Using Business Property Relief to save inheritance tax after grant of a Power of Attorney
We helped a client to avoid inheritance tax even after she granted a Power of Attorney to her children, by using Business Property Relief.
“Woodruff Financial Planning communicates well and explains complicated matters easily to the average person. Your honest and trustworthy manner gives me confidence that I am speaking to the right people about my financial goals.”
Angela Low, Investment Management client
Our client is aged over 90, and unfortunately had to go into full-time nursing care. She granted a Lasting Power of Attorney to her 2 children, who now manage her finances. The client has a variety of investments, guaranteed pension income and other savings, which pays enough income to cover the nursing care fees. The Attorneys decided to sell the client’s family home, which released nearly £1 million.
The attorneys asked us to investigate options to save the client inheritance tax, since the reasonable income needs of the client were covered already. Without any action, inheritance tax on the client’s death was likely to be over £500,000.
Inheritance tax planning for attorneys
Normal methods of inheritance tax planning would not be appropriate for the attorneys in this case. Attorneys are often unable to reduce the value of someone’s estate through gifts or trusts, since this would deprive the person of the future use of that money.
Age of the client
The life expectancy for the client is normal for someone of her age. However, we had to be realistic about the length of time we had available to plan for inheritance tax. Other available inheritance tax planning methods such as whole of life insurance were not available to us, given the client’s advanced age.
Future income needs
Our plans had to take account of the future circumstances of the client. Her current expenditure needs were covered by her existing pensions and other income, but we had to ensure that she would be able to access her money in case further capital is later required.
The attorneys were keen to ensure that their mother continues to be secure in the future. They also wanted a low-risk approach to any solution.
Established the client’s security
We took care to examine the client’s security of income for the future. We established that she had enough income to pay for her care fees regardless of future changes. She also had the ability to access over £1 million in savings and investments if she needed capital at any stage to supplement her income.
We provided the attorneys with a comprehensive report which examined:
Business Property Relief investment
We recommended an investment for the attorneys which would allow the client to benefit from Business Property Relief. This is a standard relief against inheritance tax, which would allow the client’s investment to be free from inheritance tax after just 2 years. The investment was made in the client’s name, meaning she could access the funds at any stage if her situation changes.
Outcomes and Impact
Inheritance tax saved
Provided the client survives for 2 years from the date of investment, and it continues to qualify for business property relief, the client’s estate will pay £350,000 less in inheritance tax.
Understanding of the risks
The business property relief investment is designed to be stable and secure, but does have some potential issues given the nature of investments required to qualify for the scheme. Therefore, we spend time reporting to the attorneys and explaining the possible downsides of the business property relief investment.
The investment was made in the client’s name. The client retains full access to the capital, and can access this at any stage should her needs change.
Each year we revise the client’s financial plan so that we can react to any changes and re-assess whether she remains on target to meet her long-term goal of security.
We also examine her investment portfolio and aim to keep it on track towards its goals while taking the least risk needed to do so.