Inheritance Tax planning for those who have lost 'capacity'.

Over time, a person with dementia will eventually lose the ability to understand information and make decisions based on that information. Legally, this is known as ‘lacking in mental capacity,’ and it is set out clearly in a special law called the Mental Capacity Act 2005. A person who takes over the responsibility for making certain decisions for that individual becomes their Attorney.

Once an individual has lost such capacity, their opportunity for Inheritance Tax planning has also been lost, or that is at least for the traditional gifting and trusts based methods available to help avoid this tax.

However, you may not be aware that an Attorney can still engage with Inheritance Tax planning, using Business Relief, even once the individual has lost their capacity.

How Business Relief could help

Business Relief can be a valuable tax break and if an asset qualifies, then that asset can be discounted from an individual`s estate for Inheritance Tax purposes. The asset needs to be held by the individual for a minimum of two years and it should be continued to be held at the date of death.

In order for the asset to qualify for Business Relief it must meet certain conditions and for the asset to achieve full inheritance tax relief, the asset must be a trading business, or have an interest in a trading business, or be shares in an unquoted trading company. However there are certain limitations on when and where Business Relief is available and as these are quite detailed, we are happy to discuss these with you.

Some Investment Management firms specialise in certain products, which can be considered ‘niche’. These products are defined by the underlying assets bought and held by the product and it is these underlying assets which provide the added benefit of offering certain tax advantages for investors.

Some of these products are designed in such a way that their legal structure means that they are not caught by certain restrictive clauses, such as those that govern how Attorneys can act. This means the Attorney can delegate their powers without the need to go back to the Court of Protection to get the powers amended.  

Not only can it be a lengthy process to go back through the Court of Protection, it can also be costly and perhaps as important, this causes a delay in implementing any plan.

If you would like to find out more about this, or want to discuss the issues raised, please contact your Dentons Wealth Independent Financial Adviser.