Trust me I'm an IFA

January 26, 2021

Many people think about savings and investments in terms of products, NS&I bonds, cash deposits, ISA's, pensions etc. But are these the only tools available in the market? Are there better solutions which can provide a tax effective income in retirement and help pass on wealth to our loved ones without incurring a hefty Inheritance Tax charge? You might be already familiar with the concept of Trust, which has been around for over a century. If not, I shall try to give a new perspective on what results could be achieved.

As we continue to live longer, many of us hesitate to give our wealth away early enough in life, which often leaves our loved ones with an unwelcome Inheritance Tax charge and adds an immense amount of stress. Today, however, I would like to talk about how we can use Trusts to create the ideal Family Wealth Plan.

How to generate a tax deferred income, while immediately reducing your Inheritance Tax charge?

Imagine, you have accumulated substantial wealth, but you feel that your children are not yet ready to inherit. You might be concerned about the stability of their relationships and how to preserve wealth in your family. The prospect of paying Inheritance Tax seems unfair, considering how much an average UK citizen pays in taxes throughout their lives. On the other hand, you may want or need additional income to supplement your pension.

The Discounted Gift Trust

...could be just the right solution, which offers you 

  • Tax-efficient regular payments during your lifetime 
  • Capital for your family or chosen beneficiaries after your death 
  • An immediate reduction in the IHT liability on your estate, this reduction can be substantial depending on age and health
  • Diverse investments which help to spread the risk

The best way to describe this concept is to draw a simple picture. 

Trustees - They hold the key to the lock

This is one of the solutions that we are proud to offer to our clients. In addition to the benefits listed above, on death the funds remain in the trust and can be used to benefit a wide class of beneficiaries. This provides great flexibility and could help you to implement a truly intergenerational tax efficient financial plan.

How to mitigate Inheritance tax without giving your assets away? 

An alternative very effective solution is a Gift and Loan Trust which allows you to maintain control over capital. Whilst the loan remains in the Estate for Inheritance tax purposes any future investment growth would accumulate outside the taxable estate. Regular repayment of the loan can be made in a tax free manner and could provide additional spendable income with no liability to income tax. The initial capital will continue to be available, should you need to take a lump sum withdrawal at any time in the future.

I'm a strong advocate that solutions, which may look complex at first, can be presented in a simple format, so that everyone can understand how they work. An onshore bond wrapper is an ideal style of investment for the Trustees to make. At Ebor we have a team of expert advisers who provide specialist advice and assist you in choosing the most suitable trust coupled with the most appropriate investment strategy. I hope that these insights into the world of finance have been helpful and If you do not have a trusted financial adviser, who truly understands your goals and aspirations, please give us a call on 01274 839200 and we would be delighted to assist you to prepare your Ideal Family Financial Plan.

Finance plays such an important role in our daily lives, so I would like to leave you with a simple but very profound question - who do you currently trust your financial wellbeing to? And are they worthy? 

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