Dentists Who Invest Podcast

Effective Inheritance Tax Planning with Luke Hurley and Anick Sharma [CPD Available]

• Dr. James Martin • Season 3 • Episode 363

Share episode

Get your free verifiable CPD for this episode here >>>  https://www.dentistswhoinvest.com/videos/effective-inheritance-tax-planning-with-luke-hurley-and-anick-sharma

———————————————————————
Are you a dentist looking to grow your wealth? You can connect with Luke and Anick here: https://www.viderefinancial.com/contact

———————————————————————
Inheritance tax is often called “the optional tax”—because with the right planning, dental professionals can significantly reduce its impact and protect family wealth. Financial experts Luke Hurley and Anick Sharma break down the key strategies to help you safeguard your estate.

Every UK taxpayer has a £325,000 nil rate band, transferable between spouses, plus a £175,000 residence nil rate band for direct descendants. But beyond these limits, a 40% tax can erode your hard-earned wealth. This episode explores practical tax-saving strategies, including the often-overlooked gifting from normal expenditure out of income—a powerful tool for high-earning dentists.

Our experts also tackle common pitfalls, such as poor investment choices promising tax relief, international tax complications, and key business relief rules affecting dental practice sales. Their philosophy? Smart planning should balance tax efficiency with enjoying your wealth—after all, as Anik says, “When they die, I want to see the cheque to the undertaker bounce.”

Want to secure your family’s financial future? Listen now—and UK dentists can earn free verifiable CPD by completing the questionnaire in the episode description!

———————————————————————
Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional.

Send us a text

Dr James:

Hey guys, what's up? We're here today to discuss inheritance tax they call this the optional tax and we're going to find out why that is today, with expert IFAs Mr Luke Hurley and Mr Anick Sharma, we're going to be delving deep in all the ins and outs of everything you need to know as a dentist whenever it comes to planning your estate. Let's find out more shortly. I'm also super excited today to announce a brand new feature for the Dentistry Invest platform, and that is free verifiable CPD to all UK dentists who have enjoyed this podcast episode. Whenever you finish the episode, all you have to do is click the link in the podcast description. It'll take you right through the Dentists who Invest website. You'll be able to complete a short questionnaire and, once passed, you fill in your reflections and we'll go ahead and email over to you your verifiable CPD certificate, which is entirely free. What that means is this podcast episode will be able to contribute towards your verifiable CPD hours during this learning cycle.

Dr James:

Hey everyone, welcome to this special webinar this evening. This is a webinar that we have never done on the Dentists who Invest platform as yet, and it's about time we did something about that. So that's exactly what we're here to do this evening. It is on the topic of inheritance tax, effective inheritance tax planning, so that we know everything we need to know in order to have a informed conversation about our future. They call this the optional tax or at least some people do, anyway, of course. To have an informed conversation about our future, they call this the optional tax or at least some people do, anyway, of course and what that means is, with effective planning, you can mitigate it to a very, very, very high level, and that's exactly what Mr Luke Hurley and Anick Sharma are going to be talking about this evening, which I am looking forward to. So, on that very note, Luke, would you like to kick things off?

Luke:

Yeah, sure, thanks, James. I was just going to start with some high-level kind of points, high-level takeaways. So the first thing I think is there's obviously quite wide views on inheritance tax. It's quite an emotive topic and you know. For that reason, it's important to give it a lot of consideration. Understand your own viewpoint, your family's viewpoint, on IHT. It actually only affects quite a small number of. If you look at nationwide, it only affects 4% of the states is going to be impacting on the vast majority of the UK population, which is why you could argue that it's quite a reasonably easy target for governments and that's why, potentially, the rate band has sat still for quite some time. In real terms, hmlc in 2023-24 collected around about 7.5 billion, which was a 12% increase. So it's still adding a fair amount to the government coffers, but as a percentage of the overall UK population those that are actually paying it or the estates that are paying it on death relatively small.

