Is HMRC the largest beneficiary of your will?
In the first two months of the 2023/24 financial year, HMRC collected a whopping £1.2 billion in Inheritance Tax (IHT) – collecting £600 million in April 2023 alone…
The current IHT threshold is frozen at £325,000 until at least 2028, meaning that where property prices and values increased, particularly over the pandemic, many risk being hit with a higher-than-expected Inheritance Tax bill.
Without implementing an effective tax plan, 40% (on anything above that threshold) of your own wealth will be set to go to HMRC when you pass. As such, formulating an efficient tax planning solution to protect your family’s wealth has never been so important.
As a business owner, there are ways to legally mitigate Inheritance Tax and leave your beneficiaries a tax-free inheritance. By acting on this now and putting the right structure in place, you can mitigate the heavy Inheritance Tax liability, continue to grow your investment portfolio, and build a legacy by securing this for future generations.
Inheritance Tax and the Family Investment Company:
With a Family Investment Company, you can protect your family wealth, hold assets including property, and mitigate tax within HMRC rules. You, the director, maintain control of the Family Investment Company, even with family members as part of the company.
The structure of this set-up allows for a streamlined inheritance process that can achieve 0% Inheritance Tax by holding your assets in a trust, outside of your estate.
Other key benefits include:
- 0% Inheritance tax on existing retained profits
- 0% Corporation tax on investment profits
- Loan funds back to your company
- Invest in property or other asset classes
- Retain and protect business property relief for your trading company
- Create a lifetime-and-beyond legacy
Inheritance Tax and the Small Self-Administered Scheme (SSAS):
The Small Self-Administered Scheme (SSAS) is specifically designed for company directors, by government. It is one of the most flexible and tax-efficient pensions schemes in the UK. In addition to an array of other benefits, a SSAS can have multiple members, including family members. As such, it is an ideal vehicle for succession planning. As a trust, it can be handed down through generations, whilst still letting you take an income in retirement.
Given the SSAS is not part of your estate, anything held in it is not liable for Inheritance Tax! Any investments made via the SSAS are ring-fenced within the scheme. As such, assets are protected for your family. You can cascade the SSAS pension fund and its assets down through your family, free of inheritance tax. This avoids the hassle and expenses of legal fees and administration fees, because the SSAS is already owned by the family.
If you are looking to keep your business within the family, a SSAS will ensure business continuity is maintained throughout generations as family members leave and join the company.
Other SSAS capabilities:
- purchasing investment property
- making hands-free property investments
- investing in a vast array of other asset classes
- growing your pension fund by investing in property or other asset classes
- making loans to your company for any valid business purpose, from your pension fund
- combining multiple pension funds into one pot for greater investment power, increased choice and more control
- pooling pensions with family or colleagues to increase the pot and grow it more quickly
- ring-fencing assets, outside of the estate
- succession planning
- retirement planning on your own terms, to your own timescales
- creating a legacy
- purchasing your business premises and renting them back to the company to grow the pot and remove contract, legal and cost issues by becoming your own landlord
- reducing Corporation Tax
- mitigating Inheritance Tax
Combining the SSAS and the FIC:
You can combine a Family Investment Company with a Small Self-Administered Scheme. This creates a financial bridge to help create innovative and formidable strategies for yourself and your company. Additionally, it can provide a secure future for your children, whatever the succession plan you have in mind for the business.
In addition to the inheritance tax benefits, combining the tax efficiency of both the Family Investment Company and the Small Self-Administered Scheme (SSAS) you open up further options for diversifying your property investments. Options include:
- Serviced accommodation
- Commercial property
- Residential property
- Land for development
- Purchase of business premises
- Hand-free property investment (suited to those with minimal knowledge of property investment and the laws and regulations surrounding or those looking for minimal time commitment for their property investment strategy)
TLPI specialises in building robust and innovative tax strategies to help business owners take control, protect their wealth, and invest in property. Contact us today to find out how we can help you create a bespoke tax-efficient strategy to benefit you, your business, and your family.