Philip and Roberta
Philip and Roberta are in their late sixties. They own their own home worth £600,000 which they plan to leave to their daughter and have a total estate of £1.2 million. They are in process of selling a buy-to-let property for £300,000 and will make a capital gain of £100,000. The tax rate on BTL gains is 28% or £28,000.
Philip has annual income (mainly pension) of £65,000 and Roberta has £25,000.
If they invest £100,000 in an Enterprise Investment Scheme (EIS) portfolio the £28,000 gains tax bill will be deferred until the EIS investment is liquidated. They will also be entitled to reclaim income tax paid in the current and previous tax year of £30,000 (30% of the investment). The EIS will fall outside their estate after two years.
They can also invest the balance of the property proceeds of £200,000 in an Inheritance Tax portfolio service. This too will fall outside their estate after they have owned it for two years.
On their current estate of £1.3 million, their inheritance tax liability in 2020 will be £140,000.
By making the tax-efficient investments they will eliminate the inheritance tax liability, save £28,000 in gains tax and secure £30,000 in tax rebates. In all they will be £198,000 better off.
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