Luke:

The first thing from a planning perspective is, I would say that there's no silver bullet. There's no quick fix, no easy answer. Every kind of IHC strategy that we consider for clients has trade-offs, which is typically between tax control, how much flexibility you want. So I think the key really is to have a plan, know your options. So I think the key really is to have a plan, know your options and potentially sort of embrace a series of different strategies over over time. It's an ongoing process, an ongoing planning process, and it's quite effective to just try and chip away at it on a regular basis throughout one's retirement, with a kind of like a layered approach, if you like. As part of that, we would always say that before you start worrying about inheritance tax, you really need to know what your retirement plan is and ensure that you're not in any way impacting on your own living standards when you kind of go into retirement. There's no point sacrificing your personal after working hard throughout your life, jeopardizing in any way your desired vision for retirement by going too hard on the IHT mitigation too soon. So that, I think, is key.

Luke:

I would also say it's really important to have a family-wide understanding of what the approach is. I think it's quite easy to, particularly as you're going into retirement, maybe have your own views on how you might approach this, but actually it should be a family-wide conversation After all, it's not necessarily you that's going to be paying the bill and to explain the rationale over certain decisions that are being made throughout the planning journey. So family meetings is key. I did see a stat that said sort of 70% of contested wills actually involve inheritance tax planning. That came from STEP, the organisation STEP. So have conversations, have family meetings, make sure there's a really strong letter of wishes as well tucked away that really details what your, what your, approach is going to be.

Luke:

I would say, certainly engage with professionals in this space. It's it's the you get this stuff wrong, the the mistakes are costly. So it's not the sort of thing that I would personally want to be doing on a DIY basis. I'd make sure that you're engaging with a really good solicitor that is focused on estate planning. I would certainly be speaking with a tax advisor or an accountant in that field. Ourselves as financial planners, our role, I think, is to take the holistic overarching view and help kind of drive things from a planning perspective. But if you make mistakes with this kind of stuff, it's going to cost a significant amount of money. What I was going to do next, James, is just do a very quick overview for those that don't know what the UK IHC rules actually are. Is that a good? Next?

Dr James:

step. I think that's a good place to start, like a lay of the land. Is that good, good?

Luke:

next step I think that's a good place to start, like a lay of the land. Yeah, okay, so relatively straightforward, because these things don't seem to move too often. Everybody has a nil rate band, which is 325 000 pounds per person and that can be transferable between spouses. That's set to be frozen until 2028. But, who knows, it could be frozen well beyond that potentially. And what that really means is that you can have three hundred and twenty five thousand pounds of assets in your name Six hundred and fifty as a couple that are not going to be subject to inheritance tax, inheritance tax. On top of that, most people not all people, but a large number of people will also qualify for what they call the residence nil rate band, main residence nil rate band, which is to say that you've got an additional 175 per person that can be offset against the value of a main residence if it's left to direct descendants, which, in effect, for those with a house worth a certain value, means that between a couple you might have up to a million pounds. That is potentially exempt from inheritance tax. I would say that that main residence nil rate band is subject to a tapering, so if your total estate is over two million, then you will see that, reduced by one pound for every two pounds, that you're over the two million pound threshold. So again, that's why it's key to work out exactly what your, what your estate value is and work out what your potential liability is.

Luke:

As a starting point. There are various things that you can do. I'm sorry I should should have said anything over and above. That is subject to an ihtHT rate of 40% typically, which is, you know, that's. That's, that's the key, the key number and the one that often gets banded around. You can.

Luke:

There are certain gift exemptions and we'll cover those in a bit more detail later on. But you know there are various things that you you can do and various allowances that that people have. Headline. One that often people talk about isn't a huge sum of money, but each year you can be giving away three thousand pounds. You can carry forward that for for a year and that's that's a, an annual gift allowance. You can make small gifts up to sort of 250 pounds. That's unlimited, but, uh, in terms of number recipients, but it's 250 per person, I who you're gifting it to, and there's various other things I think Alex is going to cover later on the allowances and exemptions, who pays the IHT bills, as alluded to earlier, it's not, it's not yourself, it's going to be your estate that pays that.

Luke:

So it will really be your, the executives of your estate, that settle the inheritance tax bill If you. There's no IHT on the exemption between spouses, so you can, you know, pass on assets to spouses on death and there is no IHT bill to pay at that point. And there's no IHT bill to pay on gifts to charities as well, which is worth understanding. And in fact, if you gift more than 10% of your estate, then you actually get you qualify for a reduced inheritance tax rate of 36% instead of 40%. So again, something worth knowing Payment rules.

