BR Guide Second Edition

57 CASE STUDIES SCENARIO: Katie, an elderly lady with an estate worth £700,000 has lost capacity and is unable to administer her own finances, but she has always wanted to pass on as much of her wealth to her children as possible. COMPATIBILITY WITH POWER OF ATTORNEY BR Qualifying Gordon, Katie’s old business partner, is the attorney for her Lasting Power of Attorney (but not a beneficiary of her will) £700,000 PROPERTY SHE LIVES IN (£300,000) Katie’s estate: CASH (£125,000) SHARE PORTFOLIO (£275,000) + = + When looking at IHT planning for Katie’s estate, Gordon must ensure that any investment decisions are made in Katie’s best interests and won’t disadvantage her, for example, by making her money inaccessible (e.g. by making large gifts). AFTER CONSULTING HIS ADVISER, HE REINVESTS KATIE’S CASH AND £100,000 OF HER SHARE PORTFOLIO (A TOTAL OF £225,000) INTO BR QUALIFYING INVESTMENTS* WITHOUT THE NEED FOR UNDERWRITING OR A MEDICAL *As Katie is making investments (in her own name) and not gifts, this is permissible where an LPA is in place. The adviser noted that Katie’s NRB of £325,000 is available and her house should qualify for at least £150,000 RNRB even if she dies in early 2019. That leaves £225,000 of her assets exposed to IHT. CASE STUDY 9 SCENARIO: Samuel has a substantial estate valued at well over £2 million, including a residence with a value of £750,000. He has three children, but is unmarried. He retains the mental capacity to make gifts. RNRB, GIFTS AND BR Samuel does not want his RNRB to be tapered away (£1 relief lost for every £2 estate value above £2 million) This takes the value of Samuel’s overall estate to below £2 million so Samuel regains the RNRB*. BR Qualifying THIS LEADS TO 100% IHT RELIEF SAMUEL GIVES AWAY THE BR QUALIFYING INVESTMENT TO HIS BROTHER, FRED SAMUEL DIES IN FOUR YEARS** IN 2023 £450,000 BR The BR investment saved IHT of £180,000 and his estate benefits from the RNRB of £175,000 (plus annual inflationary increases applied for 2021/22 and 2022/23) and, therefore, the IHT savings are £250,000. * If they are held at the date of death, BR qualifying investments remain part of the estate value calculation for the purposes of the RNRB. The gift could be to a person or to a trust, as appropriate. ** The gift is a failed PET because Samuel did not survive seven years from the date of the gift. However, failed PETs are not added back into the estate for RNRB purposes and the relief, gained by avoiding the taper, is retained. If the asset qualified for BR in Samuel’s hands at the date of the gift and is retained by Fred until the date of Samuel’s death and it still qualifies for BR at the date of death, it retains its BR status in Samuel’s estate and there is no additional IHT due. HE MAKES A BR INVESTMENT OF £450,000 CASE STUDY 10 TAX SAVING No planning: IHT bill = £90,000 Planning using BR: IHT bill = £0