Inheritance Tax Planning where a Power of Attorney is in place

Posted by: Nicola Macdonald, on November 3, 2016.

Where a lasting power of attorney is in place many people think that nothing can be done with regards to planning for inheritance tax mitigation, mainly because the ability to make gifts is very limited without approval from the Court of Protection. 

In many circumstances it is the Court of Protection’s view that giving away assets during the principal’s lifetime would not be considered as in their best interests. This can make it difficult to plan for passing on wealth tax-efficiently.

So, is there anything that could be done?

A Case Study

Tom’s mother Eve, who is 84, consolidated her assets and converted them into £1,050,000 cash before entering a care home.

Following the death of her husband, Eve has a nil-rate band of £650,000 and a main residence nil-rate band of £200,00, but faces leaving behind an inheritance tax bill on the remaining £200,000.

Tom has lasting power of attorney over his mother’s assets, and the circumstances in which gifts can be made from his mother’s estate without Court of Protection approval are limited. In any event, gifts will take seven years to fully fall outside of Tom’s mother’s estate for inheritance tax purposes.

Tom is one of three beneficiaries of Eve’s will, alongside his brother and sister.

Tom needs to ensure that any investment decisions are made in his mother’s best interests and won’t disadvantage her, for example, by making her money inaccessible.

Following discussions with the family’s financial adviser, Tom chooses to invest £200,000 on his mother’s behalf into a business property relief investment. As with most investments, it is simply made in his mother’s name, meaning she retains ownership of her wealth.

Once Tom’s mother has held the investment for at least two years, and if she held it at time of death, the investment should fall outside of the estate, saving the three beneficiaries an inheritance tax bill of £80,000 when Tom’s mother dies.

Unlike estate planning strategies that rely on life assurance, there are no underwriting or complicated medical forms to complete – the application process is straightforward.

Withdrawals can be requested at any time, for example in case Tom’s mother requires additional funds for care home fees.

Swindells Financial Planning has helped numerous clients put in place plans to reduce potential IHT liabilities using a number of non-contentious planning strategies.

We are always here to answer any questions you have. So please give us a call on 01825 76 33 66 or fill in the contact form.


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