Inheritance Tax – Are Changes Imminent?
In April of this year the government ordered a review of how the complex IHT system works for lifetime transfers and gifts; and on death. It is reported that IHT receipts have hit a record £5.2bn partly fuelled by soaring property prices dragging estates into the IHT net. Consultation is expected to report back in the Autumn and there is concern that a desire to make the system fairer and less complex could result in valuable planning aspects used by families to mitigate IHT will be restricted or removed.
Whilst the value of many homes have rocketed the nil rate band (NRB) has remained at £325k since April 2009. The residential nil rate band (RNRB) may alleviate the position, but that will depend on the structure of a Will in terms of benefitting direct descendants and types of “will trust” structures that may be in place.
Existing Wills often include a nil rate band discretionary trust and prior to 2007 this was a widely used IHT planning tool and in many circumstances is retained and used today to protect assets. However, in some circumstances it may result in the estate not benefiting from the RNRB. The RNRB is £125k for 2018-19 and in tax terms, on the death of a surviving spouse/civil partner this could equate to a maximum tax saving of £100k. The individual allowance attracts a tax saving of £50k.
Lifetime gifts, directly to individuals or into trust can attract IHT exemption after 7 years and in some circumstances defer the payment of capital gains tax (CGT) by applying reliefs. The government may extend this period from 7 to 10 years and this will impact gifts made by elderly taxpayers and possibly limit the success of a tax free gift. Trusts can be an effective way of passing on assets but retaining management of those assets by acting as a trustee. This type of structure can also provide protection and fend off influence where there may be complicated family dynamics.
Business Property Relief (BPR) is intended to allow individuals to pass on family businesses to heirs without the burden of funding an IHT liability. However, the relief can extend to AIM portfolios held for more than 2 years and the rules may be amended to make it more focused on unquoted trading businesses. Similarly, a review of Agricultural Property Relief (APR) may bring in some new restrictions.
Pensions is another area that has gone through many changes in recent years and the current rules around passing on pension pots tax free where death occurs before the age of 75 may be reviewed.
In life there can be a reluctance to talk about death, however financial matters are not usually the initial focus for distressed families when death occurs. With that in mind a regular review of assets, will structures and lifetime planning options is advisable to ensure assets go to whom they are intended, they are passed on in a safe effective way and benefit from tax reliefs where available.
A wealth review and planning discussion may highlight that your existing arrangements may need updating. This may also identify other areas for discussion e.g. family business structures, divorce subsequent marriages and children/step children, capacity issues and powers of attorney, residence and domicile aspects.
With that in mind please email Alison Houghton, Private Client Manager, or call her on 01772 821021.
Alternatively, please fill in the form below with your enquiry or comment and we will reply as soon as possible.