Inheritance Tax Saver Plan

The Problem

If you inherit money or assets from a relative or friend's estate, that inheritance may result in your estate exceeding the Inheritance Tax (IHT) threshold or increase the IHT liability of your estate.

The Solution

You can redirect your legacy or inheritance through a discretionary trust so that the funds do not form part of your estate for IHT purposes whilst allowing you full access and use of the funds.

The discretionary trust is written so that you can receive all the funds to invest or spend as you like.  There are powers to loan the fund to you so that your estate remains liable to repay the loan, reducing your estate for IHT purposes.

Timing

Even if you have received your inheritance and invested or spent the funds, you can still set up the plan, provided you enter into the plan within 2 years of your relative or friends’ estate.

Example

Mr Smith owns assets totalling £345,000.  Therefore his liability to IHT amounts to £8,000 (£20,000 @40%).  Mr Smith inherits £305,000 from his mother’s estate.  His estate amounts to £650,000 producing an IHT liability of £130,000 (£325,000 @ 40%).

By redirecting his inheritance via an Inheritance Tax Saver Plan, the funds are leant to Mr Smith.  Therefore Mr Smith’s estate amounts to £650,000 but is liable to repay £325,000 reducing his estate to £325,000 for IHT purposes, saving £130,000.