Inheritance Tax: Michael
My name is Azhar, and I’m the director at taXcellent. This account is based on a real life story of one of my clients. Hopefully it helps you picture how I can help you! Book in a call when you have made your decision.
When Michael approached me, he had recently taken on the responsibility of managing his elderly father’s finances. His father’s estate, valued at £1.1 million, included a family home, savings, and some investment properties. Michael was deeply concerned about the potential inheritance tax (IHT) liability that could arise upon his father’s passing and wanted to ensure as much of the estate as possible could be passed on to his family.
In our initial conversation, Michael admitted he felt overwhelmed by the complexity of the IHT rules and was worried about making costly mistakes. He also wanted to ensure that any planning was straightforward and ethically sound.
I began by conducting a detailed review of the estate’s assets and current arrangements. I explained to Michael how the IHT thresholds and allowances worked, including the nil-rate band and the residence nil-rate band. With his father’s estate exceeding these thresholds, there was a potential 40% tax liability on a significant portion of the estate.
We devised a simple and ethical plan to minimize the IHT liability while ensuring compliance with all legal requirements. This included:
- Using Gift Allowances: I helped Michael and his father understand how annual gift allowances could be used to pass on wealth tax-free over time. Regular, small gifts from surplus income were also a viable option, as they would not be subject to IHT.
- Trusts: For a portion of the investments, we explored placing assets into a trust. This would reduce the value of the taxable estate while maintaining some control over how the assets were managed and distributed.
- Reviewing Property Ownership: By restructuring the ownership of the family home, we maximized the residence nil-rate band, significantly reducing the estate’s taxable value.
- Charitable Donations: Michael’s father was passionate about supporting a local charity, and we incorporated charitable donations into the plan. These not only honored his father’s wishes but also reduced the overall IHT liability by making use of tax-efficient giving rules.
The final plan was easy for Michael and his father to understand and implement, avoiding unnecessary complexity or aggressive strategies.
Months later, Michael expressed his gratitude:
“Your guidance has been invaluable. I was lost in the details of inheritance tax, but you helped us create a clear, ethical plan that gives me peace of mind and ensures my father’s wishes are honoured. I can’t thank you enough.”
By helping Michael and his family take a proactive approach, we successfully minimized the estate’s IHT liability while ensuring a smooth transfer of wealth and preserving the family’s legacy.