Intelligent Money - your investment questions answered

[Intelligent Money]

Derek Chevalier said:

Intelligent Money said:

He could certainly buy trackers for peanuts but he would have to manage his asset allocation and rebalance this himself.

Alternatively he could pick a global tracker - if he is happy to have his holding blindly mirror their market capitalisation with no discretion to take into account economic, political or market sentiment at the time. We evaluate this daily.

Nik

If the investor were to purchase something like Vanguard Lifestrategy (although arguably not "optimal" as it still has a bias towards UK) it would save him having to manage asset allocation and rebalancing.

Some would argue (similar to the discussion regarding outperforming fund managers) that no one is able to predict what will happen to the markets due to economic, political or market sentiment any better than chance, and looking at the 5 year risk adjusted performance of LS vs a huge number of alternative offerings for the last 5 years to the end of Q4 2018, it's very hard to disagree.

Hello Derek

I did put this point forward (above). Buying this investment is certainly great value, but there is (as you point out) no discretion as to asset allocation.

That is what we add.

Some certainly may argue that no one is able to predict what will happen in the future. They would be completely correct in doing so.

However, a qualified and experienced team of people who do this for a living have a better chance of making the right calls that the average person on the street.

I certainly do not wish to appear antagonistic in the slightest (not least because I have just found out you know my boss! ) but you you are very forward in stating that stock selection and asset allocation does not add any value, whilst equally saying (as a financial adviser) that financial advice does (several multiples).

I would argue that each can, and some do whilst others fail. This is a balanced an equal viewpoint. Your position appears to be that no value can be added other than the service you offer (financial advice).

Maybe I have misinterpreted what you are saying, but I imagine others reading this have too, which doesn't help your cause. Please correct me if I am wrong.

Regards

Nik

[Intelligent Money]

HIAO said:

A few questions regarding the investment portfolios;

- Does the portfolio hold physical gold, or ETFs?

- Are the non-UK equities hedged and what is the hedging impact?

- For the UK equities, how much of their exposure is in non-UK markets?

- For all the portfolios performance, why do the tables stop at 30 September 2018?

Can you share fact sheets about the portfolios.

Thanks

Hi HIAO

We have several different portfolios each with different asset weightings, so your questions are not straightforward to answer.

1) Yes, to varying degrees and usually as a hedge.

2) My understanding is that all overseas exposure is GBP denominated, so no hedging is involved. I'll as Tim Horrocks, our investment manager, in the morning if he utilises and other for of hedging and get back to you on this.

3) That is a question I would have to refer on. Our UK equity exposure is large cap, so it would follow that the underlying market exposure is global.

4) Because our Fact Sheets are updated quarterly and the holidays have cause a delay. This is annoying as our clients get live daily feeds, but this in for their own accounts, not all portfolios over set time frames.

I don't think I can (but will ask if it does not break forum rules to) share the Fact Sheets here, but anyone can visit our website and download them:

https://www.intelligentmoney.com/private-clients/o... - for digital ones, or;

https://www.intelligentmoney.com/about-us/literatu... - for PDFs

Regards,

Nik

[Intelligent Money]

Derek Chevalier said:

Intelligent Money said:

However, a qualified and experienced team of people who do this for a living have a better chance of making the right calls that the average person on the street.

If the average person on the street attempted this themselves, then yes, agreed, it probably would give a suboptimal outcome (although I expect asset allocation will come second to "shall I put my money in Fundsmith or Lindsell Train" ).

However, if the same person on the street accepts his limitations and puts in his money into Vanguard LS (for example), then that's a different discussion.

Intelligent Money said:

I certainly do not wish to appear antagonistic in the slightest (not least because I have just found out you know my boss! )

This is Pistonheads - it wouldn't be PH if there weren't lively debates

Intelligent Money said:

but you you are very forward in stating that stock selection and asset allocation does not add any value

I consider myself strongly evidence based, so base my views on where the evidence takes me (and 100% ensuring that I retain an open mind).

