IHT PLANNING

HOW DO I REVIEW MY INHERITANCE TAX POSITION?

Succession planning is a process that takes time and needs buy in from all the family so the sooner that process begins the better.

As the cost of Government support for those affected by the coronavirus continues to increase, talk inevitably turns to how it will be funded. Tax rises are an option but with Boris Johnson pledging not to increase income tax, national insurance and VAT there is perhaps limited opportunity. Inheritance tax (IHT) has been in the spotlight recently and this may be an area that changes, so now could be a good time to review your IHT position.

ANDY HOGARTH Manager 01242 680000 andy.hogarth@hazlewoods.co.uk

STEP 1 - INITIAL MEETING The first step is an initial meeting to discuss your circumstances in more detail and to get an understanding of your objectives. As part of this, we can discuss any existing arrangements you may have in place. STEP 2 - QUANTIFYING THE LIABILITY The next step is to understand whether an IHT liability is likely to be payable on your estate and, if so, how much this will be. Through obtaining some basic details about your circumstances (e.g. assets; liabilities; will provisions) we are able to provide a summary of your current position and the IHT that would be payable on your estate.

STEP 3 – PUTTING A PLAN IN PLACE Once we know what the liability is likely to be, we can then discuss and recommend options to help mitigate/reduce this. This process will include reviewing existing arrangements and making recommendations on the ongoing suitability of these.

The key to any plan is you being at the heart of it. Our approach to IHT planning puts you first and we ensure your affairs are arranged efficiently, and that you are the priority.

to ensure they remain suitable opportunities may become available. Once you are comfortable with this, we can then review what options

your objectives and in line with the there may be to ensure more of your estate goes to the people you want it to. Being independent means we are not tied to any provider or product, allowing us to recommend the best possible solutions for your objectives from across the entire market.

Meanwhile, our cash flow modelling simulation will demonstrate the impact our planning will have on both the IHT liability on your estate and your future STEP 4 – REGULAR REVIEWS Over time your circumstances change, meaning it is important our solutions are flexible and we regularly review these with you and in line with your objectives. In addition, IHT legislation is subject to change, meaning further options or

Through regular review meetings we can ensure your affairs are continually arranged in the most efficient manner, commensurate with financial position to provide you with confidence in the planning recommended.

most up to date rules and legislation.

IHT THE FIGURES

WEDDING GIFTS

P arents can make a wedding gift of £5,000 to their children IHT free.

Grandparents and great grandparents can make wedding gifts of £2,500 IHT free.

All other individuals can make wedding gifts of £1,000.

ALLOWANCES

Nil rate band: £325,000 is the amount everyone can pass on IHT free.

Residence nil rate band: £175,000 is the extra allowance parents potentially qualify for by passing their home on to their children, step or foster children and grandchildren.

Married couples each qualify for these allowances. Transfers of assets between spouses are exempt from IHT. GIFT ALLOWANCES

Individuals can gift £3,000 each year IHT-free. Individuals can use last year’s allowance, if this was not used.

Individuals can also gift £250 to as many people as they wish each year, IHT free.

Regular gifts out of income can also be made IHT free.

Gifts in excess of this are likely to be deemed ‘potentially exempt transfers’.

The individual needs to live for a further seven years for the gift to be IHT free.

IHT RATES

IHT is levied at a rate of 40% on chargeable estates.

This is reduced to 36% if the individual leaves 10% of their net estate to charity. RELIEFS

Business property relief: Investments in certain businesses qualify for 50% or 100% IHT relief. The business or asset must have been owned for two years prior to death.

Agricultural property relief: Certain agricultural land and buildings qualify for 50% or 100% IHT relief. The land or property must have been owned for two years if occupied by the owner, or seven years if occupied by someone else.

RESTRUCTURING:

MAKE YOUR BUSINESS FIT FOR PURPOSE

This is a difficult time for many businesses due to COVID-19 issues, whilst others are doing fantastically well despite the current challenging circumstances. The last few months have made business leaders think carefully about their business risks and whether their current structure is actually ‘fit for purpose’. It may be the time over the next few months to put a new structure in place which will assist in growing your business whilst mitigating the risks of a future downturn.