Luke:

So typically a deadline within six months of death, which can cause issues for some people because probate particularly with where we see kind of complex estates, probate can drag on well beyond six months for some people. So having to sort of find cash to settle tax bills can provide some issues, particularly if there's illiquid assets where you're waiting on the probate to get access to, say, a property, to be able to sell down the property, to settle the IHT bill. So there can be challenges around that and some people actually end up having to take out bridging loans to help them with that process. But that's a very high level overview of the current life of the land.

Dr James:

So we've covered IHT from a UK perspective, as in what happens if you're domicile in the UK. What about if we're getting into the more complicated stuff, let's say people who live abroad and things along those lines, because that can be an interesting one.

Anick:

Yeah. So I guess the starting point here is that the rules are so complicated. And let's start the other way around. So if someone comes to the UK, there can be a bit of a myth in conception that because they weren't originally from the UK, they're not subject to UK inheritance tax. Now the rules are changing from April 25, but essentially there's a thing called the long term residency test or being a long term resident, and if you're a UK resident for 10 out of the last 20 tax years, then you're essentially deemed to have always been from the UK and inheritance tax is due on worldwide assets.

Anick:

Now certain countries have a dual taxation treaty. So let's say, for example, someone comes from abroad to the UK, is here for 15 out of the last 20 tax years, for argument's sake dies, inheritance tax would be due on their worldwide assets. But depending on where they originally came from, their home country might have some sort of inheritance tax regime there which essentially might lead to some double taxation, which is not ideal. So certain countries have a dual taxation agreement where they basically say you pay tax in this country, so essentially we're netting it off, or there might be some allowance for that. Um, whenever you get into the realms of dual taxation. It's a minefield so. So having that expertise and expert opinion to look into it it's vital. Um otherwise, generally for for people coming here or if they're not a long-term resident, it's essentially inheritance tax on UK assets only In terms of how we go around mitigating it, it's really important to have a structured approach.

Anick:

Essentially, inheritance taxes or inheritance tax mitigation is about how can we allocate our money and that might be capital or income in such a way to hopefully mitigate it. The key thing when we think about all these different strategies there is no magic one answer and quite often it's a case of doing little things wherever possible over time. And when we're talking decades later we can see what an impact it's made. So Luke mentioned the £3,000 annual allowance, which, yeah, it can be great and it can be brought back a previous year. So if you haven't used it in the last tax year, you could potentially use £6,000. And within a married couple that can be £12,000. So it is useful.

Anick:

The £250 small gift per person allowance Luke mentioned again just making sure that gift exemptions are utilised and every little bit goes a long way. Certain exemptions exist over wedding gifts. So, depending on who you are, who your relation is to, the bride or groom um, that can range anywhere between one and five thousand pounds. And there's also a thing and I'll touch on it briefly because I'm going to come on to it in a moment but normal expenditure from income. So essentially, whenever we have surplus income ie more coming in than going out we can use that surplus income to fund a gift. And if we can demonstrate that this surplus income doesn't have a material or detrimental impact to our lifestyle or expenditure, theoretically unlimited amounts can be gifted away, and that's a really important point.

Anick:

Now, in terms of capital, there are a few things we can do with it, but before we even think about where should we put our money into, it's really important to think about what's unique to you. Do you still need income for the capital? As Luke mentioned at the start, we have to be number one priority in that financial plan. So if you need income from the capital to fund retirement or the next phase of life or to go travelling around the world, then that's fine, but then that absolutely has to factor into the plan.

Anick:

So for some people, the use of certain vehicles can be very efficient. So the use of a loan trust, so receive regular income. The capital is preserved and any growth is is essentially exempt from inheritance tax Discounts and gift trusts slightly more complicated, but essentially it's a mechanism to to get money out of the estate and for some people the use of family investment companies can be very effective, but depending on the amount and the cost associated, that all needs to be weighed up within within the context of what you're trying to achieve Now for those who don't need income from the capital.

