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
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
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
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