Using your ISA for IHT planning
Using your ISA for IHT planning Charles mitigates his inheritance tax liability using the Stellar AiM ISA Inheritance Tax Service.
Charles is in his seventies and has spent nearly 20 years accumulating a significant stocks and shares ISA portfolio with a current value of around £300,000. While this has been a very tax efficient vehicle for both capital gains tax and income tax relief during his lifetime, Charles would like to shelter his investment from inheritance tax (IHT).
It is important to Charles that he retains control over his capital and therefore he does not want to make gifts. He does not want to go to the expense of putting assets into a trust or buying a lie assurance policy. BR is of interest to Charles because it allows him to retain control of his assets and allows his beneficiaries to benefit from relief from inheritance tax after two years.
Charles has never invested on AiM (the Alternative Investment Market), but has been impressed by Stellar’s focus on capital preservation and the performance record of their Stellar AiM ISA Inheritance Tax Service.
Charles can make a direct transfer into the Stellar AiM ISA Inheritance Tax Service, which should qualify for 100% IHT relief after two years. This solution gives him access to, and control of, his capital whilst retaining all his ISA benefits. He can apply to transfer the shares in-specie, although if they are not AIM shares then they will need to be sold anyway. He can also request that his current ISA manager sell his shares and transfer cash to Stellar’s ISA service.
Another option would be to transfer part of Charles’ ISA portfolio to Stellar to mitigate risk or to allow a period to become more comfortable with the proposition, or open a new ISA with this year’s subscription.
As the table below shows, even if the value of Charles’ ISA within the Stellar AiM ISA Inheritance Tax Service does not increase, his beneficiaries should still be able to save nearly £120,000 after all fees are paid, by not having to pay the 40% inheritance tax liability. Following death the ISA will be passed to beneficiaries as a General Investment Account without the ISA benefits.
As the table below shows, even if the value of Charles’ ISA within the Stellar AiM ISA Inheritance Tax Service does not increase, his beneficiaries should still be able to save nearly £60,000 after all fees are paid, by not having to pay the 40% inheritance tax liability.
Result after 3 years
Risk warning: Your capital is at risk. Investments can fall as well as rise and investors may not get back the full amount invested. Investments in unquoted companies are less liquid and are higher risk than larger companies. The rates of tax, tax benefits and tax allowances described are based on current legislation and HMRC practice. They are not guaranteed, are subject to change and depend on personal circumstances. Please refer to the latest product literature before investing: your attention is drawn to the risks and fees contained therein.
This document dated 7th December 2022 is intended for retail investors and their advisers and has been approved and issued as a financial promotion under the Financial Services and Markets Act 2000 by Stellar Asset Management Limited (‘Stellar’). This document is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. Stellar does not offer investment or tax advice or make recommendations regarding investments. Stellar is authorised and regulated by the Financial Conduct Authority (Firm reference No. 474710). Registered in England No. 06381679. Registered office: 20 Chapel Street, Liverpool L3 9AG.