“I could see an inheritance tax problem brewing – and decided to act”

Archived article

Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

Recently, Wealth Club member and experienced investor, Mr L.C., chatted with us about why he recently chose to invest in the Octopus AIM Inheritance Tax ISA. These are his views.

74-year-old Mr L.C. (pictured) is a Chartered Accountant from Hertfordshire. He ran his own accountancy practice for many years and sold it a while back. He has since been working as a consultant, but is now almost fully retired. He’s married – due to celebrate his 50th wedding anniversary this year – and has two daughters and three grandchildren. These are his views.

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Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest. Tax rules change and benefits depend on circumstances.

“I could see an inheritance tax problem brewing – and decided to act”

I have been an investor most of my working life, looking after my own investments mostly – and occasionally using a service such as that of Wealth Club. I have always tried to spread my portfolio as wide as I can and have done reasonably well.

When I was younger, I looked for growth, taking advantage of tax reliefs where available – being an accountant, I’m reasonably conversant with most, obviously.

As I got older and started drawing my pensions, it’s become more about looking for income as opposed to growth. That’s worked out pretty well. 

I can see a potential inheritance tax problem brewing

But in the last year or so I’ve come to a point where I can see a potential inheritance tax problem brewing – I hope a long way off. 

So, I’ve been looking at various options.

I would like to do what I can to mitigate the liability, but without affecting too much the overall scope of what my investments are supposed to be. Nor do I want to face a heavy cost that affects our way of life.

That’s why I haven’t set up a trust, for instance. I generally find trusts are more useful if you’re talking about very, very large sums. The costs to get them up and running can get a bit high. It may be something I will have to look at, but not at the moment. I’m now at a stage where I would like to do what I can to mitigate what is going to be payable, where I can, but only up to a point.

My ISA was an obvious starting point

My ISA was an obvious starting point. I have regularly invested in ISAs over the years, but as I said, whilst the priority was initially growth, then income, now I’ve started to think about the inheritance tax implications as well. 

So, this year I have subscribed to the Octopus AIM Inheritance Tax ISA and also made a partial transfer from my existing ISAs – it’s my first dipping of my toe into that water.

If the investment itself doesn’t grow, you could still be 40% ahead

I’m fully aware there is more risk involved and you never know if the future will bring changes in legislation. But you can only plan on the way the situation is today, tax-wise. 

And as I often say to clients – and it applies to me as well: if you make an investment and you see it through, then eventually it could save your estate 40% inheritance tax. If the investment itself doesn’t perform well and doesn’t grow, at the end of the day you could still be 40% ahead.

What I’d have to balance that with at the moment is giving up the source of income on that capital. Although, again, you can draw an income from the AIM IHT ISA as well – so it’s something I will be pursuing. 

I prefer it when I can have a personal contact

Choosing Octopus was a relatively easy decision – they have a good name within the industry. The first investments I did with them were VCTs and I’ve been pleased with the way that’s worked.

I started investing through Wealth Club last November, first for my VCT investments. Then, when it came to my AIM IHT ISA, it made sense to invest through Wealth Club again. I prefer it where I can have a personal contact, and someone I can speak to if I’ve got a problem – rather than trying and just speaking to a faceless call centre.

This case study is based on our conversation with Mr L.C. on 12 May 2021. This case study, like everything else on this website and our service, is not advice nor a personal recommendation to invest. The views and opinions expressed are those of Mr L.C. You should form your own view and decide for yourself if an investment is right for you – please carefully read the Risks and Commitments. Inheritance Tax planning can be a complex area: if unsure, please seek advice. 

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination. 

How to protect your ISA from inheritance tax

Read more on the rules, how AIM Inheritance Tax ISAs work, risks and benefits

Read more on AIM IHT ISAs and apply online