For many sports professionals, the most emotionally valuable assets may not be those that receive the most attention in lifetime planning. Athletes train for years to strive for medals and trophies, but as Jack Charlton’s story told us, there may be a large inheritance tax bill on them on death. A footballer’s medals, a boxer’’s championship belt, an Olympic medal, a trophy or even a collection of memorabilia can have significant financial and sentimental value. However, those assets are somewhat overlooked when advising on estate planning and then the family are struck with an unmeasurable Inheritance Tax bill when inheriting the assets.
What Jack’s case tells us…
Years of sacrifice for athletes is showcased through championship medals and trophies. However, for families, like Jack’s, those chattels can become treasured heirlooms. Those assets represent sporting history that are intended to pass down generations and become a valuable part of a family’s history. However, the price loved ones may have to face on death on such assets is somewhat lost and not brought to their attention until it is too late. The recent story around Jack Charlton’s World Cup medal is a striking reminder of this. Following the England defender’s death in 2020, his son has now reportedly faced an inheritance tax bill of around £200,000 and instead, passed this to his mother to claim the spouse exemption.
The missing piece to estate planning for athletes:
There is wider lesson here, that athletes may be narrow-minded when it comes to major financial assets in their possession. Other assets such as pensions, property, cash and investments feature prominently in estate planning. However, there is a lesson learnt to ensure that it is not just financially valuable assets that matter, and those that are emotionally priceless can be extremely valuable and therefore form part of the state for inheritance tax purposes. From an Inheritance Tax perspective, however, sentiment does not necessarily reduce the value of an asset.
The result is that those items are missed within the framework of advice from a professional and therefore no inheritance tax planning has been done before the athlete passes away. This then results in the family having to put aside the sentimental value of those items and instead consider the most tax efficient way to distribute those assets which can lead to grandchildren, children or friends not having those priceless valuables that they were promised. At Vault Private Client, we believe that it should not come to the point whereby a family are forced to part with something that can never be truly replaced.
The model of lifetime gifting:
Sporting memorabilia can be part of the taxable estate. The fact that an item is sentimental, rather than an investment, doesn’t automatically mean it is outside IHT. Therefore, one of the most important principles for inheritance tax planning is taking advice early, despite being a healthy, fit, mid-age athlete and planning for the future. For individuals with significant wealth, lifetime gifting can be a core principles that form part of the advice to get around this issue.
One method is gifting to another individual. HMRC define a potentially exempt transfer as a lifetime transfer of value that satisfies three conditions:
- It is a transfer by an individual made on or after 18 March 1986
- It would be a chargeable transfer apart from Section 3A of the Inheritance Tax Act 1984; and
- It is a gift to another individual or a specified trust.
This means the transfer must be for value to an individual or a specified trust where the transfer would be subject to IHT.
The core principle is that an individual can no longer benefit from those assets once they are gifted away. For items such as medals or trophies, athletes may consider gifting those items within their lifetime, rather than waiting until later life to decide what happens to a collection, that they may not actually need or use. We highlight the importance of being early and deliberate with inheritance tax planning. Vault Private Client advises footballers, boxers and other sports professionals who are young and in the peak of their career. We bring inheritance tax into every conversation and take a long-term approach to planning for the rest of their lives and careers. A lifetime gift is not something that should be considered only when a person is already in poor health or approaching the end of their life.
The use of Trusts:
For some individuals, gifting may be too transparent and given the valuation of those assets can be unique, it is difficult to quantify whether it is suitable to simply transfer those assets into a child’s name. This highlights where trusts may be a useful tool. A trust can be used to ring-fence assets from divorce, financial immaturity or early-age risks. This can be particularly attractive where a sporting collection has substantial sentimental value, and the family wants to ensure that it is preserved rather than simply becoming part of an individual’s estate. It is crucial to take advice from a solicitor and/or an accountant before considering gifts into trust. Each individual has £325,000 every seven years, without creating a chargeable lifetime transfer and £650,000 between married couples before paying any significant entry charge into the trust. The trust is also subject to its own Relevant Property Regime, where there are potentially ten-year anniversary charges and exit charges on those assets in the trust in the future.
At Vault Private Client, we advise on gifting based on suitability, rather than value, fees or forceful IHT planning. Gifting has to be right for that particular individual, based on the individuals circumstances and needs at the time.
The aim is to consider what the asset is, who should ultimately benefit from it, whether the individual needs continued access to it, how it should be valued and what tax consequences arise from the chosen structure.
Planning your sporting legacy:
Estate planning is much more than just deciding who is written in your Will and who acts as an executor. It is about protecting legacies, assets and ensuring that this is done in the most tax-efficient way possible. Sport is competitive and it is not easy, therefore athletes who have spent their lifetime building their legacy should not have to compromise who inherits their symbols of sporting achievement on death. Instead, estate planning is perceived as an opportunity and it can avoid disastrous consequences rather than leaving unanswered questions until death. Vault’s approach is that the conversation starts early and does not end after one meeting.
Vault believes that protecting legacy is not just about deciding who inherits your achievements, it is about making sure the families can afford to keep them.