For stock selection, I think in past times, when less was known re where returns (in addition to market beta) came from (and markets were (IMO) less efficient), alpha was potentially achievable - today I'm not so sure - e.g. it's possible to work out what is driving a superstar fund manager's (apparent) excess returns and buy cheap factor funds to replicate it (if that is what you really want).

https://www.aqr.com/Insights/Research/Alternative-...
https://www.amazon.co.uk/Incredible-Shrinking-Alph...

Regarding asset allocation, for someone to provide returns over a cheap tracker offering, they need an edge over the average participant in the market (to cover their costs, and then hopefully provide an excess return). Personally I think this is exceedingly difficult as there are lots of equally intelligent people trying to do the same thing - what's their differentiator?

As I mentioned I see the quarterly numbers vs LS and I have seen very little that has beaten it (especially after Q4 2018). But as I said, I always have an open mind.

That's not to say someone can't have an edge in certain areas of the market - for example stat arb firms utilising pairs trading strategies, but you need a team of extraordinarily intelligent people, market knowledge (down to order book level) and massive computing power, and sometimes all that isn't enough.

Intelligent Money said:

Your position appears to be that no value can be added other than the service you offer (financial advice).

I think with the right type of (initial and ongoing) advice (which isn't seeing your client once a year to discuss their portfolio - which unfortunately happens far too often) there is enormous value to be had in helping people to achieve their objectives, for example "I'm sick of my job, when can I retire"? Fund selection/asset allocation etc. is way, way down the list in order of priorities for delivering that client what he/she desires, IMO.

Apologies if I'm sounding harsh, as I think you chaps have a great offering, and as we both know, there is so much substandard rubbish out there.

Hi Derek

I think we agree on pretty much most points.

My only contention is you promoting of the value of your contribution whilst not acknowledging the value of our contribution.

This may be a factor in why advisers are (sadly) not trusted. At the end of the day, advisers would have nothing to recommend if it were not for the providers.

I would argue with you - and for you - as to why financial advisers can add great value. You, however, seem prefer to take the position that providers (the companies you recommend) cannot add any value...?

Good people and companies can make a positive difference. I think we should both stand on the side of good people and companies, rather than the adviser/provider debate. What do you think?

Nik

[Intelligent Money]

DeuceDeuce said:

Could you explain your investment processs more fully please? I think your website is quite poor in regard to this. For example:

Who decides the neutral asset allocation for each mandate and using what research/evidence?
How often is the asset allocation reviewed and are tactical changes made?
What freedom does Tim Horrocks have to make asset allocation or implementation changes in the portfolios?
Why Tim Horrocks and Quilter/Old Mutual?
Who monitors portfolio risk and how?
In plain English, what does ‘We combine advanced technology with bespoke discretionary investment management to create 3- dimensional investment solutions’ mean?

Thanks

Hi DeuceDeuce

I certainly can and will pass on your critical feedback, which we value as it enables us to improve our positioning.

From your questions it appears you have been looking at our Financial Adviser facing website. If you client on Private Clients (on the homepage) your will see our client facing site, which describes things in a more straightforward style.

To address your first 5 points, Tim is our investment manager. He is a Charted Fellow of The Charted Institute for Securities & Investments and a Charted Wealth Manager.

He is responsible for the day to day running of our portfolios and has complete discretion on all aspects of this, but reports regularly to our CEO on his positions and the rational behind them. We also have independent third party governance of each portfolio.

So it is Tim who decides upon the asset allocation mandates and he has the full research, analysis and capabilities of Quilter Cheviot (one of the UK's largest Discretionary Funds Managers) behind his is doing this.

The asset allocation is reviewed daily with tactical changes being made only as and when deemed appropriate. Rebalancing is conducted quarterly.

As I said, Tim has complete discretion to make asset allocation and underlying investment changes to the portfolios.

