Case Studies

case study example
Barbara has an inheritance tax concern

01

Barbara’s house is valued at £400,000, which means it has no IHT liability. But she has an additional £500,000 in cash and investments. She is currently living off the interest of the £500,000 to supplement her pension. 

Her children face £200,000 of their inheritance disappearing in IHT which Barbara  wants to reduce.  

Following advice from Philips Trust Corporation, Barbara sets up a discretionary trust, gifting £300,000 to her children. Assuming she survives seven years this is a “potentially exempt transfer” (PET) and no tax is payable. What’s more, because the £300k is under the nil rate band, it does not attract an immediate IHT payment of 20%. 

Acting on advice from Philips Trust Corporation, Barbara also sets an Family Income Company with her children and grandchildren as shareholders, all with equal minority shareholdings. She invests her remaining £200,000 and achieves an average fixed return of 5% (£10,000 per annum). This is higher than the interest she was earning on the £500k.  

Tax Implications 

Because Barbara now takes her income from the investment as a director’s loan, she pays no tax. And, assuming she survives seven years, this has saved her children £200k in IHT. 

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Mark wants his wife to benefit from interest on their investments now, while leaving the money to his children
case study example

02

Mark wants his wife to enjoy the interest on their cash, while leaving the money to his children. Following advice from Philips Trust Corporation, he sets up an interest in possession trust. This gives his wife access to the interest, but withholds any right to the capital.  

Tax Implications 

As long as the money stays in the trust, and remains the ‘interest’ of the beneficiary (in this case his children), there is no Inheritance Tax to pay.  

Find out how we can help you to set up an interest in possession trust 

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case study example
Bob has £3m in cash to invest

03

As Bob is single and has no children, he isn’t interested in estate planning, but he is interested in reducing the amount of tax he has to pay. Particularly because, as a high rate tax payer he has to pay 45% income tax and 38.1% on any dividend payments. 

Following advice from Philips Trust Corporation, Bob establishes a personal investment company and invests in corporate bonds. 

Tax Implications 

Bob takes tax free loan repayments from the company. So, rather than paying 45% income tax, Bob now only pays 20% corporation tax (reducing to 18% in  2020 ). In addition, his dividend  income should be tax free. 

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