IHT

Question 1

Recommend and justify life policy to cover current and future IHT liability

Answer 1

• joint life second death whole of life policy
• held in trust
• no IHT on first death
• IHT due on second death
• in trust to ensure it doesn’t add to the estate and increase IHT due
• sum assured to meet existing IHT liability
• allows them to keep full control of existing assets
• indexed to keep pace with inflation
• guaranteed insurability could be included
• to allow increases in cover with with no need for underwriting
• will benefit if health deteriorates
• premiums out of normal expenditure so can be immediately outside the estate
• guaranteed premiums for know future cost
• Level term Plan for David for 7 years to cover IHT possible on non exempt gifts to Karen

Question 2

Drawbacks of WOL

Answer 2

• cover may not match IHT liability
• estate value may increase at a faster rate than the indexing on the policy
• estate may decrease in value
• it doesn’t reduce the IHT liability
• could reduce disposable income in retirement
• if reviewable premiums then could become unaffordable

Question 3

Recommend and justify actions to reduce IHT on second death

Answer 3

• change owenerahip of assets in estate
• so NRB will trusts can be added to the wills
• ensuring growth of these assets is outside the estate on second death
• nominate money Purchase pensions into spousal by pass trusts
• which will allow Leanda to the survivor which are repayable by the estate on second death
• Place assets into a discounted gift trust
• gaining an immediate reduction in IHT liability
• gained through the discount which should be good as both relatively young and in good health
• assets will be outside estate in 7 years
• whilst allowing them to still take income
• growth immediately outside
• Place Davids LTA in a trust so being outside of the estate
• invest in EIS - outside estate for IHT after 2 years
• make regular use of annual gift exemptions
• these are immediately exempt for IHT
• make gifts to Karen and Joshua/ grandchildren
• exempt after 7 years
• David to leave assets to Karen in the will
• that make use of any RNRB
• increase income taken from portfolio as this is subject to IHT
• stop taking unnecessary income from SIPP
• as this is an IHT exempt asset

Question 4

R and J actions to improve IT and IHT positions

Answer 4

• full use of ISA allowances
• switch to income units
• to increase tax free income
• Funds Davids ISA by using David’s CGT exemption
• to wrap investment trust into ISA
• this will increase tax free income
• taking higher levels of income reduces the estate
• and the survivor can inherit the Isas
• stop taking SIPP income
• taxed at higher rate for David
• and is reducing an IHT exempt asset
• rebase the IB - assigning it to June first to avoid any tax on encahsment
• reinvested in joint names
• the drawing £12500 tax deferred
• add younger lives assured to avoid it falling into the estate on second death
• David to invest in EIS
• 30% tax relief
• to a maximum of the income tax payable in the year the shares are issued
• after two years the EIS will be outside of the estate for IHT