Anick:

There are other options, or those that don't need access to the capital and can lock it away. Essentially, there are certain business relief investments, so after a couple of years it no longer sits within the estate. I would be very cautious about going down this route, though there's a phrase in the profession don't let the tax tail wag the investment dog. Now, a lot of these investments are incredibly volatile, not efficiently rewarded. Quite often you can find yourself 50% down in investment performance to try and save 40% inheritance tax. It doesn't really stack up to me. The alternative is you can look to give it to people directly and there's a thing called potentially exempt transfer. If you live for seven years, if you give money directly to friends, family, whoever it might be, live for seven years, then it is no longer in your estate. Now for some people that might not be suitable. Young kids or early adults. Giving them relatively large amounts of money when they haven't reached maturity or there could be other life factors in play, might not be very appropriate to do so. So in such situations the use of a trust can be can be useful. So we or you might settle some money into a trust. Typically this is done as £325,000, so the nil rate ban Luke mentioned before and it can be rinsed and repeated every seven years. Now the benefit of using a discretionary trust is you can set kids, potential grandkids, who aren't even born, as beneficiaries. There are various mechanisms in play with how to get money out from the trust and into their hands, but some people make interest-free loans and that can be really useful. So if, let's say, parents settle 650k because there's two lots of 325 into a trust and they want to give a house deposit to their child, rather than moving the money directly from the trust into the child's name for that house deposit, the trust can make an interest free loan to the child for the house deposit. Now this is really powerful because when it comes to a potential marriage, breakdown down the line and preserving that family wealth, it means if something bad was to happen within the child's marriage and the house was to happen within the child's marriage and the house has to be sold, the money has to be paid back into the trust. So from a family wealth preservation perspective, it's a really neat tool to use.

Anick:

The other thing with mechanisms to try and look at inheritance tax is pensions. So before recently anyway, the emphasis was definitely put money into pensions because they pass on free of inheritance tax. Now, from April 27, that's due to be changed. There are consultations going on mechanisms to do so, um, so that slightly changes things, but this is where what I mentioned before using income to mitigate inheritance tax can be really useful.

Anick:

So although your personal pensions aren't free of inheritance tax, it doesn't mean you can't build up other people's pensions. So, just touching back a bit to gifting out to normal expenditure, any, any gifting from your expenditure must be regular, from surplus income and, as I mentioned before, it can't impact your standard of life, your, your, your quality of life. Essentially, now, if, if it can be proved as a pattern of giving to help prove that intention, then in that scenario there's no limit over what can be gifted away. So examples where income can be utilised in certain ways if surplus income is coming in, people might pay private school fees or university fees for the grandchildren, they might fund junior ISAs for children or even pension contributions for family members, and for some people the thought of giving money directly to family members, as I mentioned before, doesn't quite sit right, based on various factors, if they then have the ability to lock that money away within the pension for long periods of time, that can be useful. Luke, do you have an example of this?

Luke:

Yeah, this week I'm doing a financial plan for clients who are in retirement and they are in a fortunate position where they've got considerable surplus income. They have um between them nhs, pension, teachers, teachers, pension, two-state pensions, um, plenty of surplus capital, and we worked out that on an annual basis they will have a surplus of 40 000 pounds a year, based on their current spending levels, and I'm doing my best to encourage them to spend more money, which is a great conversation to be having. But ultimately we have said that that £40,000 surplus either needs to be spent or gifted, because the IHT bill is potentially quite significant and that's where this you know, gifting from normal expenditure becomes so powerful. They have grandchildren. They could look to contribute towards the cost of the grandkids. They might want to, as Annika said, contribute to the cost of school fees, for example. That's a recurring pattern Very easy to prove.

Luke:

What we'll be doing is through their accountants. Obviously we'll have a breakdown of what their income is per tax year and through their financial plan, we'll have a snapshot we call it a blueprint, a snapshot of of what's happening each year and the growth in their assets and how much they're spending. So we'll be able to evidence the fact that there was a a surplus and what's happened to that surplus and what the intention is so that that's a?

Dr James:

for me is a probably one of the um least well-known rules out there and probably the the um the most under utilized it's important to mention, guys, that if anybody in the audience has any questions, by the way, we're going to have the opportunity to ask a few up towards the end. So that will be done on a first come, first serve basis. So feel free to pop those questions in the chat. We'll be coming to the q a section shortly. Look, were you finished?

Luke:

there was it more to add. Just a quick example I guess as well.

