Q&As from our live online event ‘Inheritance tax and intergenerational planning’

Equilibrium’s Founder, Colin Lawson, recently presented a live online event, ‘Inheritance tax and intergenerational planning’, exploring the actions you can take now to avoid a hefty tax bill and make sure your wealth helps your loved ones now and in the future.

Whilst you can sign up to watch the full recording here, we have put together a summary of the questions asked by the viewers on the day below.

What are your ongoing prices and what is the cost of the inheritance tax & intergenerational planning module?

As a standalone module, the inheritance tax & intergenerational planning service ranges between £2,750 to £7,750 plus VAT. The charge is assessed depending on the complexity of planning involved. There is no charge for an initial meeting during which we identify if the service is right for you and agree the appropriate level given your specific circumstances.

The ongoing cost of our full wealth management service is based upon the assets that we influence and manage. These range from 1.5% to 0.25% depending on the size of the portfolio.

We do not charge for initial meetings to ensure that when our clients become clients, they know that it is the right decision for them, and we can be sure we will have a successful relationship over a lifetime. Prior to becoming a client, we will always set out the fees involved in pounds and pence.

I have concerns about the ongoing cost for administering a discretionary or absolute trust. Would it not be more economic to use a “ready-made” trust product available on the market?

The administrative cost and complexity very much depends on the assets you put into the trusts. When we recommend trusts to our clients, we try to keep things as simple as possible and, where possible, our aim is to avoid the need to submit a trustee tax return to simplify the annual reporting.

Obviously, where a trustee tax return is required we will provide all the relevant information needed to complete it.

In general terms, our aim when managing the taxation of trusts is for the trust investments to not be taxed any more punitively than assets held outside the trust wherever possible. There are a range of strategies available to achieve this, both from a wrapper selection approach and through understanding the wider family circumstances.

What are your views on investing in the AIM market given the current investment climate?

The AIM market is, by its nature, more volatile and is classified as a higher risk investment as you are investing into smaller companies and growing companies – including early stage and venture capital backed companies.

Our approach, however, is to focus on stock selection and portfolio construction to steer the portfolio towards more established companies with profitable, cash generative business models that acknowledge external shareholders.

In doing so, we aim to manage the volatility and risks somewhat, however, it is still equity investment; it will be riskier and you will still see more volatility. As such, it will not be suitable to everyone and the risk tolerance, appetite and investment horizon need to be considered carefully.

That said, taking a longer-term view, I believe the outlook for UK smaller companies has some attractive properties once you look past the significant headwinds of COVID-19 & Brexit.

Should I put my house in my children’s name to avoid inheritance tax?

The issue with putting your house in your children’s name is the rules around gifts with reservation. These rules mean that if you continued to benefit from the property (i.e. live in it) after the gift, the gift would not count; and inheritance tax would still be payable.

In order for it to qualify as a gift for inheritance tax purposes, you would need to pay your children a market rent once you have gifted your home to them. Your children would potentially have to pay income tax on the rent you pay to them, and there could also be capital gains tax payable between the date of the gift and date of death.

Depending on the financial circumstances of your children, there is also a risk that you could lose your home in the event of divorce or bankruptcy.

So, in short, it’s not without its issues and pitfalls that you need to be aware of.

Will my children pay tax on money that I gift to them?

Direct lifetime gifts can be made to any individual up to any amount without any immediate tax liability to you or the beneficiary. The key point is that to avoid inheritance tax you would need to survive seven years from the date of the gift.

My husband passed away in 2011. Does this mean his residential nil rate band passes over to me?

Yes – the residential nil rate band is transferable between spouses and civil partners on death, much like the standard nil rate band. This is irrespective of when the first death occurred.

Risk warning: The content contained in this blog represents the opinions of Equilibrium Investment Management LLP (EIM) and Equilibrium Financial Planning LLP (EFP). The commentary in no way constitutes a solicitation of investment advice. It should not be relied upon in making investment decisions and is intended solely for the entertainment of the viewer. Past performance is never a guide to future performance. Investments will fall as well as rise and you may not get back your original investment.