IHT Flashcards

1
Q

Recommend and justify life policy to cover current and future IHT liability

A
  • joint life second death whole of life policy
  • held in trust
  • no IHT on first death
  • IHT due on second death
  • in trust to ensure it doesn’t add to the estate and increase IHT due
  • sum assured to meet existing IHT liability
  • allows them to keep full control of existing assets
  • indexed to keep pace with inflation
  • guaranteed insurability could be included
  • to allow increases in cover with with no need for underwriting
  • will benefit if health deteriorates
  • premiums out of normal expenditure so can be immediately outside the estate
  • guaranteed premiums for know future cost
  • Level term Plan for David for 7 years to cover IHT possible on non exempt gifts to Karen
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2
Q

Drawbacks of WOL

A
  • cover may not match IHT liability
  • estate value may increase at a faster rate than the indexing on the policy
  • estate may decrease in value
  • it doesn’t reduce the IHT liability
  • could reduce disposable income in retirement
  • if reviewable premiums then could become unaffordable
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3
Q

Recommend and justify actions to reduce IHT on second death

A
  • change owenerahip of assets in estate
  • so NRB will trusts can be added to the wills
  • ensuring growth of these assets is outside the estate on second death
  • nominate money Purchase pensions into spousal by pass trusts
  • which will allow Leanda to the survivor which are repayable by the estate on second death
  • Place assets into a discounted gift trust
  • gaining an immediate reduction in IHT liability
  • gained through the discount which should be good as both relatively young and in good health
  • assets will be outside estate in 7 years
  • whilst allowing them to still take income
  • growth immediately outside
  • Place Davids LTA in a trust so being outside of the estate
  • invest in EIS - outside estate for IHT after 2 years
  • make regular use of annual gift exemptions
  • these are immediately exempt for IHT
  • make gifts to Karen and Joshua/ grandchildren
  • exempt after 7 years
  • David to leave assets to Karen in the will
  • that make use of any RNRB
  • increase income taken from portfolio as this is subject to IHT
  • stop taking unnecessary income from SIPP
  • as this is an IHT exempt asset
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4
Q

R and J actions to improve IT and IHT positions

A
  • full use of ISA allowances
  • switch to income units
  • to increase tax free income
  • Funds Davids ISA by using David’s CGT exemption
  • to wrap investment trust into ISA
  • this will increase tax free income
  • taking higher levels of income reduces the estate
  • and the survivor can inherit the Isas
  • stop taking SIPP income
  • taxed at higher rate for David
  • and is reducing an IHT exempt asset
  • rebase the IB - assigning it to June first to avoid any tax on encahsment
  • reinvested in joint names
  • the drawing £12500 tax deferred
  • add younger lives assured to avoid it falling into the estate on second death
  • David to invest in EIS
  • 30% tax relief
  • to a maximum of the income tax payable in the year the shares are issued
  • after two years the EIS will be outside of the estate for IHT
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