Anick:

Again, you mentioned there Luke, um, probably one of the least known things to do. One of the most well known things to do, or what people typically do is or can do, take out some sort of insurance policy. Now it can be useful and I'll come on to this later on For some people, they might view this as accepting defeat, accepting the fact they're going to pay a big inheritance tax bill and cover the liability, but how the mechanics work on second death it will pay out a sum assured to match the inheritance tax liability. It's really, really, really important that this is written into a trust, because what can happen? Let's say there's a two million pound inheritance tax bill and you take out a life insurance second death policy to pay out two million pounds, but it's not in trust. What will happen is that two million quid will then form part of your estate and all of a sudden you've got a lot more inheritance tax to pay. So if it's paid into a trust, it's outside of the estate, which is it doesn't form part of the calculation. The other thing is, throughout this process, probate can be painstakingly slow and if assets are tied up within the estate and executors, family etc. Need money to administer the estate or to get on with their lives, then having the money in a trust can improve the efficiency. Money can be whipped out really, really efficiently and it's not tied up in the entire process. So very important to do so. Pay it out tax-free and the premiums, ie the money you put to pay for that summer short or the insurance policy, qualify out of the non-expense rules I've been through before.

Anick:

Now I just mentioned that it's accepting defeat. Personally, philosophically, one of my favourite views is spend it, live life. My favorite views is spend it, live life. Now, our view is life is for living and ultimately inheritance tax, or if you're paying inheritance tax, you're essentially making people around you rich. When you die. Now that return on life needs to be balanced with the return on investment, enjoying wealth. While you can travel, experience, experience, go, spend it. Take your family abroad, take the people around you, do nice things with them, because you can't take it with you, so you may as well see enjoyment within your lifetime.

Dr James:

Um, my clients will be familiar with my phrase, but when they die, I want to see the check to undertake a bounce, because to me that shows a fulfilled life and they've enjoyed and and got got the most out of it essentially amazing, and I guess in this realm I mean knowing what I know, what I do about the ict world there's a lot of pitfalls and nuance and things that we need to be conscious of, and I suppose in your experience as a financial planner, look, you must come across some common scenarios that people should be aware of.

Luke:

Yeah, there's a few, I'd say so. The first that springs to mind is the rules around gifts with reservation. So the common example of that is if you're going to give away your main residence, but still to your kids, you transfer ownership of your house to your kids which, by the way, you might want to consider because of the benefits of a main residence from a capital gains tax perspective and the qualification for the main residence no rate ban. But that aside, if you were to transfer ownership of your main residence but continue to live there rent-free, then there's legislation in place to deal with that. And likewise, let's say you've got a holiday home and you place that in trust, but you still keep using it. Likewise, let's say you've got a holiday home and you place that in trust, but you still keep using it, you run the risk of exposing yourself to the rules around pre-owned Well, you could be subject to what's called POAT pre-owned assets tax. So you need to be careful and that needs careful planning. It's not something that you should just rush in to sign away the certain assets. The other thing I think I see quite a lot is where people get drawn into, particularly on the investment side, complex investments where, as Annick said, you know the tax towers is wagging the investment dog we get I mean, I'm sure annick's the same I get so many emails come through to me promoting various different investment structures um where they're saying you know you will qualify for business relief if you invest in these investments um and they're very secure. Okay, fine.

Luke:

I had one that flashed across across my desk not too long ago where the return over the last five years or so was about 15% and that's investing into to qualify for the relief.

Luke:

That's investing into smaller companies, very illiquid. When you compare that to the performance of traditional asset classes and in particular global equities, asset classes and in particular global equities, it's it's not that attractive um to to get a 15 percent return when the markets have done so well over the last five to ten years um. You know, when you factor that in, okay, you might save some iht, but the saving on the iht might actually be outweighed by the the opportunity cost of not being invested into higher growth assets. So that needs some some balance and a balanced view. I'm not saying write those things off, but it just needs some consideration. Another example of that is investing into AIM shares, for example. I think Annick mentioned that earlier. So you historically have been able to qualify for business relief, although they are slightly changing those rules from next year as to how they'll be how the relief will work and there's going to be a cap as such.

Luke:

But the AIM shares example is because the AIM market over the last five years has really, really struggled, and so, yes, you might get the IHT exemption, but if your portfolio is down just as much as the IHT bill, then that's not necessarily a great place to be either. So that needs a bit of consideration, not get drawn into things that you know. If it looks too good to be true, then it probably is. And also don't forget opportunity cost. You know, if your returns are next to nothing, then over time, over the course of retirement, that could have a significant impact. What else to say?

