The WAY Inheritor Plans
Inheritance Tax Mitigation Strategies
Most taxpayers are fairly sanguine about paying the various forms of taxation on income, gains, goods and services which are required to maintain the society in which we all choose to live. However, few of us can accept the further taxation of already-taxed assets via the posthumous stealth tax which is Inheritance Tax.
Many years ago Sir Winston Churchill had this to say about successive Governments' desire to tax us into prosperity: "For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.
It is human nature to look after ourselves in old age as well as to leave as much of a legacy as possible to our children. Such a legacy should be in all forms: education, health, friends and financial security. So we all try to create our own nest egg to supplement our other retirement plans and to support us in our dotage, a reservoir into which we can dip both for income and occasional capital sums, as well as to leave an appropriate legacy for our family.
We all need the security of such a reserve and yet if we keep those moneys within our ownership right up until we die (which we must do in order to be able to sleep at night) then the tax man is likely to take 40% of it as Inheritance Tax - subject to the Nil Rate Band of £325,000 which is often fully utilised by our properties. To avoid, not evade, this pernicious tax we must remove the assets from our ownership without depriving ourselves of the security they offer - both income and occasional capital.
The WAY premise for this exercise is to deliver a mix-and-match selection of mitigation strategies which remove the bulk of these assets from the taxpayer's estate, either immediately or over a seven year period, without depriving him/her and beneficiaries of pre-planned but flexible access.
WAY offers a substantial array of nine plans which include direct investment in portfolio style funds and investment via offshore insurance 'wrappers'. They broadly fit into three types of plan:
- Immediately exempt gifts;
- Chargeable Gifts (below the Nil Rate Band) exempt after seven years; and
- Potentially Exempt Transfers becoming totally exempt after seven years.
Link to: WAY IHT Plan Documents
1. Immediately Exempt Gifts
Regular gifts from income or 'Normal Expenditure' gifts are immediately exempt from Inheritance Tax. These gifts are such that they comply with the requirements of the 1984 IHT Act which demand that they are Regular, are from After-Tax Income and do not negatively impact on the donor's Standard of Living. The WAY plan allows investors to comply with these requirements, thereby achieving the instant exemption, but without depriving them of future access to their assets. This plan is called the: "WAY Gifts from Income Inheritor."
Link to: WAY IHT Plan Documents
2. Chargeable Gifts - below the Nil Rate Band
For many years taxpayers were able to create trusts of gifted assets under the old PET (potentially exempt transfer) rules where there were no limits on the size of gift and no Inheritance Tax to pay unless the donor died within seven years of making the gift. With appropriate trust wording the donor could access those funds as well as allowing beneficiaries to benefit either before or after the death of the donor. Such trusts are still available but they are now (since March 2006) deemed to be chargeable, but only for gifts which cumulatively exceed £325,000 over each seven year period. After seven years such gifts fall completely out of account. This plan is called the: "WAY Flexible Inheritor Plan" - there is also a discounted version.
Link to: WAY IHT Plan Documents
3. Potentially Exempt Transfers
The PET regime still applies for unconditional gifts to individuals and/or bare trusts. WAY has launched a scheme to benefit from this continuing freedom whereby a 'death benefit' associated with otherwise retained assets is gifted away unconditionally for the irrevocable benefit of named beneficiaries. This happens courtesy of an offshore investment contract where phased maturities deliver ongoing access to the investor but any policies remaining at the date of death are paid out as a death benefit directly to beneficiaries. So long as the gift of death benefits into the bare trust happened at least seven years before the death of the taxpayer then no IHT should be payable. This plan is called the: "WAY Estate Transfer Plan."
Link to: WAY IHT Plan Documents
4. Chargeable gifts – below the Nil Rate Band (with immediate IHT Discount)
Increasingly the most effective way to reduce the imposition of Inheritance Tax (IHT) is to gift assets away from your estate during life and then survive seven years. Subject to the initial gift being within your allowances at the time it was made, it will then fall outside the IHT net without any liability. Of course this can be worrying if access to those gifted assets, either as regular income or emergency family use, is desirable for the prospective Settlor. With this WAY plan the donor can benefit from both a discount for IHT purposes on the sum gifted and a high degree of flexibility over future access to those funds. Moreover, it is extremely simple in operation, requiring the minimum of ongoing attention in the years ahead. The plan is called the: "The WAY Duo Inheritor Plan".
Link to: WAY IHT Plan Documents
Combining Plans
It is very likely that a comprehensive strategy for mitigating IHT will incorporate more than a single approach and many investors have utilised two or three different WAY plans within their overall strategy. In some cases assets are freed up by releasing equity from one's house. This can be done either with interest rolled-up or with reversions paying down mortgage interest.
Independent Financial Advisers
WAY offers its IHT plans via professional intermediaries. This ensures that clients receive independent and unbiased advice on their investment and tax affairs.