Why Tim, a combination of his excellent track record of delivering high returns with lower than average volatility and the considerable resource Quilter Cheviot committed to put behind the partnership.

Tim and his team monitor the portfolios and report regularly to our CEO and annually to our third party independent governance committee. As to how all this is done, that is down to market fundamentals, political and policy implications and a host of matters.

Regarding the quote you took from our adviser site, this is in relation to our Target Dated Portfolios (where risk is managed down the closer you get to a target date - retirement, for example. We have one glide path for a lump sum withdrawal and another to a balanced portfolio from which to draw down an income).

Our technology is therefore combined with bespoke discretionary investment management and the management down of risk and volatility as you approach your target date.

As this adds a third element to portfolio management approach someone, many years ago, decided to call this a "3-dimensional" investment solution.

I hope that answers your questions, thanks for asking them.

Regards

Nik

[Intelligent Money]

Derek Chevalier said:

Lots of good stuff...

Hi Derek

I think we agree on most things, principally that people benefit the most from low cost, well managed investment solutions and strong holistic financial planning.

This is precisely what our Private Client service offers, all under one roof.

We also agree that product selling and high charges are a bad thing. This is why we don't do this.

A good adviser can, as you say, do this for 0.87% plus platform and fund costs (so, c. 1.35% all in).

We do this for 0.87% all in, including active asset allocation management, so I'm sure you will agree this is excellent value for clients.

Regards

Nik

[Intelligent Money]

Derek Chevalier said:

If you look at Vanguard Adviser Alpha study they attempt to put some hard numbers against the areas where a (decent) adviser adds value. See also Royal London's "The value of financial advice", and while you could take these studies with a pinch of salt, in the real world it holds true (as I mentioned, for the right client (which is a whole new discussion!)).

It is a shame (although understandable) that a large percentage of people don't trust advisers.

Hi Derek

I've had the time now to look into this and it makes very interesting reading indeed.

If you look at Vanguard's key points they amount to:

1) Suitable asset allocation using broadly diversified funds/ETFs

2) Rebalancing

3) Lowering costs

4) Tax allowances and asset location

5) A total return approach

6) Holistic financial planning (which Vanguard separate out into behavioural coaching and withdrawal order)

This is a perfect description of exactly what our Private Client service does.

I've passed it over to marketing for consideration.

Many thanks

Nik

[Intelligent Money]

Thanks Jockman and River_Rat

Great to hear from you both!

May I just restate, we are here to answer any investment related questions, not just questions about us.

Regards

Nik

[Intelligent Money]

giles panizzi said:

I’ve spent the last 2 years procrastinating my bundled DFM/IFA SIPP arrangement, struggling to see the value of the fees (DFM%, IFA% & OFC%) - minimum 7 years from crystilisation. I finally submitted my IM application today.

I came very close last May, but as with all things - when there is positive movement it’s easy to be complacent or content.

Having spoken to Nik, all the intrecies around the switch were clearly explained. For me personally, this is the perfect alternative to fully managed but not going so far as to self manage.

Thank you for your feedback giles. It was good to speak to you yesterday and I'm glad we could help.

Regards

Nik

Edited by Intelligent Money on Thursday 17th January 10:28

[Intelligent Money]

condor said:

I have a question on pensions which I'm hoping you'll be able to answer.

I've received a 'yearly review of your pension plan' which has shown a 7% investment loss from last year. It's the smallest of 3 small pension policies I hold and I was thinking of transferring it to one of my better performing ones or taking the money out under the pension freedom rules.
Under the heading The transfer value of your plan - it says:-
This is the amount we would pay if you transfer your pension fund to another pension plan. It cannot be paid to you or to your financial adviser. When you take the benefits these would be paid in line with the rules of the new scheme or arrangement.

My question is - Why can't it be paid to me?
I thought the pension freedom rules meant you could (aged over 55) take the money out as long as you paid the correct tax on it.

