Tag Archives: inheritance tax

Inheritance Tax And The New Residence Nil Rate Band

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Much of my time is spent advising clients on inheritance tax, both the current liability on their estates, and what can be done to address it. It’s an emotive subject, with many clients feeling aggrieved that the wealth they have created over their lifetime is being taxed again on death.

In response to this, the former Chancellor, George Osborne introduced additional measures to potentially reduce the tax take for the treasury, and allow people to pass on more of their money to their families on death.

On death, if you leave assets to anyone other than your spouse, inheritance tax is paid at a rate of 40% on any assets you hold above the nil rate band; this currently stands at £325,000 each (£650,000 for couples).

It has long been the objective of the Conservative Party, to increase the point at which inheritance tax becomes payable by couples to above £1 million. The simplest way to address this would have been to increase the nil rate band to £500,000 each. However, for political and financial reasons this was not the solution George Osborne devised.

An additional nil rate band was created of up to £175,000 each, relating to the family home.  This will be phased in over 4 years from 6 April 2017, starting at £100,000 each and increasing by £25,000 per year over 3 years. This is in addition to the existing nil rate band. Thus, if you as a couple have a home worth £350,000, you may eventually be able to pass on a joint estate of £1 million without being subject to inheritance tax.

This all sounds good news but it should be noted that not everyone will qualify.  Here are a few key points:

  • If your estate is worth more than £2m your entitlement to the residence nil rate band starts to disappear;
  • The rules stipulate that homes must be passed on to direct descendants, by which it means children and grandchildren;
  • I’ve had to inform clients who are leaving all their assets to nephews and nieces that they won’t get this additional relief;
  • Step-children and adopted children are counted in the definition as children so that is welcome;
  • If leaving the property into a trust, it must be one that creates a fixed entitlement to the property to a direct descendant, it can’t be wholly discretionary;
  • If one spouse doesn’t use their residence nil rate band, it can be passed on to the other spouse to use on the second death in the same way as the ‘normal’ nil rate band;
  • It can only be claimed against one property so two properties totalling £350,000 may require you to claim this relief against the higher value property only; and
  • There are also a myriad of rules relating to downsizing, which will probably require further revision by the Government to ensure they work in the way intended.

Inheritance tax is an area where many people will require advice. If you wish to receive advice on the Residence Nil Rate Band or any other inheritance tax matter, please get in touch.

Written by Richard Hesketh
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Richard Hesketh 
Client Manager
Email: richard.hesketh@pmm.co.uk
Direct: 01254 604340

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Jane Parry 
Managing Partner & Head of Tax
Email: jane.parry@pmm.co.uk 
Direct: 01254 604329

 
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PM+M Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority.

Inheritance Tax and Business Property Relief

Inheritance Tax & BPRA common objective for many of our clients is to pass on money to their families on their death. With house prices having escalated significantly, a greater number of estates have become subject to inheritance tax, reducing the amount their loved ones receive.

In response, the Chancellor has created an additional nil rate band relating to the family home which will be phased in over the next few years. Potentially for a couple with a home worth £500,000, they may be able to pass on a joint estate of £1 million not subject to inheritance tax. It should be noted that this only relates to homes passed on to direct descendants; it also doesn’t address the inheritance tax concerns of those who don’t own a property.

If after these additional measures you still have an inheritance tax liability, you may look to give away assets thus reducing the size of your estate. This can be problematic in that you can’t then use those assets, but often more importantly you need to survive a further seven years from the date of the gift for it not to be added back into your estate for IHT purposes.

There are however, investments that can be made that allow you to achieve 100% relief for inheritance tax purposes whilst remaining under your control and from which you can access funds if required. It’s a relief that owners of small family businesses will often use to pass on shares in their unquoted trading companies free of tax, and is known as Business Property Relief (“BPR”).

