Guest Post – Amy LLoyd Meridian Private Client LLP

Guest Post – Amy LLoyd Meridian Private Client LLP

IHT Double Dip Strategy (Simplified)

Individuals that own qualifying business assets can claim business property relief (BPR) for inheritance tax at either 100% or 50%. How long the current BPR rules will be in place without any watering down is unknown.

On death, it can be useful to “bank” the BPR at 100% by gifting relevant business assets (that qualify for BPR) into a Will trust. If the government were to subsequently change BPR rules any relief previously claimed are likely to be unaffected.   Therefore, it is best practice to include a BPR trust in Wills for clients with business assets to ensure this valuable relief can be maximised.

If a Will trust holds business assets the surviving spouse could purchase those business assets from the Will trust using assets that do not qualify for inheritance tax relief. The original Will trust would then hold those assets rather than the surviving spouse. So, for example, if shares in a family company were purchased by the spouse from the trust for cash then the Will trust could invest that cash for the surviving spouse to provide an income for them for life or loaned to them.

The surviving spouse would then hold assets in the family business.  On the second death, BPR could then be claimed again on those same business assets. Hence this planning strategy is called “double dip”. The family have claimed BPR twice on the same assets.

The overall result of the double dip strategy is that the first Will trust holds cash that can be invested and/or passed to the children in a tax efficient manner. The second Will trust now holds the business assets.

Points to note when considering the double dip strategy:-

  • A carefully drafted Will is required.
  • Business assets must qualify for BPR and the strategy works best for clients with assets qualifying for the 100% relief.
  • This strategy could also work with Agricultural Property Relief in a similar manner.
  • Double dip planning will only work if the business assets still qualify for BPR on second death. If clients have a family business and are looking to continue their business after the first death, this strategy would be ideal.
  • Ancillary purchase costs, such as stamp duty, may be payable when the surviving spouse purchases the business assets from the Will trust. If stamp duty is payable, then sub-fund trust may assist.
  • The surviving spouse would need to hold sufficient assets in their own name to purchase the business assets. The surviving spouse’s needs and financial situation should be reviewed before any purchase of business assets occurs.
  • this strategy is not restricted to married couples. Surviving children or grandchildren can also purchase relevant assets from a BPR trust.

Amy Lloyd

Meridian Private Client LLP

April 2020

If you believe that you can benefit from this inheritance tax strategy then in the first instance please contact you usual GHC adviser to discuss.