Hi Condor,

When Pension Freedoms were introduced the Government didn't mandate that all existing schemes had to change their scheme rules to include the new legislation. The concern was that it would be costly and difficult for some schemes, particularly additional voluntary contribution schemes, to implement the changes.
The introduction of "scheme rules override " allowed some schemes to offer the flexibility of pension freedoms without changing their scheme rules but it looks like your scheme has not adopted these.

Assuming this is the case and your scheme doesn't offer either Pension Freedoms or apply "scheme rules override" you would need to transfer to new scheme to access your fund.

As you have said you could transfer this into one of your other schemes, but make sure that this scheme offers the flexibility you are looking for. Alternatively you could consolidate all your plans into one scheme with a provider of your choice that does offer flexibility. (Our Pension's do offer full flexibility!)

Regards

Nik

[Intelligent Money]

condor said:

Thanks Nik Very helpful reply

No problem condor, happy to help.

Now, is it possible that tomorrow someone could ask me an investment or IM related question so I can justify continuing being paid to sit here answering them!!!

[Intelligent Money]

rockin said:

Second question. If you have a holding in one "class" and convert it into another class of the same holding it's my understanding that this is not a disposal for CGT purposes. You end up in the new class with your original purchase cost. When you eventually sell does the conversion have to be shown on the CGT return or do you just use the original purchase price and new name - in which case the number of units originally acquired is tricky to explain.

Additionally, if you hold Inc units and do a switch to Acc units of the same fund, is that a disposal for CGT purposes and how is it eventually set out for HMRC?

Hi Rockin,

Julian never mentioned anything about double time, I'll have to chase that up!

As long as the conversion is on the basis that no consideration is given or received then you are right the conversion would not be treated as a disposal for CGT purposes. The new class will be treated as having the same date of acquisition, and the same capital gains cost, as the old class.

You are also right that disposal can be tricky! Since 2008 the conversion is likely to be grouped in a "section 104" holding.
The section 104 was introduced to make disposal calculations easier in cases where investors had aquired the same units or shares but at different times. The Identical units/shares in an investment holding are now treated as a single asset, known as a Section 104 holding, and when the holding is sold, the aggregate purchase price is used to calculate any gains or losses.

The disposal of the assets follows the below process :
1. acquisitions on the same day as the disposal
2. acquisitions within 30 days after the day of disposal
3. units/shares comprised in the ‘section 104 holding’
4. if the units/shares disposed of are still not exhausted, units/shares acquired subsequent to the disposal (and beyond the above-mentioned 30-day period).

Given the vagaries that can surround the interpretation of tax legislation I would suggest that you run any final calculations via an accountant if it's not a straightforward situation.

Your second query is a little easier, a switch from income to accumulation units in the same fund is not a disposal for CGT purposes.

Any additional units purchased by reinvested distributions from income funds will be treated as additions to the Section 104 holding.

Regards

Nik

[Intelligent Money]

Hi sma

With the usual caveats of “it depends on what you are trying to achieve, and the level of risk/reward you are comfortable with” I can give you some generally accepted rules of thumb that I hope will give you something to work with.

For the £100 p.m. you are considering for your Children as a longer term saving, a simple but obvious first consideration would be Junior ISAs . You can contribute up to £4,260 per child per year.

You should be able to find a risk/reward balance that you are comfortable with. You have the choice of using a deposit-based fund or stocks/shares/equity based fund or a mixture of both. The returns are tax efficient and once the children reach 18 it simply becomes an adult ISA.

For your own savings of £500 p.m. The first consideration is building up a deposit based “emergency fund” Good practice is build up a fund that would cover 3-4 months of expenses.
This foundation is designed to prevent you dipping into other savings or having to stop saving plans that you have in place if an unexpected expense crops up.

Beyond the emergency fund it does depend what you plan to use the savings for.