But if you don’t own a family business you can still take advantage of this relief. One of the simplest methods can be to acquire a portfolio of qualifying trading company shares quoted on the AIM share market. Provided you hold the shares and survive for 2 years from purchase, the value of those shares will be 100% relievable. It should be remembered that shares on the AIM market can be higher risk and will not be appropriate for everyone. You should take appropriate advice before investing.

If AIM shares sound too risky for you, there are other investments that make use of BPR by holding shares in unquoted companies that engage in trades such as asset finance, solar power, and property finance. They focus more on capital preservation producing predictable, modest returns rather than high growth. There is an increasing number of providers in the market and they are often complex in structure, and again taking advice is highly recommended.  These investments can, however, be highly effective in both individual and trust tax planning.

If you do need advice regarding investments that benefit from Business Property Relief or any aspect of Inheritance Tax, please call 01254 679131 or contact one of our advisers:

Richard Hesketh (richard.hesketh@pmm.co.uk) – Wealth Management and Investments

Jane Parry (jane.parry@pmm.co.uk) – Head of Tax

 

Should I Be Thinking About Long Term Care And Inheritance Tax?

shutterstock_104982092None of us know what the future holds, but we can plan for situations that are likely to arise in later life.

Long Term Care and Inheritance Tax are two major concerns for those wishing to retain wealth that has been built up over a lifetime, and who wish to pass it down to the next generation of their family.

Inheritance Tax is payable by those who receive the assets and not by the deceased. When you pass away, your total estate is valued, and once all debts and liabilities are repaid, the amount of your estate above the ‘Nil Rate Band Allowance’ of £325,000 may be subject to Inheritance Tax at 40%, thus reducing the amount your loved ones will receive. It should be noted that whilst £325,000 may sound a lot, the value of the family home can currently in itself utilise much, if not all, of the band.

Long Term Care by contrast is a financial issue that can have a significant effect on your finances prior to death. Recent changes to the funding of long term care whilst welcome, could still mean that you face large costs that must be met out of your capital or income.

Planning for these events may seem difficult, but obtaining the right advice will make things easier for both you and your family.

On Tuesday 19 May, we are running a seminar to discuss Long Term Care and Inheritance Tax Planning and how to minimise the tax take amongst other useful planning tips. For more information on this seminar and to reserve a place, please click the button below or contact Daniel Hill on 01254 679131.

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Vote for a Pension!

shutterstock_98671151As politicians go into election overdrive and the prospect of a coalition Government seems ever more likely, the major political parties are starting the pre-election give away as they look to gain favour with the voting public.

This week saw the Conservatives propose a new Nil Rate Band to save on inheritance tax.  The new band set at £175,000 would be applied to main residences and be available to properties worth up to £2,000,000. This means individuals would be able to pass up to £500,000 to beneficiaries free of inheritance tax when the new allowance is combined with the existing allowance of £325,000.  For couples, this could mean up to £1,000,000 is passed on tax-free.

So is there a catch I hear you cry! In short yes. In order to fund the new allowances tax relief on pensions would be restricted by gradually reducing the annual allowance from £40,000 to £10,000 for those earning more than £150,000.

The Labour Party have also announced they would reduce the annual allowance from £40,000 to £30,000 to fund a reduction in student fees from £9,000 to £6,000.

So it seems whether you vote blue or red future contributions into pensions will be restricted. For those of you planning to make a large pension contribution in the future, or if you earn more than £150,000, you should consider voting for your pension by making the contribution now in order to make full use of all the available allowances.

For more information or if you would like any advice on pensions, please call Antony Keen on 01254 679131 or email antony.keen@pmm.co.uk.

PM+M Wealth Management Ltd is authorised and regulated by the Financial Conduct Authority.

Wills and the new Intestacy Rules

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As Financial Planners, many of our discussions with clients involve assisting them in arranging their affairs in a manner that suits their objectives during their lifetime. But we also frequently advise clients on how best to pass their assets to their intended beneficiaries on death.

