Inheritance Tax planning and power of attorney clients

Dominique Butters

There have been some interesting articles recently regarding the role and scope of Powers of Attorney (POA) in relation to acting in the best interests of a client who has lost mental capacity. The objective of this editorial is to highlight and dispel some of the myths and pre-conceptions about what can and cannot be done with a client’s money under a POA.

Powers of Attorney are able, under the law of England and Wales to invest money on behalf of their client. However, they are not permitted to give money away (gifting) or place money under a trust without the express permission of the Court of Protection. This is because in the court’s view, money has to be invested for the benefit of the client not the ultimate beneficiaries as, of course, gifting and Trust investments are definitely going to benefit others and not the client themselves!

Therefore, a POA must apply to the court to seek permission to gift or place money under trust. In the application, the POA needs to prove that the client is never likely to need that money in the future to retain their standard of living. If this can’t be proved, then the Court of Protection will decline the request.

Where the Court of Protection does agree to the request for a trust or gift to be put in place, this will take 7 years to become fully effective for IHT planning and unfortunately, the average life expectancy for a client moving into long term care is currently three and a half years! This means that it may be a little late for the majority of clients to enact trusts or gifts from an IHT planning point of view.

Now for the bright side: there is a little-known fact, even amongst solicitors, that clients who have lost mental capacity can be invested into Business Relief qualifyinginvestments (BR) without the need (or costs associated) to apply to the court. The reason for this (and solicitors will ask) is that BR investments are simply that; purely an investment (that just so happens to benefit from 100% IHT relief after two years if held at the time of passing away). The investment is written in the client’s name and as the client hasn’t given money away or placed into a trust, the investment is always available to the client for their benefit and well being during their lifetime; in other words, there is no detriment to the client from an access point of view (or the Court of Protection view for that matter!)

However, one concern has been raised by many Deputies, having been appointed by the court to look after the money of these individuals, is that any BR investment undertaken should be considered, after charges, as a standalone investment for the benefit of the client rather than purely relying on the ultimate benefit of the IHT saving, as although this is an enormous benefit to the beneficiaries, the client won’t themselves be benefitting from the tax saving as they’ll have passed away!

Blackfinch offer a choice of Inheritance Tax (IHT) mitigation investments:

Our Adapt IHT Portfolios are asset-backed and focus on capital preservation with targeted returns of either 4% or 6% net of fees and charges.

In addition, Blackfinch have the Adapt (AIM) ISA Portfolios available with income or growth options and the potential for greater returns.

For even greater diversification, a blend of both products can be arranged.


If you would like to find out further information about the range of Adapt IHT Portfolios or Adapt AIM Portfolios, please contact:

01684 571 255

[email protected]

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