Chapter: 2 - Inheritance Tax Mitigation: The Basics

Investments

2.7

Investments within a person’s ownership may take a variety of forms: equities, unit trusts, government stock, PEPs or other rather more weird and wonderful creatures.  But, like any other property the market value will fall into charge at death.  While, under the Enterprise Investment Scheme and the Venture Capital Trust Scheme, certain Income Tax and CGT reliefs are available during life, the only IHT-saving opportunity open here (other than for family-owned companies) is BPR for shares listed on the Alternative Investment Market (AIM) as to which see 2.5.2 for a summary and 6.2 for more detail.  The GWR regime applies to gifts of investments as much as to any other property.  And, in the case where GWR does not apply, and there has been a disposal of investments into a settlor-interested trust, there may be an annual Income Tax liability on 4.75% (in 2009/10) of the market value under the POA regime.

The difficulty of course is that everyone needs to live – and usually requires income for that purpose.  There is no point in making an effective gift of a substantial amount of investments, surviving for seven years, then only to find that the donor has nothing left to live on.  But investments will take their place in the overall family plan.  It may be that:

(a) there are some investments surplus to requirements which, subject always to CGT considerations, can be given away;

(b) the balance of the investments can be slanted rather more to the production of income than capital growth on which of course 40% IHT will ultimately have to paid; or

(c) developing the concept of total return, a person may feel that he can ‘afford’ a rather larger gift of investments than might otherwise be the case if he can ‘live off capital’ in relation to the remainder – taking a reasonably conservative view of continuing life expectancy.

All this is developed in Chapter 9.