How to avoid inheritance tax

I’ve been writing a bit about inheritance tax (IHT) recently. It turns out to be one of the most emotive financial subjects out there.

There is very little middle ground: readers either want it abolished immediately with a view to protecting their family assets, or they want it raised and made unavoidable immediately with a view to increasing financial equality in the UK.

However, there is one thing within the debate that, for the moment at least, everyone seems to agree on: if the tax can be avoided, they want to avoid it.

If we had a financial agony page (maybe we should – let me know if you think so), my guess is that the vast majority of questions from both the young and old would be about IHT. So, what’s the answer?

If you are really serious about not paying, you could head for the Isle of Man – where I spent some of last week. It was a little rainy, but the people seemed nice. And if you move there lock, stock and barrel, manage to establish it as your domicile (this means severing all your financial and social links with the UK), you can arrange it such that your heirs will not pay a penny of tax on your estate – even when they repatriate the money to the UK.

I’m sticking with my UK domicile for now, partly because redomiciling is extreme stuff, but also because I hate small aeroplanes (and my flight involved a 19 seater).

But the good news (if you are on the capital protection, rather than the equality side of the debate at least) is that there are plenty of other ways to avoid IHT.

You can give your money away seven years before you die; you can buy and hold farmland (this is part of the reason why farmland has outperformed Mayfair property over the last decade); you can give away all excess income; you can create and pass on a family business; but best of all, you can buy and hold qualifying Aim-listed shares.

Clearly, you mustn’t do this at random, but there are some nice little companies worth looking at. Post my trip to the Isle of Man I am rather taken with Manx Telecom (Aim: MANX). The brokers at Liberum point out that it “provides the full telecoms suite” to businesses and consumers on the island.

There’s no real competition and, while there are occasionally noises made about the need for tax rises, there is still no corporation tax at all. It comes with a lowish price/earnings ratio of 12 times and a 6% yield, and should fulfil all the conditions for IHT relief.

So, how about that? You might be able to avoid IHT and get a nice long-term income as well without even having to fly to the Isle of Man.

  • RELAXED

    We 70 yr old retired ex-pat professionals resident in Spain for 3 + yrs and Spanish IHT will be charged on our Spanish assets only on anything above 175,000 EUR individually or 350,000 EUR jointly. After 5 yrs here our adviser will apply to HMRC
    for release from UK domicile.

    You mention a move to the Isle of Man to avoid IHT but that a grim step, same old grotty weather for Brits !

    What is the IHT position, please, with a move to Gibraltar (notwithstanding the current boarder) problems ?

    Should one or both of us ever move back to the UK (we would have to be desperate/ly ill) we note that we could give all our assets to our children at least 7 yrs before death. Very practical I don’t think. Similarly with buying farmland unless mega rich.
    Buying Aim shares has the most merit, as you say, so long as care is taken to minimise risk. Apart from that it seems UK residents are sitting ducks !

    Merryn your comments would be greatly appreciated.

    RELAXED (In the sun)