We created flexible Wills for Tax efficiency
Our clients were a married couple with children, and owners of valuable private company shares. They told us:
“We want The Burnside Partnership to advise us on making sure our Wills are tax efficient. We want to settle things so that both our children will benefit, and so that matters will run smoothly in the event of one of us dying before the other. One of us is also expecting an inheritance from another estate, and so we need advice on the Inheritance Tax implications.”
How we helped
We considered whether their shares could be eligible for Business Property Relief (BPR) and therefore 100% relievable from inheritance tax (IHT). We also looked at matters such as whether they had any debts secured against the BPR qualifying assets as this can reduce the amount of BPR that can be claimed.
Their Wills left the shares to the surviving spouse outright on the first death. BPR is a valuable relief and would have been wasted under their current Wills, as the gift to the spouse would already be covered by the spouse exemption to IHT. Furthermore, if the surviving spouse subsequently sold the shares, then cash would be in their estate, which would be subject to IHT, rather than the relievable shares.
We advised on the merits of putting in place flexible Wills giving the trustees discretion as to who within a class of potential beneficiaries inherits, how much and when. The advantages of this estate planning are that:
- It forces the Revenue to consider if the shares qualify for BPR on the first death. This certainty on the IHT position helps the trustees in their decision making.
- If the surviving spouse needs the shares or the dividend income, they could be paid to them from the trust.
- If, however, the survivor does not need the funds, then the shares can remain in the trust and subsequently be transferred to the children, some of whom may be involved in the business, without any IHT charges.
- If the shares are sold whilst in the trust then any proceeds remain in the trust and do not form part of the survivor’s estate for IHT.
- A further tax planning opportunity can arise whereby the survivor can swap cash, which would be subject to inheritance tax in their estate, for the IHT-relievable shares. This “double-dip” planning can lead to considerable IHT savings.
The result
By making flexible Wills, the clients have ensured that their loved ones can benefit from their business interests in the most tax-efficient manner.