Inheritance Tax Planning

How you might learn about inheritance tax from my friend, Mr B

When I was 18 I joined a gym in my home town of Gloucester. The gym was a part of the local leisure centre complex and also housed swimming baths and the UK's oldest Turkish Baths. Within weeks I was a regular in 'the Turkish' and was soon making friends with the majority of Gloucester's business community. It could easily have been described as a golf club without the walking.

Amongst the many friends I made was a solicitor, Mr B. He was, at the time, head solicitor at the Gloucester Land Registry. In effect, that meant he was responsible for the work of about seven hundred employees - something he took very seriously. He had never married or had children. As he would say, "I'm married to the job", and he usually worked between sixty and seventy hours each week. I remember once bumping into him, I was leaving a pub, he the office, at about 10.45 on a Sunday evening. A few years later I befriended a member of Land Registry staff who told me that the job he did had previously been filled by two solicitors but he had been doing the same work alone 'for years'.

He had been educated at Oxford and was very 'establishment'. His wording is in the text of four Acts of Parliament. Whenever I mentioned a name in the news, he knew them. He had met Lord Archer at Oxford and said that, "he was very charming", of Robert Maxwell "you couldn't help but like him" and Margaret Thatcher had "a certain appeal". I guess you had to be there...

In retirement he was recruited to work for Prince Charles on the property portfolio of the Duchy of Cornwall, "a charming man who really does care and is very knowledgable". He worked from an office in Buckingham Palace one day a week.

At Oxford he had been a keen rower. Later in life he played waterpolo and then finally he moved to the sport of orienteering, where for his age, he was amongst Britain's best.

As we became closer friends, he coached and guided me. With hindsight I use the word 'mentor' to describe him. We would regularly chat for an hour, two or three times each week. We shared a passion for investment and it was Mr B that convinced me to take exams and work in finance. Much of what I have and will become I owe to his gentle but probing questions.

A very private man, he really did just blend in and get on with things. To this day, I still have no clue how old he was. These little mental jousts were his kind of fun. It took me four years to find out what car he owned, and after all that secrecy, it was a Mondeo!

For years I used to call the London stock exchange the Mr B 100 index. He had inherited money, earnt a good salary and invested wisely. To my knowledge, he owned shares in over 120 companies in the UK, had four properties including one in Spain, four cars (two of them classics), a 'small cruiser' moored on the Thames, holdings in funds and unit trusts, works of art, silver and gold and 'money' in Malaysia - whatever that meant. If I were to guess, I would say he was worth between Ł3 and Ł5 million, but that is purely a guess, it was likely far more - I never asked. It seemed so crass to inquire.

I last saw him in December, between Christmas and New Year. We kept in touch by e-mail but this was a rare opportunity for us to sit down for an orange juice and a chat. He was more tired than I had seen him last. His mother died several years ago and he spent over a year concluding her affairs. Around eighteen months ago his brother had also passed away and at Christmas he was still trying to rearrange finances for the relatives left behind.

We discussed simplifying his affairs but he said not yet, I think he was still struggling under the weight of paperwork caused by his brother passing. "Besides, I have another thirty years in me yet!" For a man who still ran twice a week, who would doubt him? When I asked about his assets, he said that, "currently Mr Brown will get most of it".

Well, he lasted not thirty years, but just under sixty days. I was stunned and devastated by the news. The world, and certainly my world, was a much better place with him in it.

I know for certain that his family won't be wanting for much, his brother and parents had all been wealthy, but none the less, he wanted them to receive his assets and not the state. But that isn't how it works. To a certain extent, Inheritance Tax is voluntary. If you plan ahead it is possible to reduce or eliminate your family's liability.

Mr B's family will take probably two years to sort out the minefield that was his financial situation. It will cost them tens if not hundreds of thousands of pounds in legal fees to conclude. Then, they will have a tax bill of forty percent to deal with. His estate will probably only produce forty to fifty percent of the total to help support his family.

Do you remember Sir James Goldsmith? He died a few years ago and was reported to be a billionaire. The press speculated upon what the UK government would spend the 'windfall' of several hundred million pounds of Inheritance Tax on. Did you hear anything after that?

No?

Perhaps that is because he had arranged his affairs to ensure that there would be no tax liability. It all comes down to forward planning. James Goldsmith went to the lengths of boarding his private jet on his last night. It was reported that he wanted to see the sunset from his Spanish villa one last time, but also that the tax bill would be massive should he actually die in the UK. We will not all go to such lengths, (my private jet might be in use...) but for the family of James Goldsmith there was A LOT of money at stake.

What about your situation? If you have assets, dependent family or debts have you thought about their potential situation? If like many of my clients, you are of an international nature, your circumstances will be complicated by having more than one government involved. Have you made a will to ensure that your wishes are carried out? It is not necessarily the case that your loved ones will receive your assets, only a will can ensure this.

I'm not an expert on this. I can admit that. I offered to help Mr B because so much of it was share and fund related. That, I understand very well. His situation was so complex that mostly he didn't understand it! If you need help with planning, I can recommend a few people and it will be up to you from there. For your family, give this some thought, whatever your age.

* This was published in May 2004 *