If you don’t make a Will, you may find that your estate is distributed in a way that might not be in accordance with your wishes. The intestacy rules govern who gets what when someone dies without leaving a valid Will, and these rules are changing from October 1st. The changes are intended to simplify the current rules and provide outcomes that might be more easily understood in today’s society.

So if I die without making a Will, who will receive my assets under these rules?

Married Partner/Civil Partner & Children

Many people erroneously assume that a married person automatically receives the assets of their late partner, but that is not the case now and will still not be the case going forward.

A widow/widower will receive the first £250,000 of the estate and be entitled to half of anything above that amount. The children of the deceased will receive the other half of the remainder of the estate.

So if your assets stand at above £250,000 and you wish for your spouse/civil partner to receive it all, you need to make a Will.

Married Partner/Civil Partner No Children

For those who haven’t had children, rules granting parents of the deceased, siblings and other more distant relations from benefitting from your estate are being swept away. Your spouse will now receive the entire estate.

Of course if you do wish to leave items to individuals who are not your partner you can still do so by making a Will.

Unmarried Co-habitants

During the consultation phase, many lawyers recommended that changes in societal living arrangements should be recognised and that long standing unmarried partners should be given the same rights as married partners.

However, these recommendations have not been taken on board, and co-habitees will continue to receive nothing from the estate of their partner even if there are children from the relationship. So it remains the case that the only way to ensure that part, or all, of your estate will go to your partner is to marry them, or make a Will.

We always recommend that clients do make a Will and regularly engage with solicitors to ensure it reflects our clients’ wishes. Wills can soon become out of date when family circumstances change and can be invalidated by marriage or divorce so regular reviews are essential. A Will is the only way to ensure your assets pass to those you wish to receive them; it also allows you to build in some appropriate inheritance tax planning.

If you haven’t got a Will or wish to discuss your Will please get in touch with me.

Richard HeskethPM+M Wealth Management

A new inheritance tax cloud – with maybe a silver lining

Inheritance tax is a complex tax and there has been consultation by the Government for some time on how to simplify it, particularly in relation to trusts.

Inheritance tax actually represents a tiny proportion of the country’s overall tax receipts – less than 1% (around £3.5 billion per year).  Only around 26,000 deaths each year result in the tax being payable.

One of the reasons for this is that people with a lot of surplus wealth have been able to use trusts to move value out of their taxable estates.  There are various ways to do this, many of them based on the fact that, whilst a transfer to trust triggers an inheritance tax charge, everyone has an inheritance tax nil rate band of £325,000.  This can be used on transfers to trust and/or on death and, in the case of lifetime transfers to trust, once used, it is renewed after 7 years.

The Government would like to stop this planning being available to the small minority of people who can afford to do it and new proposals were issued last week to change the rules.

The proposed change is that rather than one nil rate band of £325,000 that you can use every 7 years, everyone will have one normal nil rate band to use on death and one settlement nil rate band to use for transfers to trust throughout their lifetime or on death.  If more than one trust is created, you will be able to choose how to split the settlement nil rate band between them.

Note: this only applies to property added to trusts after 6 June 2014.

For people with a lot of wealth who were planning to use their nil rate band every 7 years by transferring another £325,000 to trust, this is bad news.

For more ordinary folk, however, who don’t have sufficient surplus wealth to be able to plan to give it away over long periods as above, this may actually represent an opportunity to get more inheritance tax exemption than they have previously been able to access.  The details in the consultation document are sketchy on this aspect but it may perhaps present some interesting planning possibilities.  We will be keeping a close eye on developments as more detail unfolds.

These are only proposals and there is a consultation process to be undertaken.  It is unlikely that we will hear the final rules until the Autumn Statement.  There may then be some planning to be done and wills to be amended – indeed many wills that have been tax effective up to now may need re-writing.  Planning in the meantime will inevitably carry some uncertainty.

If you have any questions about how the new proposals might affect you, please email me on jane.parry@pmm.co.uk.

Jane Parry - Head of Tax