Luke:

I think I mentioned earlier about family dynamics, um, in terms of pitfalls, not having those conversations, not all being on the same page, uh, not having those meetings, not discussing it openly, uh, and and that possibly leading to disagreements, um, further down line, I think that's probably quite a big one for me, and sometimes it's a case of not necessarily overcomplicating it, not thinking you're going to just suddenly deal with the entire inheritance tax liability in one go, but instead just taking a step back and being strategic and having a well thought out plan.

Dr James:

I've got a question that just came to mind when you guys were talking when is a good point to involve a financial planner? Is there any rules of thumb on that?

Luke:

I would.

Luke:

It depends on the complexity of your situation.

Luke:

I would say that in the lead up to retirement, it's huge amounts of value can be had in terms of charting out somebody's trajectory and seeing if they're on track, um and using the software that we use to to map out their you know, their, their vision for the future and making sure that ultimately, they don't run out of money.

Luke:

Um, we always say, you know, there's really three camps you're going to fall into um those that don't have enough um, those that get it just about right and those that end up with too much because of a lack of planning. So, going through that, making sure, as you approach retirement or even a business exit, that you're as efficient as possible, that you've got your strategy in place, you know what you're doing, you've got the peace of mind of knowing that you've got, uh, enough, enough um income for the rest of your rest of your life, um to achieve the lifestyle that you desire that, for me, is there's huge value in that. In that process, um, we certainly can still help people in accumulation and we have lots of clients where we're helping them when they're building up their wealth from a strategic perspective. Um, but yeah, certainly 10, 10 years off retirement. There's massive, massive value in that process.

Dr James:

Sure, and I suppose on the IHT side of things, I mean, no one knows when they're going to leave this earth, of course, but that's going to be that service, the planning for that is going to be a consideration around about that age that you talked about just then.

Luke:

Yeah, around about the same age. But once the retirement plan is dealt with and we know, okay, that's the trajectory, this is what you want as a vision for your retirement, this is how much money you need, what's your number to be financially independent for the rest of your life. Once we know that and we've done the sums on that side of things, then it's coming back and saying, okay, well, what's potentially the surplus? Then, um, and and what's the impact of that surplus in terms of the inheritance tax liability? So we would always say deal with retirement first and and then have a have an eye on what, what the IHT implications are of any additional assets that you're, you know, going to accumulate throughout, throughout life and into retirement and you said something interesting to me once.

Dr James:

Look and I can't remember the the precise figures off the top of my head, but obviously you've got direct in the field experience from having these conversations day to day that most people only have once in their life. So what that means is you have context in those conversations and I remember you saying that the majority of the time when dentists start thinking about retirement or they start thinking to themselves hey, do you know what? I'm 40 or I'm 50. When can I retire or step away from the dental practice or the dental surgery, Whenever you crunch the numbers, more often than not they virtually you know a large proportion of the time they have too much versus what they need in terms of being able to step away. Have I got that right? I remember that conversation correctly, right? I?

Luke:

would definitely say on balance that you know, more people fall into the camp of of having too much, and that's where really we we spend a lot of time on the vision process to say you know, if money wasn't a limiting factor because people often impose limitations on what their aspirations are in retirement then what would you be doing with your time? How would you be spending your money? What? What can you do to help the family and encouraging people to really align their, their spending and their money with their values? So we go through a whole process on that, but I would say yes on on the whole, the the clients that we deal with. Most people are not going to run out of money, um, but then it's. It's important to put as much attention on making the most of that money, and that does feed into the inheritance tax conversations.

Dr James:

Well, I think one important thing to remember for dentists is, generally speaking, they earn more than average.

Dr James:

I think that's safe to say.

Dr James:

And as to how much they earn, well, that depends on the individual of course, but I don't think it's too controversial to say what I've just said.

Dr James:

So, if you think about it, if you're earning a little bit more, chances are then these, these, these ages, like these preconceptions in terms of what time we're expected or able to retire, might not necessarily apply as much, because that's the wisdom for the crop, that's the wisdom of the crowd or the general population, whereas for you it may be earlier.

