Avoiding inheritance tax without surviving for seven years

It may be the case that an elderly person has significant assets which exceed the nil rate band but the prospect of them surviving for seven years does not look good. In any cases where the seven year survivorship period won't be met, this will severely limit the opportunities for tax planning. Most forms of inheritance tax planning would involve surviving for at least seven years. At it's simplest if you want to avoid Inheritance tax you either have to:

Reduce the amount of assets

Increase liabilities

Increase Inheritance tax exemptions or reliefs The problem with the first option is that any transfer of assets would be subject to the seven year survivorship period. So whether you gift cash to another individual or family member, or transfer to a trust if you don't survive for seven years the amount transferred would be clawed back into your estate for Inheritance tax purposes. Any elderly people who don't expect to survive for seven years will therefore find it difficult to obtain IHT reductions by gifting assets. Of course any gifts can benefit from taper relief for IHT purposes. If the amount of any transfer was significant enough to exceed the nil rate band, or if there were previous transfers that were still within charge and utilized the nil rate band, the inheritance tax due on the gift/transfer would be reduced according to how long the deceased survived after the gift. Where this is not the case (eg the gift is less than the nil rate band or there were no previous transfers) the options are more limited. The best option in the short term would be to consider investing into shares that qualify under the Entreprise investment scheme ('EIS') scheme or are other unquoted shares in trading companies. These investments would qualify for 100% business property relief ('BPR') after two years of ownership. As such the deceased could consider investing any cash deposits in these shares and could also consider raising further cash and investing these into BPR qualifying assets such as EIS shares or shares listed on the alternative investment market ('AIM'). This would be effective in reducing inheritance tax after only two years, but as a downside clearly there are the risk implications that would have to be carefully monitored. Another point to note is that many of the IHT exemptions such as the normal expenditure out of income exemption, the marriage exemption, the small gifts exemption and the annual exemption are not subject to the seven year survivorship requirements. As such it is well worth ensuring that these exemptions are fully utilized.