Although many of our clients and intermediaries may have hoped to hear more on last years proposals in respect of UK residential property held in enveloped structures, and the issue of look through for IHT purposes, there was nothing further said in last weeks budget. We have however attended a number of seminars provided by tax professionals, both pre and post budget, and the message is clear that, if not doing so already, clients should be planning now for these expected changes which are expected to take effect from April 2017.

In addition, the Annual Tax on Enveloped dwellings now incorporates a lower tier from the tax year April 2016, now capturing residential properties from £500,000. Therefore the question of holding a property within an offshore company will now affect more of our clients locally.

Having returned from a recent post budget presentation, we also wondered how many local residents may still be unaware of these significant changes, and how easy it may be for these individuals to mitigate these potential pitfalls if taking appropriate advice. We would therefore recommend clients to take professional tax advice if they have not already.

We would also like to share some of our experience when working with clients who are faced with the potential of IHT on a UK estate and how it is possible to safeguard against the financial consequences to a family of having to cope with a potential the 40% tax liability, by the use of one of the more traditional planning tools, namely life assurance.

So why does anyone take out a life assurance policy?

Well the short answer is to protect against the financial cost of the premature death of an individual, whether this be paying off a mortgage or protecting those who are financially dependent, whether in a family or business situation. Therefore protecting against a potential loss of 40% Inheritance Tax on a UK estate would be no different.

There are, however, issues when looking at the cost of such cover, namely the age and health of the life assured and residency if living outside of the UK or Crown dependencies. The costs or insurability can sometimes be prohibitive although with appropriate planning these can be mitigated.

One such example may be arranging a shorter term assurance to cover a period of time, until assets may be fully passed to the next generation for IHT purposes, such as a gift “inter-vivos” cover. Alternatively, arranging plans on a joint name and second death basis will also reduce the cost of such cover.

Finally, if looking at a purchase, then funding this with borrowing could also be a relevant strategy to reduce the net value of the UK estate.

Rather than dwell on the variety of solutions at our disposal, we would urge potential clients and intermediaries to make contact now where we can assist with the appropriate planning.

Share this page