Estate Planning Guide

Reducing an IHT liability whilst deferring a CGT liability Mrs B is an 87-year-old widow who has full mental capacity but is in relatively poor physical health. She receives a substantial income from an occupational pension scheme and is a higher rate taxpayer. She also owns cash and her home which has a substantial value. Her income is sufficient to meet the cost of care which she receives in her own home. If she ultimately requires more care or residential care she could bridge any shortfall, either from cash or by accessing the equity in her property or by renting it out. 11 EIS & BR Sale of a business Miss L is 60 and owns a successful trading business which qualifies for BR. 10 Business Replacement Relief For Business Replacement Relief, the reinvestment has to happen within three years of the original sale and if death occurs during the three year period, but before reinvestment has taken place, the BR is lost. EIS benefits The use of an EIS alongside investments that qualify for BR enabled a taxable estate to be free of both CGT and IHT when Mrs B died after three years The BR relief continues without interruption so even if her death occurred in the very near future, this part of her wealth would remain exempt from IHT. Within three years, she invests the proceeds into a BR qualifying investment She is concerned about that tax charge as she would like to leave an inheritance to her nephews and nieces Mrs L sells her shares SOLD BR Miss L has been diagnosed with a terminal illness and would like to sell the company and retire. But once the shares are sold the proceeds will potentially be liable for IHT if, as seems likely, Miss L’s death occurs in the near future. Mrs B's assets are valued significantly in excess of the NRB, in particular a portfolio of stocks and shares which cost £500,000 but has a current value of £750,000 Mrs B dies 3 years after taking action, so the qualification period for EIS is achieved and no clawback of tax reliefs is applicable. The deferred CGT liability dies with her. After two years, the EIS and BR investments qualify for 100% IHT exemption She sells her shares and invests the profits into EIS and BR qualifying investments 100% IHT exempt The £250,000 CGT liability is deferred for the life of the EIS investment. The EIS investment also generates 30% IT relief against her income in the current tax year and she can carry back the claim to the previous tax year. This tax relief effectively provides some financial return even if the value of the EIS shares fall. EIS BR £250,000 £500,000 EIS BR CGT deferral + 30% IT relief 92 93 CASE STUDIES CASE STUDIES