Inheritance and Capital Gains Tax Strategies

Inheritance and Capital Gains Tax Strategies

This client came to us following a recommendation by their accountant for strategic inheritance tax and capital gains tax planning. The client had accumulated a number of properties over time and wished to pass these onto their children. There is usually friction between inheritance tax and capital gains tax whereby if the assets are transferred during a lifetime, there is a capital gains tax charge. In contrast, if the assets are left in the estate until death, there is an inheritance tax charge at 40%. The other main issue with leaving assets (especially property) within the estate is that the increase in value over time meaning the inheritance tax liability increases over time. We were able to propose a unique tax planning structure which reduced our client’s estate and therefore the inheritance tax liability. At the same time, the tax planning allowed for no capital gains tax to be paid.

Our analysis: Before coming to see us this client had taken advice on setting up a number of trusts which in our view over complicated matters and ultimately ended with a high tax liability than was required. 

Inheritance Tax Advice during Covid-19

Claim for overpaid inheritance tax due to fall in stock market or property prices 

a. Drop in property prices following death 

If someone passes away leaving behind properties, the inheritance tax is normally payable on the market value of the properties within six months after the date of death. If the property prices have fallen since the date of death, and the properties are sold by the beneficiaries at a loss within three years following the date of death, then a relief/ refund for any excess inheritance tax paid can be claimed. HMRC require the claim to be made within within four year of the end of the four year period during which the sale was made. Specialist advice should be taken before a claim for refund is made as the relief may be restricted.

 b. Drop in stock market prices 

If someone passes away leaving behind shares in the stock market, the inheritance tax is normally payable on the market value of the shares is normally payable within six months after the date of death. If the share prices have fallen since the date of death, and the share are sold by the beneficiaries at a loss within 12 months following the date of death, then a relief/ refund for any excess inheritance tax paid can be claimed. HMRC require the claim to be made within within four years of the end of the four year period during which the sale was made. Specialist advice should be taken before a claim for refund is made as the relief may be restricted. 

Review of family assets and wills by a tax specialist 

It is important to carry out an urgent review of the family assets including properties, shares, savings etc and the wills of the main heads of the of the family that own the assets. Whilst it is common to have a mirror will in place, this could be a time bomb for when the surviving spouse passes away and result in a much larger tax liability. This can be avoided as there are more effective tax planning structures available that could be applied to mitigate the overall tax liability of the family. Please contact us if you would like a tax specialist to review your family’s assets and advise on the best possible tax planning strategy that is tailored to your personal circumstances. 

Deed of Variation 

Where someone has passed away recently leaving behind some assets and there is inheritance tax payable. If the deceased left a will, it is worthwhile speaking to a tax specialist and check if there are any options for mitigating the inheritance tax payable through a Deed of Variation of the will. In our experience, the Deed of Variation if applied correctly can save significant amounts of inheritance tax. Please contact us if you have recently lost a loved one and wish for us to consider any tax mitigation options through a Deed of Variation. 

Bereaved Minors Trust 

A Bereaved Minors Trust (BMT) can be set up in a will where if a parent dies leaving behind minor children (under the age of 18 years). The benefit of the BMT is that the assets are taken by the Bereaved Minors Trust and there is no inheritance tax payable by the deceased’s estate. The assets need to be transferred to the children when they reach the age of 18 years. Until then, the income or capital of the trust can be used for maintenance of the children. Please contact us if you are worried about leaving behind young children and would like advice on setting up a Bereaved Minors Trust as part of your will