Finding a silver lining in the Covid-19 cloud

05 Oct 2020

Ian Bailey

Senior Investment Director

An Inheritance Tax opportunity presented by the pandemic

As we all adapt to cope with the impact of Covid-19 our attention is, quite understandably, focused on the challenges that have suddenly been thrown in our path. The virus, and the economic impact of the measures being taken around the globe to combat its spread, has meant that many of us have had to rethink the way we approach investment strategy.
 
But, despite these difficulties, the reality is that there are also some interesting opportunities that have arisen as a result. One such opportunity relates to Inheritance Tax (IHT).

The IHT challenge

One of the greatest challenges facing families as they seek to pass wealth down the generations is IHT. Over the last few years, measures have been introduced to help make the passing of most families’ largest asset, the family home, more tax efficient but any such legislation is always open to potential amendment or reversion.
 
One of the more traditional methods of passing down wealth has been through a trust. Trusts do not suit all families, or circumstances, but they have an important role to play in some scenarios, particularly when passing down assets such as an established investment portfolio. Here, the temporary decline in value of some investments actually offers an interesting potential opportunity.

An opportunity presented by the market downturn

Most of us have a “nil rate band” that allows us to gift a certain amount over seven years (currently £325,000).  If one believes (as we do here at Investec Wealth & Investment) that the global economy, and hence investments, will recover from their recent decline, then one has an opportunity, at current valuations, to place a greater proportion of one’s investment in such as trust. Not only are these assets then potentially removed from one’s estate but also any growth in the value of these assets as markets recover also lies outside any subsequent IHT calculation.

Choosing a trust that’s right for you

It’s important to remember that there are many different types of trust and deciding if a trust is right for you and, if so, which kind of trust, is the job for a specialist. The best place to start is by talking this through with your family solicitor (if you need to find one, just ask us and we can point you in the right direction).
 
Very rarely is there any investment or financial planning opportunity that is “black and white” (i.e. where it is clear one solution is absolutely right and another absolutely wrong). Most are what I term “grey” and the challenge is to find the shade that bests suits your outlook and circumstances. A trust may or may not be the best solution for you and your family.
 
What is important, though, is that you stay alert. In good times one should also have a contingency plan in place should something unexpected happen to cause us all to rethink. Conversely, in bad times, however bleak the surroundings may first appear, there are nearly always opportunities to grasp or at least consider. Preparing for the worst and looking for the best is the key to any coherent investment or financial planning strategy.
 
Every cloud may not contain a silver lining, but most do - and it’s our job to look for them on your behalf.

About the author

To contact or read more about Ian Bailey, visit his biography here.

Find out more

Whether you are looking to invest for the first time, or have an investment portfolio already, if you don’t know where to begin, or know exactly what you are looking for, we can help. Contact your local Investec experts in Bristol today, to discover how we can help you to fulfil your financial goals, and live life the way you want to.