Inheritance Tax Savings – Playing the Generation Game
Words by David Glover, director at John Kerr Chartered Accountants| Advertorial
It has widely been reported that Sir Bruce Forsyth’s will left all his estate to his wife to avoid Inheritance Tax (IHT) on his £17 million pound estate.
He appears to have ‘played The Generation Game’ by leaving all assets to his (much younger) wife while at the same time leaving her with a letter of wishes asking her to then give a large part of his estate away to his children.
Some newspapers suggested that this was some kind of elaborate tax dodge along the lines of those perpetrated by comedian Jimmy Carr.
Higher than a 7
The use of the inter-spouse IHT exemption is one of the simplest (and arguably least controversial) tax reliefs around. It is a firm principle in UK taxation that value on death should pass from one spouse to another spouse free from IHT. However, Bruce has also used this exemption to attempt to ‘route’ his wealth through to his children. In carrying out his tax planning he was hoping firstly that he could trust his wife and secondly that his wife would survive any gifts made to his children by over 7 years.
He needed to trust his wife because a letter of wishes is not legally binding and she is technically free to keep all of the estate to herself. He needs his wife to survive the making of the gifts by over 7 years because any assets which she gifts to the children will still be subject to IHT if she dies within this period.
If his wife does survive 7 years from the date of the gifts (It needs to be higher than a 7!) then the children will have received a large portion of his estate tax free. HMRC is unlikely to have anything to say about this very simple form of IHT planning.
Playing Your Cards Right
If like Bruce you ‘play your cards right’ and end up with a much younger spouse perhaps she (or he) can help the IHT position by making a gift to the children after your death. However this planning will only work if your spouse ‘plays ball’ and is able to survive a long time without you! Perhaps Bruce only did things this way because he was already very old when he started thinking about IHT planning and therefore he wasn’t prepared to venture into other areas of planning in case he died too soon and rendered it ineffective.