The risks of leaving inheritance tax planning too late

You’re named as the executor and a beneficiary of your wife’s wealthy aunt, who’s suffering from terminal cancer and has ‘a very impaired lifespan.’ What do you do?

This is what happened in the case of Nader and others v Revenue & Customs. The executor/ beneficiary, Mr. Nader, decided to consult a firm of accountants about inheritance tax (IHT) mitigation options for Miss Dickins (the aunt).

The accountants put forward an offshore trust-based scheme, provided by a third party, which would remove the IHT liability on £1,000,000 of Miss Dickins’ estate. The scheme was highly complex, involving multiple trusts and short-term loans. It cost a total of £100,000 in fees and its first stage was triggered on 6 December 2010, three weeks before Miss Dickins’ death.

Mr. Nader received grant of probate on 4 July 2011 and a little over a month later the scheme was wound up, with IHT-free payments being made to Miss Dickins’ beneficiaries. However, subsequently HMRC opened an enquiry into the IHT return and by February 2015 – a little over four years after Miss Dickins’ death – tax demands were issued to the beneficiaries.

Wind forward another three years and at a First Tier Tribunal (Tax), Mr. Nader, alongside his fellow beneficiaries, made an appeal against the tax bills they were facing. In a 51-page judgement, the Tribunal dismissed the scheme as ineffective, and the beneficiaries were also left with the appeal legal costs on top of the bill for IHT plus outstanding interest. 

The case is a reminder of the risks, costs and delayed timescales that can be involved in deathbed estate planning – leaving it too late could cost your beneficiaries a lot. “The complexity and administration around IHT could leave spouses or direct descendants at a disadvantage. Time is of the essence, and planning early is the best way to leave a stress-free legacy”, says Emma Pritchard, IHT specialist at AFH Wealth Management.

To find out more about inheritance tax and to understand the importance of IHT planning, download our useful inheritance tax guide.

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