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Succession and Estate Planning

Estate planning: what is it?

Many of us spend a significant portion of our lives working for – and thinking of – the future: hoping to pass something on to the next generation, or hoping to secure a nest egg that allows us to retire in comfort. Whether you have a business that you’d like to bequeath to loved ones, or sell to support your retirement, or if you have assets that you want to transfer upon your death, it is crucial that you think ahead – the earlier, the better.

Though it can be difficult to think or talk about, in order that future generations benefit fully from your life’s work, your affairs need to be structured in a way that minimises inheritance tax liabilities. Time spent on estate planning now could lead to huge savings for both you and your family in the years to come.

What are the options?

Historically, a tax-efficient way to preserve wealth for future generations was to transfer assets into a trust. Alterations to inheritance tax rules (for example, the fact that homes held in discretionary trusts cannot benefit from the residence nil rate band allowance) have meant that, in recent years, an increasing number of qualified tax specialists advise clients to consider family investment companies (FICs) within their estate planning strategy.

An FIC provides an attractive alternative to family trusts. Essentially a bespoke private company, the flexible structure and tax-efficient setting afforded by this kind of family business has many benefits: it caters for the aggregation of wealth; allows senior members of the family to maintain control over assets; and gives founders/shareholders the right to control how each member of the family benefits (through share issue or the rights attached to shares, for example).

Most importantly, an FIC provides a unique opportunity for families to minimise their exposure to inheritance tax and maximise their gains – for example:

  • If assets are kept in a trust, IHT applies – up to 6% every ten years – and there are often hefty exit charges to pay upon dissemination of capital. An FIC is exempt from these charges.
  • On formation of an FIC, shares can be gifted to family members without incurring charges. After a seven-year period, the full value of the share will no longer fall within the scope of the previous owner’s estate, and as such the recipients will not have to pay any IHT in future.
  • There is enormous investment potential. For example, if founders invest in the company, any growth in value will fall outside the scope of their estates.

How can we help?

As mentioned above, an FIC may offer an excellent means of succession and estate planning, particularly if flexibility, control, and the potential for asset growth (and transfer of such) is the aim. However, this is a complicated area of taxation, and as such we highly recommend that you seek professional advice. For example, if you are setting up a family investment company, you may be tempted to transfer property or shares – but these are likely to incur stamp duty and/or capital gains tax. A personal tax adviser can prevent you from running into any potential problems and ensure that you are able to pass on the greatest benefit to your loved ones.

Thinking ahead can seem daunting – that’s why IBISS & Co’s qualified tax specialists are here to make the process of succession and estate planning as straightforward and stress-free as possible. We pride ourselves on our discretion and sensitivity, and would be delighted to work with you to find a bespoke strategy that benefits your chosen beneficiaries to the highest degree. Contact us today to arrange a no-obligation discussion with a personal tax adviser.

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