Dr James:

So if you have this little belief in your head like, hmm, I should think about this when I'm 50 or 60 or 70 or something along those lines, because that's what you've been told your whole life, does that necessarily apply to you when you've actually got a little bit more money coming in? It may or it may not, but what I'm saying is it just causes you to question that little pre uh, you know preconceived notion potentially that we have in our head, and it's just a good thing to highlight or point out. Annick, I know that you talked earlier about ways that we can plan in advance for inheritance tax. If you were to list some of the quick wins that people could have on that front as in like the easy implementable stuff, like a high level bullet point summary, what would that look like?

Anick:

I'm interested to know um, first of all, have a look at your will. Um, I think the stats are about 60 percent of people don't have a will, which is is crazy. Now, on death, that might mean your assets are going somewhere that you don't want it to Get that in order. Have a look at your will. Review your will. If you already have one, ensure that the wills utilise the nil rate band or resident nil rate band or have a trust within it. Now getting that right essentially comes down to having a good professional team around you, so a good tax advisor, solicitor, etc.

Anick:

Number two I mentioned before make sure insurance policies are paying into trust. If they're not, have a chat with the insurance provider. A couple of forms are usually needed to change that, but that's fine. It essentially saves 40% inheritance tax on the payout value. Annual gifting exemptions get started with those. The £3,000 allowances, the £250, various bits for weddings and documents all gifts clearly have a clear audit trail. So whenever you do go, you're not leaving your executives with a mess and a headache to add. Then the fourth and final point have a plan in place. Make sure you know your strategy and execute on it. Quite often people will come to me they've sold the practice or they've sold the business and then they want to start inheritance tax planning. Quite often there's a lot of planning that can be done before the business sale and 10 years prior, but because they haven't got their ducks in a row, they've missed out on a one-time only shot to reduce a load of inheritance tax. So get everything sorted really important nice.

Dr James:

Thank you for that wisdom and thank you both, Luke and Anick, for both of your wisdom and knowledge and being very generous with your time this evening so that everybody else can benefit. If anybody on this webinar wants to connect with Luke and Anick, we're going to go ahead and throw out a little email to everybody who's been there. There'll be a little link in there that you can use to go ahead and reach out. In the meantime, we said we do Q&A's, so we better do some Q&As because we wanna come through on our promises. I've got an email from someone whilst we were talking. I'm gonna presume that this person wishes to remain anonymous. I'm not sure. I'm not sure, but we're gonna operate on that basis, saying, as it's a one-to-one email, so name and no names. Email from anonymous. What happens to the business within a limited company or sole trader regarding inheritance tax?

Luke:

what happens to the business. So if it's a trading business, then subject to various criteria, it should, in theory will, be make sure it does qualify. It should qualify for for business relief, um, which means that there are, there is relief for trading businesses. Now that is actually about to change um from 2026 um. That's. That's kind of being the four exemptions being capped, uh a million. So the first million is going to be exempt and then, over and above that, there's a reduced rate um it's.

Luke:

It's 50, isn't it? And it says 20. It's going to be 20 on on business assets, over and above the um the one million. So that that's all actually in in the process of being changed. But it's, it's a good question and it has meant that for some time, those that are about to exit their business, if they they don't plan correctly, they go from a sizable portion of their estate being exempt from IHT to all of a sudden, you know, having a quite considerable IHT liability If they do exit their business without putting in place structures, that then sits inside their estate and their potential liability goes up their estate and their potential liability goes up.

Dr James:

And on the, I suppose the other side to that question is let's say you've got a dental practice and the NHS contract is in somebody's name. What happens there, as in it's a sole trader.

Luke:

So if it's in a sole, one person's name.

Dr James:

Well, yeah, let's, let's say that, yeah, a simple example I mean there that there's say that.

Luke:

Yeah, a simple example. I mean there has always been a challenge for if an NHS contract is in a sole trader's name, that's been fairly well documented and there are definitely challenges with that. In the same way that there's always been challenges around doing temporary retirements for people in those circumstances. There's always been challenges around doing temporary retirements for people in those circumstances Easier if it's in a limited company and from my understanding that's been easier to incorporate some of those historic contracts. But from an IHC perspective it's just if it's a trading business.

Dr James:

I see, oh, I see Right. So it's just the same business relief, or it would be in theory.

Luke:

It's just across the board it's just across the board trading business um would would um benefit from the relief?

