Inheritance Tax (IHT) Seminar 20 th May 2015
Agenda Session 1 - Why IHT? - Allowances & exemptions - Trust solutions - Chris O Reilly WAY Group Session 2 - Pensions & IHT - Investment solutions Steve Godfrey Octopus - Q&A Panel
Why IHT? Inheritance Tax is broadly speaking a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue (Roy Jenkins MP, 1986, in a Commons debate about IHT (cited in Brooks Green, no date). 6.4 bn 2019/20
Elections & IHT Main residence allowance 175k per person Total joint exempt estate 1m ( property = 350k ) Freezing nil rate ( 325k ) allowance 2009-18 Property prices 2009-18! Exemptions keep it simple MAKING SENSE OF MONEY
IHT rates Band Death Lifetime Transfer 0 325,000 Nil % Nil % Over 325,000 40% 20%
Transferable Nil Rate Band Estate worth 800,000 Husband Wife 325,000 325,000 Husband 650,000 Dies Inheritance Tax: 800k - 650k = 150k Tax Liability: 150k @ 40% = 60k
Annual Exemptions What you can gift without charge 3000 250
Wedding gifts 5000 1000 2500
Other gifts Gifts from income will be immediately free from IHT Lump-sum transfers (gifts) will be free of IHT after 7 years
IHT on a PET Taper Relief applies: Years between gift and death Reduction in tax charged 0-3 0 3-4 20% 4-5 40% 5-6 60% 6-7 80% 7+ 100%
Charitable gifts Reduced rate of IHT 36 per cent instead of 40 per cent. What Charities can benefit from the legacy? How will it affect the beneficiaries?
Trust Solutions Chris O Reilly WAY Group
Estate Planning & Inheritance Tax Chris O Reilly WAY Investment Services
Who has an IHT Problem? IHT: 40% on estates over 325,000 Asking price 650,000 (Source: Rightmove 18/09/14)
Types of Gift or Transfer Exempt transfer Potentially Exempt Transfer (PET) Chargeable Lifetime Transfer (CLT)
Divorce Care fees Emergency Education fees Surviving spouse Living costs increase Special event
The Problem If you give it away you can t get it back! If you can get it back, you haven t really given it away!
The solution Trust but what is a trust?
Your Estate Your Beneficiaries Trust
Your Estate Trustees Your Beneficiaries The Right money In the Right hands At the Right time With no TAX
Settlor access Gift and Lend to beneficiaries Trust Lump sum - 7 year clock Excess income - no 7 year clock
Access & Control of Assets Control of assets Access to Capital Access to Income Flexibility Liquidity Changing needs Lifestyle choices Earmarked for.. X Protection from Inheritance Tax
Nil Rate Band Planning Lump sum investments
Nil Rate Band recycles every 7 years! Age Life Expectancy Male Female 60 4x NRB 22.3 = 1,300,00 25.2 70 14.6 16.8 3x NRB = 975,000 80 8.2 9.6 2x NRB = 650,000 Source: GAD E&W Interim Life Tables 2010-12
The WAY Inheritor Plans Flexible Inheritor Plan Flexible Reversionary Trust Interest In Possession Trust Relevant Property Regime Chargeable Lifetime Transfer NRB Planning ( 325,000 max) Single Settlor Collective investments
Flexible reversionary trust Settlor 2% 0% 3% Capital Lump Sum Trustees 10% 10% 18% 10% 28% 10% 35% 10% 10% 10% 10% 10% 10% 8% 18% 25% Gifts or Loans to beneficiaries at any time
Gifts from Income (Normal Expenditure) An underused option
The WAY Inheritor Plans Gifts from Income Plan Flexible Reversionary Trust Interest In Possession Trust Exempt Transfer Collective investments Immediately Exempt Normal expenditure rules
HMRC - Section 21 IHT Act 1984 Immediately exempt from IHT but only If; It is regular (or intended to be regular) From surplus net income Does not impact on standard of living of the Donor
Gifts From Income Trust Settlor Trustees Year 1 Surplus Income Year 2 Year 3 TRUST All immediately EXEMPT Year 4 Deferrable reversions to settlor 50% year 5 & balance year 10 Loans / appointments to beneficiaries at any time as necessary
What is held within the trust? Investment Funds Designed specifically for Trustee investments Risk rated Portfolios with Low volatility Diversified, dynamic asset allocation Positive real returns without undue risk
Investment Manager? Initial Charge 2% Annual Management Charge 1.3%
Other advantages of Trusts 125 year perpetuity No Probate Secret Care Fees planning Divorce - keep assets in the bloodline Not a final decision Adapt to life changes
One day, my son, 60% of this will be yours
Please remember Information in this presentation is based on WAY Group s understanding of the law and HMRC practice as at April 2015. Legislation and taxation could change in the future. The planning referred to in this document is illustrative and not exhaustive, is for investment professional use only and not intended for distribution to retail clients. The content does not constitute advice or a recommendation to any individual and is not intended to address all of the necessary areas that should be reviewed. WAY Investment Services is not authorised to give financial advice -your clients should always seek suitable financial advice.
