BR Guide Second Edition

ELDERLY AND IN POOR HEALTH CASE STUDY 2 Darren's main asset is his house, which is currently valued at £600,000. 47 CASE STUDIES SCENARIO: William invested £50,000 in an estate planning service a few years ago to mitigate a potential charge to IHT. He is now unexpectedly in need of funds to support his son’s business. SCENARIO: Darren is 72 and single. He is in ill health unlikely to survive 7 years and is aware that, because he has no children, his estate will not benefit from the RNRB, but is very close to his godson to whom he wants to leave as large an inheritance as possible. ONGOING ACCESS TO FUNDS THE INVESTMENT HAD MADE A MODEST PROFIT OVER THE LAST FEW YEARS AFTER FOUR YEARS, HE WITHDRAWS £50,000 FROM THE BR INVESTMENT TO USE TO CONTINUE FUNDING HIS CARE** £58,790* As the investment was made with the intention of benefiting his son anyway, he sees no difference in unwinding it and making the funds available to his son. As his BR investment is in AIM shares, his fund manager is able to sell his holdings quickly and return the money back to William within a few business days. He downsizes to a property valued at £300,000, sets aside £200,000 for any potential care costs, and invests his £100,000 remaining assets into a BR service.* On death, after five years, his house value has appreciated to £325,000 but does not exceed the NRB, so no IHT is due. Darren has a total of £375,000 of assets to leave to his godson. William invested £50,000 in an estate planning service with his son in mind £50K BR INVESTMENT ENCASHED AT CASE STUDY 1 GROWTH P.A. 3.5% YEAR 1 £51,750 YEAR 2 £53,561 YEAR 3 £55,436 YEAR 4 £57,376 YEAR 5 £59,384 EXIT LESS DEAL FEE @ 1% £58,790 INVESTMENT PROFIT (Assuming 1% exit deal fee) BR in Action £300,000 £200,000 + £50,000 = £250,000 £100,000 £200,000 + + BR BR Qualifying The £50,000 in the BR service is covered by BR and therefore outside of the charge to IHT on death £600,000 *An optional two-year term insurance policy would give added protection by paying out the equivalent of any IHT due on the investment amount should he die before the two-year BR qualification period expires. **The total care costs now amount to £250,000, the original £200,000 + the additional £50,000 withdrawn from the BR service, leaving the remaining £50,000 BR investment outside of the charge to IHT on death. For the sake of simplicity, this example assumes no growth. *NB: Gifting the cash proceeds to his son means there may be CGT to pay on the gain and makes this a PET. If there was no need for cash, William could have instead gifted the BR qualifying shares to his son, potentially maintaining BR if the gift becomes a failed PET and using holdover relief to defer any CGT liability