Gifting cash and assets is one way to beat the tax man, providing the donor lives for at least seven years after the giveaway date.
The trouble with gifting is knowing how long you might live.
Government actuaries – experts in working out longevity – have made a brutal assessment of how long someone at different stages of retirement might live.
The shocking figures have prompted some estate planning advisers to look at an alternative form of gifting that offers a much shorter route to minimising inheritance tax.
Potentially exempt transfers, or PETs, have long worked as an inheritance tax reducer.
PETS v BPR
The way they work is a donor gifts cash, assets or other belongings and providing they live for seven years after the date of the gift, no IHT is due.
If the donor dies before the seven years are up, IHT is paid on reducing scale, depending on how long into the seven years they live.
PETs are reasonable safe bets for younger donors, but someone 65 or over may have concerns about how long they might live.
If this is the case, business property relief (BPR) steps up to the mark.
BPR reduces the seven-year tax wipe-out to just two years.
But not all assets qualify for the relief.
How long will you live in retirement?
Typical assets are business property, stocks and shares – including investments in the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme and VCTs.
AIM shares also qualify and some funds offer IHT or estate planning options where the managers ensure investments in companies meet BPR qualifying rules.
The aim of BPR is to smooth succession issues without damaging businesses.
The big question is how long will the donor survive to make sure the beneficiaries benefit from BPR or PETs?
This table lays out the likely longevity chances of men and women aged 65 and older, but do not forget the table is likely to change a little every year:
| MEN | WOMEN | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Likelihood of surviving: | Likelihood of surviving: | |||||||||
| Age | Life expectancy (yrs) | 2 years | 7 years | Life expectancy (yrs) | 2 years | 7 years | ||||
| 65 | 18 | 97% | 89% | 20 | 98% | 92% | ||||
| 70 | 14 | 96% | 82% | 16 | 97% | 88% | ||||
| 75 | 11 | 93% | 71% | 12 | 95% | 79% | ||||
| 80 | 8 | 88% | 55% | 9 | 91% | 64% | ||||
| 85 | 5 | 80% | 34% | 6 | 84% | 44% | ||||
| 90 | 4 | 68% | 17% | 4 | 73% | 23% | ||||
| 95 | 2 | 53% | 0% | 3 | 58% | 0% | ||||