If you main objective is providing an income in retirement and you are unlikely to need access before you reach 55 then maximising your pension contributions would be a consideration. You will still gain tax relief on your contributions up to the same level as your earnings subject to an annual allowance of £40,000 p.a.

If pension savings feel a little too restrictive then ISA’s would be your next consideration. Each individual can invest £20,000 p.a. into an ISA and as said earlier you should be able to find a risk/reward that you are comfortable with or chose a portfolio that manages this for you.

While being far from exhaustive I hope that this at least helps with your question of “where to start”

Regards

Nik

[Intelligent Money]

Hi River Rat,

My understanding is that originally only children born after 02/01/2011 or before 01/09/2002 could have a Junior ISA because as you say, children born between these dates were eligible for a Child Trust Fund.

Since April 2015 it has been possible for you to transfer a Child Trust Fund into a Junior ISA, good news if you want to move your sons CTF for the potential of better returns.

Based on that I believe that you cannot hold a Child Trust Fund and a Junior ISA but as-long as you transfer the CTF into a Junior ISA then you can hold the funds in the ISA going forward.

Nothing like changes in goverment thinking and legislation to make what should be a simple idea a little more complicated!!

Regards

Nik

[Intelligent Money]

outnumbered said:

I read through the marketing information for Private Clients on the IM website, to get a better understanding of your service. I see that earlier in the thread you mentioned that you can waive some fees for PH members, which is generous.

However, in the normal case, for a non-PH member, can you explain the "1.5% one off initial transaction charge" , as I found the wording a bit unclear ?

Is this a charge that applies only to the initial investment with IM, and all subsequent investments would be charge-free ? For example, if one were to invest £100,000 in year 1, and £900,000 in year two, would the 1.5% charge only be applied to the £100,000 ?

Or does the 1.5% charge apply "initially" to every investment that's made ? (this seems more likely to me).

Hi,

I just wanted to add to Julians comments about our initial charge. In practice we view it as a maximum 1.50% initial charge. The charge we will actually apply is relative to the work and therefore the cost involved in setting up the Pension/ISA and bringing the funds across.
In a case that has a single ceding scheme and a portfolio that is easily transferred we may be able to deal with most of the work electronically which keeps our administration and time costs low and so we are able to reduce the initial charge. On a more complex case where we have to obtain hard copies of documents and chase providers regularly we obviously incur more cost and that may be reflected in the initial charge.

We will always do our best to take a pragmatic and fair approach and make sure that the charges we apply are relative to the costs associated with each client we look after.

Regards

Nik

[Intelligent Money]

Hi Tresco,

If you use our Private Clients service your current Unit Trust and cash holdings would need to be encased and invested in one of our five fully managed fixed risk/reward portfolios or one of 2 adjusted risk/reward portfolios.

Details of these portfolios can be found on our website https://www.intelligentmoney.com/private-clients/

As a PH member you will pay no initial fee and then 0.87% p.a.

If you have a minimum of £100,000 invested in these portfolios then your commercial property holding will incur no additional charges.

Alternatively you could use either our iSIPP or Bespoke SIPP. Both of these are only available through a Financial Adviser and as such are likely to have adviser fees to consider.

Details of iSIPP and Bespoke SIPP can be found on our adviser website :
https://www.intelligentmoney.com/financial-adviser...

Regards

Nik

[Intelligent Money]

Testaburger said:

Very good - I’m hungry!

A quick question, if I may; the website (and conversation here) give off the flavour of being somewhere to park an already substantial fund and forget about it for a while. Unfortunately my retirement fund in HK is limited to the company scheme, so just Schroders & Fidelity, so that’ll stay put. So, I would be wanting to post a a chunk of cash in once a month. I just want to clarify that this is something you would be willing to work with (and being a cheap Yorkshireman, avail myself of the PH mates rates)?

