have no children. Mr Smith has pension funds valued at £950k and Mrs Smith at £458k. They have £43k in the bank, approx. £26k in premium bonds and £450k in investments.

Scenario if they do nothing: Total assets for IHT is £450k + £43k + £26k + £450k = £969k.

IHT exemptions are £650k (£325k each), and of course pensions are excluded, meaning they are potentially liable to IHT for £319k, which at 40% = £127.6k.

This one is straightforward; if the clients invest £319k (minimum) into a bond and write it in trust, after seven years that money will be out with their estate and not chargeable to tax. If the clients wanted some income, they could take 5% of this £319k from said bond each year, which is also not taxable.

Seven years should be OK for this couple as they are ‘young enough’ (in relative terms), but if you have clients who are that bit older and may not have that seven years, they can invest in an AIM ISA which only takes two years to wash out the system. That may be better for your clients although it has more risk to it. You cannot take any 5% withdrawals from the ISA, so if your clients needed an income, then they shouldn’t go for this option.

Please note that if this couple had had children, they probably wouldn’t have needed to do anything, since they would each get £125k exemption on top of their £325k for Residence Nil Rate Band.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at

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