Saving tax can add lustre to your investments
James McNeile, partner, tax and estate planning
Many of our clients have added lustre to their investments through using sensible tax saving opportunities.
Three current opportunities are:
1. Writing life insurance policies and pension death benefits in trust
If you hold life insurance policies in your own name or you die before fully drawing down your pension, the proceeds of the policy or the return of your pension fund can suffer Inheritance Tax (‘IHT’) at up to 40%. Given that these amounts are, by necessity, not ones which you can benefit from in your lifetime, it is sensible to write them ‘in trust’ for your chosen beneficiaries. In this way you avoid any IHT liability on these amounts.
Depending on your personal circumstances the proceeds can be written in trust for children absolutely or for a trust from which a surviving spouse can benefit, but where the value does not form part of their taxable estate when they eventually die. Money can be made available to such a spouse as needed or by loan.
Bypass trusts of this kind can be simply set up using standard documents provided by insurance and pension companies or by your Independent Financial Adviser. Sometimes it will be worth pulling proceeds from different policies together under one bespoke trust drafted by your lawyer.
2. Furnished Holiday Lettings
A tax efficient investment opportunity has arisen in furnished holiday lettings. This is one of the few residential property investments which can be fully relieved from Inheritance Tax and can also allow capital gains made on other investments to be rolled over into the purchase of a property and income tax relief on losses made in the letting business. European law means that your property may be situated anywhere in the European Economic Area.
The Revenue have recently tightened the basis on which a let property may qualify for these reliefs – for instance the property will from next spring have to be available for 210 days a year and actually be let for 105 days a year.
3. Use of bare trusts
In IHT planning there remain great tax advantages of giving away surplus capital sooner rather than later – by surviving the gift by at least seven years the value avoids IHT on the donor’s death. Giving money to young children may, on the other hand, mean that more than just the tax is lost – they might waste it or be persuaded to give it away. By using a bare trust the donor can retain moral control over the money and invest it appropriately while still allowing the gift to be treated as having been made and with the child’s own capital gains tax and income tax allowances and rates to be used.
For advice on these and other ways of protecting your hard earned wealth contact Mandy Casavant or James McNeile at our Old Town office in Swindon on 01793 536526 or email james.mcneile@withyking.co.uk
