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Where Taxpayers and Advisers Meet

Converting Capital into Income to Save IHT

adamh
Posts:34
Joined:Thu Aug 16, 2012 1:45 am
Converting Capital into Income to Save IHT

Postby adamh » Sat Dec 30, 2017 5:30 am

Is there any way to successfully convert capital into income which can then qualify for the “surplus income” exemption?

For example, I have £300,000 of cash, can I put this into something and then receive about £100,000 of cash as income each year over the next three years, which can be gifted free from IHT?

RMC
Posts:435
Joined:Wed Aug 06, 2008 3:35 pm

Re: Converting Capital into Income to Save IHT

Postby RMC » Sun Dec 31, 2017 6:16 pm

No, the soon-to-decease should tell his or her progeny to back off! Or, better still, change his or her Will.

adamh
Posts:34
Joined:Thu Aug 16, 2012 1:45 am

Re: Converting Capital into Income to Save IHT

Postby adamh » Mon Jan 01, 2018 3:29 am

Great answer!

In this case, I genuinely have spare money that I would like to pass on to my son IHT efficiently. I have used the other exemptions, BPR, etc.

Is there any technique to convert capital into very high income that is accepted by HMRC for the “surplus income” exemption?

My understanding is that annuities are not accepted.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Converting Capital into Income to Save IHT

Postby AGoodman » Tue Jan 02, 2018 4:34 pm

I trust you have taken into account that:

1/ You will have to deduct all your living expenses from the income first (even if you are currently living off capital); and
2/ You will have to pay income tax on the newly generated income.

I haven't heard this request before except where capital receipts are already taxed as income, I suspect because of point 2.

adamh
Posts:34
Joined:Thu Aug 16, 2012 1:45 am

Re: Converting Capital into Income to Save IHT

Postby adamh » Thu Jan 04, 2018 4:50 am

Thanks.

1/ Right and there will still be plenty of surplus income.
2/ I am willing to buy EIS to deal with the income tax bills. A suitable investment that works in an ISA would also be of interest.

So, are there any products/schemes/investments to generate a very high income?

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Converting Capital into Income to Save IHT

Postby AGoodman » Fri Jan 05, 2018 3:57 pm

Nothing springs to mind; for that you would probably want to be triggering an anti-avoidance provision of some kind.

Have you considered simply giving the money away as it stands and taking out 7 year decreasing term insurance? It would probably be a whole lot simpler (certainly if plan A involves EIS relief) and more certain. In many cases the insurance is pretty cheap.


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