Effective planning

• Fragmentation of ownership via lifetime gifts offers corresponding multiplication of £2.5m relief allowances including between spouses and civil partners (subject to the recipients having accumulated 2 years of ownership in certain scenarios).
• Sharing with a spouse or civil partner (where both or neither are UK long term residents) can be achieved IHT free and, usually, CGT neutral and creates increased scope for lifetime gifting strategies to mitigate the eventual IHT burden.
• Insurance may be used to manage IHT risk associated with lifetime gifts which may become chargeable if the donor fails to survive the gift by the requisite 7 years. Insurance may also be useful in some cases to achieve balance between beneficiaries in situation where not all heirs are involved in the business. It is usually appropriate for such insurance policies to be written in trust.
• Asset protection may influence gifting structures, for example:

○ Creating different classes of shares in a trading business can allow one generation to retain control while passing on growth to the next. ○ Carefully drafted constitutional documents and shareholder agreements can add protection and control, for example, by restricting transmission of shares outside of the family bloodline and providing a robust framework for future stewardship of the business. ○ Pre or post nuptial agreements (or cohabitation agreements for those living together) can also be targeted at protecting gifted wealth as well as strengthening the protection offered by trusts and other structures. ○ Family trusts are still likely to have a role to play, often alongside these other asset protection structures and tools, to build several layers of protection (and reduce asset value in the context of tax and third-party claims via fragmentation of ownership).

• Review will planning to ensure APR/BPR and other allowances and exemptions are used to best effect.

○ Such planning often involves a specific gift of qualifying assets in the business owner’s will on the terms of a carefully structured discretionary trust. ○ Leaving qualifying assets on the terms of a discretionary trust provides scope for onward tax planning, for example, to facilitate a so called ‘double dip’. This involves the surviving spouse or partner buying the qualifying assets from the trust taking the sale proceeds outside of the survivor’s estate. Meanwhile, the qualifying assets may enjoy the relief again in the survivor’s estate provided the survivor has owned them for 2 years prior to death (a risk which may be covered by term assurance written in trust). ○ Specialist advice tailored to the individual will be more important than ever when putting appropriate wills in place, given the added complexity that will be introduced by the relief cap and how it is apportioned (and to factor in some uncertainty pending the legislation taking effect and some potential tax traps for the unwary).

• Review existing trusts holding qualifying assets during the transitional window. It may be considered advantageous to retain any trust holding qualifying assets already in place pre-30 October 2024 given that this should qualify for its own £2.5m relief allowance, separate to that of the settlor, and separate to that which any post 30 October 2024 trusts by same settlor must share between them.
• Trust planning going forward: If trusts are being considered as a vehicle for business succession planning, there is merit in settling pre-6 April 2026 as unlimited 100% relievable assets may be settled without an entry charge (assuming the legislation is implemented in line with the draft that has been published).
• Opportunity to plan for future stewardship of the business: On a positive note, careful planning with the benefit of joined up legal, tax and financial planning advice should be an opportunity to consider business succession not just for tax efficiency but to ensure a gradual and well-planned handover of stewardship in a way that will fit family dynamics and objectives in the long term.