Hi Testaburger,

A easy one to answer, yes, that is defiantly something we can do for you at PH mates rates and we accept both cheap and expensive Yorkshireman

Nik

[Intelligent Money]

mikeiow said:

Well, despite following the legendary pool build at the time, I can't say I have spotted the significance of the number....I hoped "forky" might be a cryptic answer, but who knows ;-)


But back on topic!
I have a main 'active' pension plan with Aviva - work contribute, I have done some fund shuffling following my own research (not that I am a qualified FA!), and that appears to have very low costs and going quite well. I *believe* it is reasonably low cost come drawdown/retirement time (I am approaching mid-50s, & with 4 funerals in the past 12 months, it is safe to say my mind has focussed a little on retirement lately.....) - but maybe there would be better ways to go. Who knows.....


I also have a fund with PIC currently around £120k in value. I really don't know what it is investing in - it basically flat-lines (& actually, slightly embarrassingly, I had clean forgotten about the plan until a couple of years back....a nice thing to find down the back of a sofa!)

Having moved a couple of other much smaller funds to Aviva, I was considering this one as well.
Then I saw this thread!
Actually, a letter from PIC saying they were moving to use Capita filled me with horror this week, and is even more of a trigger ;-)


So: with Aviva, I kind of know what the fees are, and I can very easily see fact sheets for the approximately 80 funds I can chose from. It was some analysis of those that led me to shift some funds about, and I have done that a couple of times over the years.

Do you have something similar for the fund schemes you offer?
Have they been going for 1/3/5/10 years to provide that sort of information?

Thanks!

Hi,

We do have the same information available for all our portfolios. The summary shows 1,3,5 and 10-year performance as well as10 year annualised performance along with a breakdown of the assets and geographical areas that the portfolio uses for investment.

You can see this information on our webpage
https://www.intelligentmoney.com/private-clients/o...

In addition you can access quarterly Portfolio Fact Sheets, which provide more information on the portfolio performance and comments on the general market position from the portfolio investment Manager Tim Horrocks.

Following investment you can track your performance, with real time updates, via your own portal and make any changes you may want to via the same portal.

As a PH member your fee structure is 0.87% per annum

Our service provides you with all the information you need with simple straightforward access so you can see how your portfolio is working for you and quickly and easily make any alterations you need.

I hope his helps; please let me know if you need any more information,

Regards

Nik

[Intelligent Money]

JulianPH said:

Mr Pointy said:

Can you elaborate a bit more on the actual process that will happen when someone signs up? is it a case of telling you where the funds are at the moment (eg Fidelity/Vanguard/L&G/Parmenion/HL etc) & then then you contacting the old manager to organise the transfers, or do we have to get more involved?

A second question about drawdown. If I have a DC pension (non SIPP) I want to go into drawdown with but the current company doesn't offer that can it be transferred to IM & I begin to drawdown from it?

When people move to us they only have to tell us where the money they want switched over is and give us the account/contract/policy numbers. We do the rest.

This is no different than any established provider (i.e. we are not doing something unique!). The investment industry works to something called Origo Standards (or Origo Options). All the big players subscribe and it automates such transfers (though is ridiculously expensive every year, which is why the smaller providers don't sign up).

So basically, were you to decide to move to us you only need to provide us with the details of the investments/pensions/SIPPs/ISAs you want to move over to us and we do the rest without your involvement. All the names you mention are signed up to Origo.

As for your second question, this is a simple yes. When Auto-Enrolment came in we were classed as one of the biggest employers in the county due to our PAYE figures. When we pointed out we were a pension provider and this was for drawdown clients a laugh was had on both sides of the table!

I hope that helps, please do not hesitate to ask (or PM) anything further.

Cheers

Julian

Hi,

If I can just add to Julians overview of the process, all Private Clients are allocated a Private Client Manager and we are here to deal with any questions or queries you may have and talk you through both your options and the process.
We can do as little or as much a you need and make sure that any switch to Private Clients goes smoothly and deal with the occasional bump may appear on the road to make sure the service you receive is as you would want it to be.

