Helping elderly relatives and you plan for the future (part 3)

In the previous two articles in this series we discussed the basic assistance required help an elderly person manage their finances, plus a couple of different options to help pay for their care.
I wanted to discuss more tax planning around inheritance tax.

The Government announced that revenues from inheritance tax were £5.4 BILLION for the tax year 18/19. The expectation from HMRC is this figure is set to reach £10 BILLION by 2030. Whether you agree with this or not, these are enormous amounts of family wealth that are being transferred across to HMRC.

I would argue that with just some basic understanding of how this tax works, most families could certainly look to reduce their inheritance tax bill and increase the wealth staying in the family.

Here are the key areas to look out for:

1. Life insurance
If your elderly relative still has life insurance, are these written into trust? If not, then the funds will pay out to the deceased’s estate (thereby becoming subject to inheritance tax). If written into trust, the sum assured will bypass the deceased’s estate and be paid directly to the beneficiaries – dare I argue, where it’s meant to be paid.

The best thing about this is the policy can be written into trust at any time – even if the life cover is very old. The policy provider will normally have a trust document that can be completed. So simple, yet so effective.

2- Investment properties
Whilst your elderly relative is still living in their main property then not much can be done with that for inheritance tax purposes, however investment properties are different. If your relative doesn’t rely on the income then these properties can be gifted to another family member (or multiple members). As this is not technically a sale, then there is no stamp duty charged. However, all other legal costs of selling a property should be considered. After 4 years the inheritance tax liability of this gift will begin to reduce and after 7 years it is gone, provided the elderly relative is still alive.

3 – ISAs
ISAs are fantastic tax-free options for income and growth whilst a person is alive. However, on death they are counted as part of the estate and therefore liable for inheritance tax. One option to consider is switching this ISA into another ISA-based investment that qualifies for Business Property Relief (or BPR). BPR‘s main advantage is these assets will become EXEMPT from inheritance tax after only 2 years, versus the normal 7 for a gift. Another benefit is that the investment will always be held in the elderly relative’s name (because they are not giving the funds away) and they can always access them again if required.

4- Cash and shares
There are a couple of options we could look at here. First, we could look at using trusts as a way of managing the assets. Trusts can be particularly useful as you can structure them to invest the money how you would like, but also pay you an income (which is classed as return of capital) back from the trust. This allows you to receive an instant reduction in your asset value and not wait the full 7 years.
The above are just a few different ideas a family could consider when thinking about options around inheritance tax.

Every family situation is different, so if you would like any specialist advice in this area, please feel free to get in contact, either by response to this thread or by PM.

Markets in a minute: Shares flat over past week as virus news worsens

Virus news worsens, hitting shares

Equity markets were slightly up or flat last week as headwinds from the coronavirus combined with bleak outlooks from central banks as they confirmed that interest rates will stay at near zero for the foreseeable future to help boost growth. There is growing speculation that the Bank of England may introduce negative interest rates next year.

The news flow on Covid-19 has worsened over the week, with The World Health Organisation saying last Thursday that infections were spreading across Europe at “alarming rates”. On Friday, the regional government of Madrid ordered a lockdown of neighbourhoods across the city, prohibiting all but emergency movement in or out.

In France, authorities in Nice have clamped down on gatherings of more than 10 people in public spaces and cut bar operating hours following restrictions imposed earlier in the week in Bordeaux and Marseilles. On Friday, the UK government said it was considering new measures including a possible second lockdown as cases surged to more than 4,000 a day.

Last week’s markets performance*
FTSE100: -3.6%
S&P500: -0.64%
Dow: -0.02%
Nasdaq: -0.55%
Dax: -0.65%
Hang Seng: -0.19%
Shanghai Composite: +2.38%
Nikkei: -0.19%
*Data for the week to close of business, Friday 18 September.

Markets dive as second-wave reality bites

There was a broad-based sell-off on equity markets on Monday as news over the weekend pointed to stricter containment measures in the UK and Europe and the possibility of another national lockdown in Britain.

Equity markets were sharply down across the board, with the FTSE100 closing down 3.4% at 5,804.2 while the German Dax fell by 4.37%, and the CAC 40 in France dropped 3.74%.

In the US, all indices trimmed heavy losses earlier in the session but still closed down. The Dow Jones Industrial Average lost 1.84% at 27,147.70, while the S&P 500 fell by 1.16% and the Nasdaq dropped just 0.13% to 10,778.80.

In early trading on Tuesday morning, UK and European equities were heading up.

Speculators adding to volatility?

Covid-19 aside, yesterday’s big market moves may have been exacerbated by the expiry last Friday of large numbers of derivatives, which are often used to speculate on short-term share-price movements. When organisations sell derivatives such as ‘call options’, it forces them to buy the actual shares to ‘cover’ their positions. When the options expire, it often means millions of shares are then dumped on the market at the same time as companies offload their holdings, which can lead to heightened volatility.

Covid-19 news

Boris Johnson has announced a 10pm curfew on pubs and restaurants that will take effect from Thursday. The UK government is once again encouraging home working in a bid to stem the rising tide of infections as we head into winter.

The move follows the UK’s chief scientific advisers’ briefing on Monday. During the briefing, they said that the number of cases was doubling roughly every week and, if left unchecked, could lead to 50,000 new cases a day by October and more than 200 daily deaths in November, unless action was taken to “limit interactions between households”.

The briefing was clearly intended to prepare the public for more lockdowns and quarantines. It also looks like the extension of the businesses support programmes has been timed to help companies that will be hit by any fresh lockdowns or are forced to limit their hours under new curfew rules.

Government to extend support for businesses?

Chancellor Rishi Sunak is reportedly planning to extend the government’s series of business support loans in the face of a worsening second wave of infections and a cliff-edge end to the employee furlough scheme next month.

Mr Sunak is this week expected to say he will extend four government-guaranteed loan schemes until the end of November, with banks permitted to process the loans until the end of the year.

The decision to extend state support comes as the country faces more localised lockdowns, curfews and possibly a national lockdown as the spread of the virus accelerates across the country, and across all age groups.

Unfortunately, there is no sign of a breakthrough on the deadlocked talks in the US on a new stimulus package. Millions of cash-strapped households and businesses may now have to wait until after the election for any extra financial assistance.

US election update

Democratic candidate Joe Biden is still the favourite just as Clinton was four years ago at this stage. The national polls were right in 2016 in that Clinton won the popular vote, but the electoral college system fell in Trump’s favour due to state level polls underestimating his strength in some of the tightest states, and “undecideds” leaning largely for Trump.

The House of Representatives will remain in Democratic hands but the odds of them taking the Senate are much more finely balanced.

There is also the question of whether the election could be contested if Trump loses. The short answer is yes and the likelihood of it happening will be driven by how tight state-level results are and how significant the postal votes are (as Trump claims these are prone to fraud).

Edited by Goal Machine (23 Sep 2020 7.54am)