The average middle class parent expects to leave an inheritance of GBP335,285, according to a survey of 1,000 adults by wealth planning firm Heartwoods. One in four of them plan to make lifetime gifts to their children to mitigate the resulting IHT liability.
Source:
Heartwood Wealth Management
STEP
According to the annual Tax Actions Report released by ‘Unbiased.co.uk’,UK taxpayers will waste nearly £1.3 billion this year due to poor inheritance tax (IHT) planning. This tax wastage is only set to increase further in the future after the chancellor announced in 2010 that the threshold would remain frozen for four years at £325,000 rather than rising in line with inflation.
The top three findings in the report are as follows:
Sources:
This week the STEP Journal give their analysis of tax implications under the new coalition government.
Read the full article here or see the excerpt below
“Both Conservatives and Liberal Democrats were obliged to drop some of their campaign promises when agreeing to form a coalition government on Tuesday.
Tory plans to raise the inheritance tax nil rate band to GBP1 million have been shelved for the duration of this parliament. The LibDem proposal for a “mansion tax” on houses worth more than GBP2 million has been dropped, probably for ever.
However the most significant news is that the new chancellor, George Osborne, will soon present an emergency Budget raising capital gains tax rates to levels “similar or close to those applied to income” – that is, from 18 per cent to 40 per cent, in line with the Liberal Democrats’ election manifesto.
The new rate will, however, only apply to non-business assets, and there are to be “generous exemptions for entrepreneurial business activities”. This means shares, second homes and buy-to-let property will be the main targets of the tax.
Newspapers, including the Financial Times, are predicting heavy selling of these assets before the new rate comes into force. It is not yet clear whether the change will be implemented immediately or even retrospectively.
“The hope is that any change will not be before 2010/11 to allow sensible business and tax decisions to be made in good time”, said Francesca Lagerberg, head of tax at accountants Grant Thornton.
Another ominous passage in the coalition’s joint policy statement promises that “all efforts will be made to tackle tax avoidance, including detailed development of Liberal Democrat proposals.
“This could include a campaign proposal by Vince Cable (now a minister) for a general anti-avoidance provision for corporation tax.
Before the election the party also advocated closing “loopholes” such as preventing the avoidance of stamp duty land tax by transferring property into offshore trusts, restricting non-dom status to a maximum of seven years, and stopping business owners paying themselves in dividends taxed at 18 per cent.
The Tories’ proposal for limited transferability of personal tax allowance between spouses has not been dropped, but Liberal Democrat MPs will be allowed to abstain on budget resolutions dealing with it.
The emergency budget will appear before the end of June, aided by an independent Office for Budget Responsibility.
A full spending review will be held during the summer, reporting in autumn. This will follow a “fully consultative process involving all tiers of government and the private sector”, says the new government.”
Source
STEP reports that a further 650,000 families could be brought into the inheritance tax net under a Labour government, after last week’s budget froze the nil rate band at GBP325,000 until at least April 2014.
Read the full article on the STEP Journal or read the extract below
The 650,000 figure comes from Frank Nash of accountants Blick Rothenberg, quoted in the Daily Telegraph. Nash says the freeze could cost a couple an additional GBP37,000 in IHT in real terms over four years, if inflation continues at around 3 per cent.
It will particularly affect couples whose joint assets are worth over GBP650,000, said Richard Mannion of accountancy firm Smith & Williamson.
“With the IHT rate currently at 40 per cent this may result in a significant further financial burden, especially for those whose wealth is wrapped up in property with little liquid cash”, he said. “The freezing of the nil rate band does create clear political water between Labour and the Conservatives.”
John Richardson, head of advice policy at Towry Law, said the long freeze would lead more families to consider estate planning opportunities, and more trustees to consider tax-efficient investment structures to minimise the ten-year anniversary charges.
As already reported, the Treasury will this summer work out a method of bringing inheritance tax planning into the list of activities that have to be reported to HM Revenue & Customs as tax avoidance schemes – the the Disclosure of Tax Avoidance Scheme (DOTAS) rules.
Source
A reader’s question to This is Money highlights the risk to executors who distribute an estate without realising that legacies to charity are inheritance tax exempt.
‘J.D’ received a substantial sum from an estate left by a friend. However three charities are now challenging the will after it appear that inheritance tax was applied incorrectly to the charities’ gift. Resultantly, J.D. may be forced to refund his share
If executors of the deceased’s estate apply the IHT liability proportionately to both the charitable gifts and family gifts, then the charity is within its rights to claim back any IHT deducted from its share of the estate.
Read the full letter and response at This is Money
Step UK News Digest 1st September 2009
| According to the latest edition of the HMRC inheritance tax and trusts newsletter, executors should consider obtaining three independent valuations of a property before submitting form IHT400. Failure to do this may result in penalties under HMRC’s ‘reasonabe care’ regime.
Negative trends within the property market has led to uncertany in extimating property prices, with personal representatives increasingly asked to reduce valuations after probate whilst prices fall. In the newsletter, HMRC suggest that it will normally refuse to re-value a property if the estate has already paid IHT based on an agreed valuation. It will only consider re-valuation if the original estimate was done with incomplete or incorrect information. “The recent fall in property values alone is not sufficient reason to re-open an earlier value”, it says.
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The son and daughter of ‘Mrs A’ faced a tax bill of 40% of their mother’s whole estate above the value of £312,000 and could not make use of the new Transferable Nil Rate band from their father who had died 12 months before his wife of 60 years. Their father had taken the correct tax advice at the time, leaving a will with a Nil Band Rate Discretionary Trust. As a result, there was no unused Nil Rate Band from his estate that could be transferred to Mrs A’s estate.
But Mrs A had been married before, for just three months as her first husband was shot down whilst serving in the RAF in the Second World War. Simon Cook, head of the private client department at Thomson & Bancks, knew that when a person is killed on active service their estate is exempt from Inheritance Tax.
He succeeded in reducing Mrs A’s estate’s liability to Inheritance Tax by transferring her first husband’s nil rate band – even though he died in 1942. The firm believes this is one of the earliest ‘first deaths’ yet claimed for Inheritance Tax purposes. The claim succeeded partly because the first husband was killed in action and partly because his estate was worth little at the time of his death.
Since 9th October 2007, the percentage of Nil Rate Band used on the earlier death can be rolled over to the surviving spouse or civil partner, irrespective of when that death occurred.
Read more on this story at here