Regards

Nik

[Intelligent Money]

giles panizzi said:

In the process of switching over to IM, good comms and process knowledge all the way through. What was initially quite a daunting step, in reality is quite simple.

Thanks Nik

Hi Giles,

Thanks for your feedback, all the more welcome when it is good

I'm glad to of been able to help.

Nik

[Intelligent Money]

nikaiyo2 said:

I think maybe a post here might be in order.

I think perhaps I am looking for some indication where to go with some estate planning advice

For my mum, to avoid seemingly height fees

As Julian has indicated, IHT is very dependent on individual circumstances.

Solutions can be kept relatively simple but without knowing the assets and circumstances of the individuals involved it can be difficult to give a succinct answer but I’ll give it a go!

Beyond gifts between spouses and some additional allowances the assets of an estate above £325,000 are subject to IHT.
There is a further allowance of £125,000 for property that is passed to Children or Grandchildren.

The main allowances that are available to reduce the value of the estate and any IHT bill are the gifting allowances. These can be broadly spilt into immediate relief and potential relief.

The immediate relief options are limited to :

£3,000 p.a. (you can carry forward an additional years allowance if it wasn’t used)

Gifts of £250 per person, (excluding any individual that you gifted the £3,000 allowance to)

Gifts from regular income that do not affect your standard of living. The rules for this exemption are quite detailed for example, these gifts must be regular i.e. payments into a regular savings plan or life insurance policy.

Potential Relief (Potentially Exempt Transfers)

This relief is available on any gift that is made. The gift becomes exempt from IHT 7 years after it was made. There is a sliding scale of relief given from year 3 to year 7, know as taper relief so if you die between year 3 and 7 there is a reduction in tax payable and after year 7 the gift is exempt from IHT.

Any planning to reduce an IHT liability is based around use of these allowances.
The use of trusts can allow any asset to be gifted without it passing directly to the beneficiary at that time or to split an asset between its current value and any future increase in value. This can be used to “cap” the value at its current level rather than have future increases in value add to any IHT liability.
Broadly speaking if the person gifting the asset into a trust maintains some benefit from the asset then it is unlikely to be efficient in reducing IHT.

It is this area that becomes very dependent on the type of asset to be gifted, the control that the person gifting wants to maintain and their need for any on-going benefit from the asset.

For example if an individual was to gift their property either to another individual or a trust and then continue to live in the property without paying a market agreed rent, on death the property is unlikely to be treated as gifted and included at its full value for IHT purposes.

The second consideration is to “insure the liability” This involves putting in place a life insurance policy that pays out on death of the individual whose estate you are looking to protect.

If the individual has enough surplus income to meet the “funded from regular income” criteria then the premium can be paid by them and not be treated as a gift.

The policy can be placed in trust so that the benefits do not form part of the estate and on death pay out enough to either fully pay or contribute towards any IHT bill.

This approach doesn’t try to reduce any IHT bill, but provides a means to pay the bill without using the assets form the estate.

Sometimes a combination of both may be used, for example gifts are made to reduce the value of the estate and reduce the potential tax bill.

If these gifts exceed the annually £3,000 allowance there will still be a tax liability for 7 years after the gifts are made. You can then use a life insurance policy to cover this 7-year period.

In summary you can either make use of gifting allowances and the 7 year Potentially Exempt Transfer rules to bring the value of the estate under £325,000 or insure to cover the bill that you may be subject to.

When using the gifting route you can make use of trusts to maintain some level of control of the assets without having a beneficial interest or split the current value of the asset from future growth and so prevent any IHT liability from increasing.

I hope this helps. There are several “wrinkles” and offshoots from these main principles that can be applied given individual circumstances and needs.

As Julian has said if you would like to talk through your individual situation I’m very happy to share thoughts and ideas with you for you to consider.

Regards

Nik