A Trick and a Treat

Oct 29, 2019 | Taxation

In a week when YouGov tells us that 74% of Dads tax our own children by helping ourselves to the candy (because we’ve earned it), our blog-post offers readers a Trick and a Treat.

The following is for everyone (except, perhaps, the 4% of parents who allegedly eat all of the sweets)………….

The Trick

Our Trick is a “double dip” of Business Property Relief, designed for business owners and some potentially significant Inheritance Tax management. (But if you don’t fancy the Trick, move on to the Treat now.)

Mr and Mrs Pumpkin have £2m of investment assets (cash and equities) and another £2m of value in the shares they hold in their Pie Distribution company.

They want to preserve as much of their estate as possible for the younger Pumpkins (of course) and they are conscious that there is quite a lot of Inheritance Tax at stake on the “second death”. That death will more than likely be Mrs P’s, in this instance.

To do this they need to move value outside of Mrs P’s estate (while still giving her access to the money). A Will Trust by Mr P sounds good. If he sets up a Trust on his death, capital can be put outside of Mrs P’s IHT estate forever. But he wants to put a LARGE portion of the cash and equities in there and he knows he can only do £325,000 before 40% IHT becomes payable – something we never ever want to see on a first death.

So this is the Trick:

We put the Pie shares into the Will Trust. Maybe even all of them. They qualify for 100% Business Property Relief and no IHT arises despite the value exceeding £325,000. Then, sometime later, Mrs P buys those shares back from the Will Trust, paying the cash and equities to do that (cash and equities which she has received, under her husband’s Will, free of IHT by reason of the spouse exemption). This purchase is value for value of course and it doesn’t involve any element of “gift” or “bounty” upon which IHT might otherwise be charged. The P family then have all their cash and equities in the Will Trust, outside of Mrs P’s estate, at no IHT cost. Mrs P lives on and the Pie shares she holds become Business Property a second time, altogether free of IHT on her (the second) death.

The double dip of relief means zero IHT payable. A very good result for the Pumpkin family.

The Treat

If you didn’t want the Trick then here’s the Treat:

Still mesmerised by our Knutsford trip recently (but promising our readers that we aren’t on a commission), could we ever turn away a Treat that is…………the Tesla 3?

Accessible now to a much wider audience (it starts at £38,000), this extraordinary vehicle, which felt a bit like Alton Towers’ Rita when our T Rep opened up the flow of electricity, is loved by the taxman as well:

  • 100% capital allowances for your company
  • a 2% of list price benefit in kind from 6 April (and it’ll probably take Tesla until then to get it delivered tbh)
  • no tax charge at all for the power top-ups (electricity isn’t “fuel”)
  • your neighbours’ envy and admiration also totally tax-free.

We think, for this year at least, it should be Trick or Tesla – and let Dad eat what he likes.