Dr James:

yes, understood, Anick, anything to add?

Anick:

no, I think the thing, the thing there is it is so complicated. Inheritance tax that is incredibly nuanced and having professionals, solicitors, estate planners, tax advisors, financial planners carving out how much is enough is so important. Um, Luke mentioned the right at the start. It's it can be such a costly mistake if you get it wrong. So making sure that any advice or the strategy is much personal circumstances is.

Dr James:

It's vital, it's critical you know what great question or a great thing that you brought up just then? Because I was actually going to ask a question on that and this this is fairly open-ended question, so I'd be interested to hear what you both make of it. How much value can a really, really, really good tax planning, iht accountant, a tax planner, help in these sorts of situations?

Anick:

This works best with a joined-up approach. It all depends on the situation. It depends on personal circumstances, but within a joined-up approach between, say, a solicitor, creating trusts with various tax implications or tax carve outs, and financial planning to look at how much is enough, whether you have secured that baseline for you first or how much can be carved out with it. Exactly as Luke said, mapping the future with the vision and looking at what can be reduced it depending on the size of the estates and particularly given the sort of clients we help. It can be reduced it depending on the size of the estates and particularly given the sort of clients we help. It can be massive amounts of money that can be passed on to generations and tax efficiently, essentially retaining, retaining that family wealth rather than paying over to the taxman. Um, I'm yet to meet anyone who'd rather give more to HMRC than the family.

Luke:

But I think, yeah, I totally agree, and I think, um, the kind of for just using a very simple example the kind of will that you're going to put in place when you're younger as opposed to when you're older and things have got a little bit more complicated saving, um, you know, relatively small amount in fees by going to somebody that possibly isn't as experienced in complex estate planning makes no sense to me. You should go out and get good professionals pay the fees, particularly if you've got a sizable estate. You should be liaising with, with professionals. We see a lot of experts in the space are actually solicitors that take the lead in a lot of those conversations from a technical perspective in terms of setting up those structures, as opposed to an accountant.

Dr James:

But it should be a joined up approach you know, I've got a question and the risk of this being a super basic question so I genuinely don't know that. I don't. I don't really know much about this field and that's the field of trusts, and I'm sure we could do a whole webinar about trusts specifically in and of themselves, is it possible to put your business, as in your dental practice, in a trust but still receive dividends and income from the business?

Anick:

I guess the question there would be to why would you want to do that? What's the solution you're trying to fix?

Anick:

if it's a purely inheritance tax play, as Luke just mentioned, the business reliefs there. And then you get into all sort of realms of complications over if you're technically gifting the business away but you're still receiving a benefit from it essentially a gift of reservation. So why would you want to do that? Because you've already got the business relief on it anyway. If it's a trading company, that is so. It just depends on what you're trying to achieve with it I see, so no advantage springs to mind to doing that not off the top of my head, Luke.

Anick:

I'm not sure if I've missed anything or if you've got anything trust can be.

Luke:

I mean what we said earlier. Um, trust can be used in and around the sale of a business, can't they? So at that point, certainly. But if you're running your business, then one of the advantages of that is the IHT relief that you get for running that business as a trading business Interesting.

Dr James:

Well, listen, I'm sure we could do a whole webinar devoted to trusts in and of themselves, because they're they're a monster of a subject right there. Well, listen, guys, I think now is probably a very good time to round things off right about on the 45 minute mark, unless anybody can think of anything high level, powerful, impactful and punchy to say as a round off you know that's putting everybody on the spotlight a little bit maybe hopefully that was a good high level summary.

Luke:

I mean, I think that the main thing is, when you you're deciding on how you want to mitigate inheritance tax is, from exactly how I dealt with it, it's do you have income at your disposal to deal with this ihc liability or do you have surplus capital available to deal with this ihc liability? Um, and then from that there's a whole range of options available, each with their own quite complex implications, pros and cons to whichever route you choose to go down, with implications around who has control, who has a right to income from the assets, who has a right to the underlying capital. So that's why it gets quite, quite complex and why we keep saying that you know there's no silver bullet. You've got to just really get to grips with it, work out what the liability is, work out what the plan is and then go through the options and work out what's gonna be the best fit for you and your family.

People on this episode

Head Shot

Dr. James Martin

Host