Please remember Your client s capital is at risk of loss they may not get back the original amount invested. The value of their investments and the income derived from them can go down as well as up as a result of changes in their underlying value and currency movements. Past performance is not necessarily a guide to future returns. WAY Investment Services Limited Cedar House, 3 Cedar Park, Cobham Road, Wimborne, Dorset BH21 7SB Telephone: 01202 890895 Facsimile: 01202 890894 Registered in England No 3181187 www.waygroup.co.uk, WAY Investment Services Limited is an appointed representative of WAY Fund Managers Limited, which is authorised and regulated by the Financial Conduct Authority
The Efficacy The of WAY The Inheritor Trusts Plans Expert Counsel s Opinion Lynton Tucker of New Square Chambers Specialist trust barrister Co-editor of Lewins on Trusts Leading Junior - Chancery: Traditional - Chambers UK 2006, 2007, 2008, 2009 and 2010 Direct communication with HMRC Gifts With Reservation Pre-Owned Asset Tax Finance Act 2006
Reversionary Interest Trusts The concept has cleared all hurdles 1906 Re Cochrane 1943 - Commissioner of Stamp Duties of New South Wales v Perpetual Trustee Co Ltd 1952 St Aubyn v A-G (No2) 1986 Inheritance Tax replaces Capital Transfer Tax 1986 Gifts With Reservation of Benefit 2004 Pre-owned Asset Tax 2006 Extension of Relevant Property Regime 2011 Disclosure Of Tax Avoidance Schemes (DOTAS)
Break
IHT & pension death benefits How to surprise an old timer!
Pension death tax cuts Death before 75 - tax free Death at 75+ - income tax More flexibility All benefits from DC pensions paid tax free (within LTA) Uncrystallised funds tested against deceased s LTA All benefits (pension/ lump sum)taxed as recipient s income For 2015/16 only 45% tax on non-drawdown lump sums ANY nominated individual can now inherit a drawdown pot New tax rates apply to benefits paid after 05/04/2015 regardless of date of death
Pension death benefits - a wealth transfer planning equation Below 75 Tax free (within LTA) After 75 Income tax when benefits are taken Charity lump sums tax free If nomination & no dependants No IHT on pension death benefits (normally)
Investment Solutions Steve Godfrey Octopus
TAX-EFFICIENT INVESTING Steve Godfrey Octopus Investments FOR UK INVESTORS ONLY
BEFORE WE START, PLEASE REMEMBER: This financial promotion does not offer investment or tax advice and as the products are not suitable for everyone we recommend you seek independent advice before investing in our products. Your capital is at risk and you may not get back the full amount invested. Past performance is not a reliable indicator of future results and any forecast is not a reliable indicator of future performance. Tax treatment depends on the individual circumstances of each investor and may be subject to change. The availability of tax reliefs also depends on the portfolio companies maintaining their qualifying status. Unquoted investments, those quoted on AIM and VCT shares are likely to have higher volatility and liquidity risk than securities quoted on the Main Market of the London Stock Exchange. Any views and opinions expressed are subject to change and should not be taken as a recommendation or advice. This advertisement is not a prospectus and investors should only subscribe for VCT shares on the basis of information in the prospectus which can be obtained from www.octopusinvestments.com. This financial promotion has been issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. 33 Holborn, London EC1N 2HT T: 0800 316 2067 www.octopusinvestments.com
WHAT WE LL BE TALKING ABOUT Octopus: Who we are and what we do Estate Planning Using Business Property Relief Products The AIM Inheritance Tax Service and ISA The Octopus Inheritance Tax Service (OITS) Questions
HEARD OF US? Est. 2000 OVER 3,000 ADVISERS HAVE RECOMMENDED US TO 50,000 INVESTORS OVER 5 BILLION AUM 1 Largest provider of VCTs in the UK 2 supported over 450 Smaller businesses More than 370 employees including 80 investment professionals Largest provider of EIS in the UK 3 Largest provider of IHT solutions using BPR in the UK 3 47 Source: ¹ At March 2015 2 Association of Investment Companies, October 2014 3 Tax Efficient Review 2014
BUSINESS PROPERTY RELIEF
INHERITANCE TAX: A GROWING CONCERN 6.4 BILLION* 3.4 BILLION 2019/20 2013/14 49 Source: Office for Budget Responsibility, March 2015 * Projection
BUSINESS PROPERTY RELIEF: AN INCENTIVE, NOT A LOOPHOLE First established by government in 1976 Shares in qualifying companies get 100% relief from IHT: After held for two years Providing held at time of death 50 Qualification for business property relief is assessed by HMRC on a case-by-case basis and cannot be guaranteed.
