The focus on my appointments over the past couple of weeks has been on Inheritance Tax planning and care fees. The following article from the latest edition of the Generation Newsletter provides some useful food for thought.
Inheritance Tax and care fees planning do not mix
Or can they? Many of our clients have expressed a desire to make gifts to reduce their liability to Inheritance Tax but are worried about potential care costs. They feel they have more than enough to live on now, provided nothing happens requiring them to pay for care in the future; whether in their own home, or a residential or nursing home. If this were to happen, their expenses could rise dramatically. This understandable and realistic concern led to the development of the Later Life Planning Scheme, specifically designed to address this problem.
The scheme allows you to make a gift of capital in order to reduce the value of your estate for Inheritance Tax purposes whilst, at the same time, providing you with a predetermined ‘income’ to help meet the expenses of your care in later life, but only if required. As you are unlikely to know when a need for care will arise, it is possible to arrange for the ‘income’ that you retain to increase by a fixed percentage each year. This increase will apply from the date of the gift and will continue while the ‘income’ is in payment.
How does the arrangement work?
• The scheme combines an investment with a specifically worded discretionary trust*.
• At the outset, you select the amount of ‘income’ you wish to receive should you need care, and how you would like this ‘income’ to increase, if at all. Once selected, the ‘income’ cannot be changed and, if it becomes payable, it will be paid for the rest of your life or until earlier fund exhaustion.
• We suggest that no more than the current limit of the nil-rate band (£325,000) is invested, assuming you have not used any of your Inheritance Tax nil-rate band elsewhere in the previous seven years.
• The original amount invested will fall outside of your estate if you survive for seven years from the date of the gift. It is possible, in limited circumstances, that tax at a maximum rate of 6% may be payable every ten years and/or
when capital payments are made from the trust.
• On your death, the investment remains in the trust and is held for a selected beneficiary or beneficiaries.
• While alive, you retain complete freedom to change the beneficiary/ies, the amounts they receive and when they benefit.
• After your death, your chosen trustees can decide whether the trust fund should be distributed to your selected beneficiary/ies or retained within the trust for their future benefit. You can give your trustees guidance via a letter of wishes.
In summary, investing in this type of arrangement would mean:
• any growth in the investment is outside your estate for Inheritance Tax purposes, and
• you can have peace of mind that, should you need additional income to meet care costs, you are able to access it without losing any of the valuable Inheritance Tax benefits that may have accrued.
This plan will not be suitable for everybody and it is important to take advice from your St. James’s Place Partner if this is of interest to you.
For more information about Inheritance tax, please visit my website.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You (or your beneficiaries) may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
*Trusts are not regulated by the Financial Conduct Authority.