Legacy or quick wins?

People approach tax and estate planning for a variety of reasons and generally driven by all sorts of different triggers that they may experience.  On the one hand I have acted for people who have been motivated towards Inheritance Tax planning due to the size of the bill on the death of a parent, or a desire to mitigate their Income Tax liability when their tax calculation lands on the doormat from their Accountant.

Conversely I have known many people who are encouraged to undertake planning because they reflect upon the struggles in their own life and don’t want to see their children or grandchildren have to endure the same, or because a new child in the family has prompted hitherto unknown feelings of financial paternalism or maternalism.

People come to planning for their own reasons and it is not my place to say that any of them are right or wrong (subject to the caveat that anything that crosses the boundary into tax evasion is clearly and legally wrong).  Motivation can however often determine the course of action to take.

A higher rate tax payer with a liability exacerbated by income from a property portfolio, which income they never need or use, might be encouraged to incorporate that portfolio and so save Income Tax now.  In the short term this could be quite attractive.  The individual however must reflect on their future retirement plans and question whether or not that portfolio was created as a passive income stream or more as a pension, and the consequences of incorporation for each.  After all once a portfolio is incorporated then reversing it can be rather difficult.

Equally a tax payer might quite like the idea of moving something out of their ownership into a Trust so as to relieve themselves of the tax burdens, however, they must understand that they have then lost recourse to that asset forever.

Fundamentally any sort of planning requires a great deal of contemplation, thought and (I would hope) professional advice from a range of different advisors.  The long term considerations for planning must be examined as well as the short term, as there are situations where short term pain is more than offset by long term benefit.  The opposite can equally be true.

I am a great believer in legacy building when it comes to planning.  Successful people have the opportunity to create something whereby wealth can be held and protected for the benefit of future generations, with the added advantage of mitigating tax issues for those creating the structure now.  These things should not, however, be undertaken lightly and should be subject to professional advice with a view to achieving, where possible, immediate benefits but with long term success for the wider family.

• James Hall, Managing Partner