THE BENEFITS OF USING BUSINESS PROPERTY RELIEF SPEED Effective in two years ACCESS Regular or ad hoc withdrawals possible, subject to liquidity* THE BENEFITS CONTROL Capital remains yours SIMPLICITY No complex structures or underwriting 51 *Sometimes it may be difficult to find buyers for shares, and as such it may take time to sell holdings and return any proceeds to investors. Please remember that the risks associated with these products are set out on slide two of this presentation.
OCTOPUS INHERITANCE TAX SERVICE (OCTOPUS ITS)
UNDERSTANDING THE KEY RISKS Full details of the risks can be found in the product brochures Your capital is at risk and you may get back less than you invested Tax legislation may change and tax treatment depends on individual circumstances. Qualification for business property relief is assessed by HMRC on case-by-case basis and cannot be guaranteed. Investment has to be held for at least two years and still held at death to become IHT-free Invests in unquoted companies, which carry a higher risk than those listed on the main London Stock Exchange. They may fluctuate in value more and could be harder to sell. Please note, fees and charges apply to all of our products. Full information can be found in the product brochure. 53
OCTOPUS ITS: AN OVERVIEW WHAT IT IS THE AIMS THE INVESTMENTS A discretionary management service To preserve capital and provide a return of 3% per year BPR-qualifying unquoted companies - investments should be IHTexempt in two years Can still access your money if you need it, subject to liquidity KEY FEATURES No age restrictions No underwriting CHARGES Initial 2%, Annual Management Charge (AMC) 1% + VAT, Dealing Fee 1% AMC deferred until the end and only taken after you receive the target return Please refer to the product brochure for full details. 54 Fees shown are for advised investments. Higher rates apply to direct investments.
OCTOPUS ITS: HOW IT WORKS PROPERTY FINANCE OITS (a discretionary investment service) Portfolio company (Fern Trading Limited) Funds deployed in various trades, including SOLAR The companies in which OITS invests, and the roportions deployed into each type of trade, may change over time and may include trades which are not shown here. ASSET-BACKED FINANCE Please refer to the product brochure for full details. 55
OCTOPUS AIM INHERITANCE TAX SERVICE (AIM ITS) AND OCTOPUS AIM INHERITANCE TAX ISA (AIM IHT ISA)
THE ALTERNATIVE INVESTMENT MARKET: QUICK FACTS The London Stock Exchange s international market for smaller growing companies INCLUDES MANY HOUSEHOLD NAMES: Home to nearly 1,100 companies Companies together worth over 71 billion Launched in 1995 giving growing companies access to capital 57 Source: London Stock Exchange, November 2014
OCTOPUS AIM INHERITANCE TAX SERVICE WHAT IT IS THE AIMS A portfolio of shares listed on AIM To provide growth THE INVESTMENTS 20-40 BPR-qualifying companies Highly experienced smaller company investment team KEY FEATURES Over 700 million Funds Under Management in AIM quoted companies 500+ company meetings per year Managing AIM Inheritance Tax portfolios since 2005 CHARGES Initial 2.5%, Annual Management Charge (AMC) 1.5% + VAT, Dealing Fee 1% Please refer to the product brochure for full details. 58 Fees shown are for advised investments. Higher rates apply to direct investments.
OCTOPUS AIM IHT ISA People don t want to give up the tax-free growth of their ISA AIM ITS can now also be held in an ISA: Tax-free growth Tax-free dividends IHT relief after two years BUT ISA savings are subject to 40% IHT on death Allows transfers in from existing ISAs and current-year contributions 59 Tax treatment depends on individual circumstances and may be subject to change.
Our clients have used our inheritance tax service in many ways, including: To plan for IHT but retain access to capital When ill health occurs For trust planning On sale of a business With a Power of Attorney in place Please remember that this is a high risk product. The appropriateness of any investment depends on your individual circumstances which may change. We recommend that you always take financial advice.
THANK YOU! Octopus-Support-All-Product-Overview-presentation-retail-1505-CAM01929
Q&A Panel Where should the line be drawn for legitimate planning.?
Summary 1. Spend it 2. Give it all away during lifetime (Exemptions/Allowances) 3. Gift to charity 4. Protect it Life assurance 5. Gifts into trust(s) during lifetime 6. Invest in exempt assets 7. Find a clever loophole
Future events Feedback form County 30 th celebration 27 June 2015 Autumn workshop 2015