RISK OF PROPERTIES AND TRADE IN THE SAME COMPANY Hazlewoods has helped a number of clients move their property assets out of their existing trading company. The risk is if there was a downturn in trade which resulted in, for example, a significant supplier not being paid, they may seek to claim their debts by pursing a claim against the assets of the company. This could result in a property potentially having to be sold (and at a ‘fire sale’ price) in order to pay this outstanding debt.

It may be possible to mitigate this risk by moving the property into a new holding company that sits above the current trading company. Clearly, there are tax issues involved (and potential commercial issues if a bank has security over the property) in introducing a new holding company but, in our experience, it should be possible to carry out this exercise tax-free.

HOW CAN WE HELP YOU? Debt advisory: help identify sources of finance and advise on the optimum structure to achieve your objectives. Services include raising and refinancing debt, debt restructuring (including private equity/alternative funding sources) and cash flow management.

Restructuring: work with owners, investors and creditors to protect and realise value. Services include assessing corporate viability, evaluating options to recover value, strategic planning and implementation. Corporate simplification: assist in simplifying group structures, eliminating surplus/dormant companies and reducing regulatory risk, cost and management time. Hazlewoods can also advise on the optimal solution to dispose of surplus group companies, whether it be by solvent liquidation or managed exit.

Business recovery and insolvency: assist management in restructuring businesses, preserving value and avoiding formal insolvency. Our Business Recovery and Insolvency team can help provide frank, proactive and commercial advice. We work with you to provide the best solution for all parties.

DIFFERENT BUSINESSES IN THE SAME COMPANY Sometimes a company will have set up separate businesses/trades over time, which may be run by the same or a different management team in the company. One may be valuable whilst another may not, or it may be desirable to sell one of the businesses before the other. A company selling one of its businesses whilst retaining another can be very tax-inefficient and commercially more difficult. Furthermore, in a similar situation to the potential separation of property, there is also a risk that if one of the businesses fails then this could adversely impact on the valuable business.

It is possible to restructure the company by moving out one of the businesses, in a tax-efficient manner, into a new company formed for the purpose (and this could also be carried out at the same time as moving the property as discussed above). There can also be significant tax and commercial advantages of carrying out what is known as a demerger, so the individual businesses (whether they are trading or investment businesses) become held directly by the individual shareholders.

Care needs to be taken to carry out the restructuring in the correct way, to avoid falling into tax traps.

CREATE NEW GROUP STRUCTURE There are other instances where the shareholders may actually wish to consider bringing companies together within a group, as this can enable Pete Woodall tax losses to be offset between the companies in the future and allow tax efficient transfers of assets around the group. If a company joining the group is valuable, there will be tax implications on the transfer of ownership of the shares which would need to be considered.

SOLVENT LIQUIDATION OF A COMPANY If a company has sold its business, or ceased to trade, then it can often be worthwhile to carry out what is known as a ‘members’ voluntary liquidation’ to distribute the remaining assets (often significant cash balances) of the company. By distributing the funds in this way, they are treated as ‘capital’ so there are likely to be significant tax benefits compared with taking the funds out as dividends or salary. However, this option needs to be considered carefully since if the shareholder(s) are going to continue with a similar business in the future the potential tax benefits of this route may be eradicated.

Hopefully, the above gives you a flavour of some of the options for restructuring your business to mitigate risk and create additional value. The potential tax implications of carrying out such restructuring need to be considered and the tax cost of doing things the wrong way can be significant. We will ensure that any restructuring fits with your commercial requirements whilst being carried out tax efficiently.

If you wish to consider restructuring your business or discussing the above in more detail then please contact Pete Woodall pete.woodall@hazlewoods.co.uk or 01242 680000, or your usual contact at Hazlewoods.

PETE WOODALL Associate Partner 01242 680000 peter.woodall@hazlewoods.co.uk