Inheritance Tax (IHT) Advisors

A Family Investment Company (FIC) is a bespoke family investment vehicle in the form of a company whose directors and shareholders are, usually, individual family members or those close to you.

An FIC can be used to hold a wide variety of assets including property and stocks & shares. It is a flexible investment vehicle that allows a family to determine how each member can benefit by defining the rights attached to each class of shares. If the company is correctly structured it allows the principal to retain control of the company by way of holding voting rights, however, allows the beneficiaries, usually the settlor's children, to hold income and capital growth shares. The effect is to remove the capital growth value of the company from the principal’s estate and pass this onto the beneficiaries, in turn reducing the total IHT that should be payable on death.

A Potential Exempt Transfer (PETs) is a gift made during a person’s lifetime that is not immediately subject to tax when the gift is made. However, it may be taxed should the donor pass within seven years from the date of the gift.

The effective rates of tax on the excess over the nil rate band are:

• 0 to 3 years before death 40%
• 3 to 4 years before death 32%
• 4 to 5 years before death 24%
• 5 to 6 years before death 16%
• 6 to 7 years before death 8%

A trust is a relationship in which one party, known as the settlor, gives another party, known as the trustee, the right to hold legal title to property or assets for the benefit of a third party, the beneficiary. Trusts are commonly established to provide protection over the settled property, ensuring those assets are managed in accordance with the settlor’s wishes. Where appropriate it can serve as an important tool in protecting family wealth and succession planning.

It is important to make a will because:

1. If you die without a will, there are certain rules which dictate how the money, property or possessions should be allocated. This may not be the way that you would have wished your money and possessions to be distributed.
2. Unmarried partners and partners who have not registered a civil partnership cannot inherit from each other unless there is a will, so the death of one partner may create serious financial problems for the remaining partner.
3. If you have children, you will need to make a will so that arrangements for the children can be made if either one or both parents die.
4. It may be possible to reduce the amount of tax payable on the inheritance if advice is taken in advance and a will is made.
5. If your circumstances have changed, it is important that you make a will to ensure that your money and possessions are distributed according to your wishes. For example, if you have separated and your ex-partner now lives with someone else, you may want to change your will. If you are married or enter into a registered civil partnership, this will make any previous will you have made invalid.