Death & taxes

It is sometimes said that death & taxes are unavoidable. With Inheritance Tax (IHT) these issues are combined which does, perhaps, explain why it is such an unpopular tax.

It is also a tax that has been rising steadily in real terms for the last four years and the Government announced in March that this would continue for at least the next six years.

IHT is charged on death at a single rate of 40% over a threshold of £325,000 (£650,000 for married couples). Gifts made within the previous seven years are also taken into account together with some property held in trust; the proceeds of life insurance policies payable on the death can also sometimes be included.

This threshold has been frozen since April 2009 and, according to the Chancellor, is intended to stay at the same level until April 2019. Unfortunately prices have been far from frozen and so the likely fall of the threshold in real terms is likely to be of about one third by the time it is allowed to rise again!

Some years ago, it was thought that the threshold might be put up to £1 million but that seems a distant prospect now given the state of the public finances.

What this means is that planning to reduce potential IHT liabilities should be delayed no further. All that would mean was that any gifts made would be less likely to be more than seven years prior to death.

In fact, however, there are plenty of options in addition to just passing assets on the next generation now and some of these allow the original owner of the asset to continue to have some benefit from or enjoyment of the asset.

There is also the question of having some Inheritance Tax planning in the Will.

Prior to October 2007, many married couples were advised to set up discretionary trusts in their Wills in order to make use of the IHT threshold or nil rate band on both deaths. The trust structure ensured that the assets remained available for the survivor’s benefit or use but were not subject to tax on the second death. The introduction of transferable nil rate bands rather changed that and made life much easier enabling both spouses to use their threshold in full. Many couples rewrote their Wills to remove the trusts.

Simplicity is not always perfection, however. If you expect the value of the assets belonging to the first spouse to die to increase more quickly than the IHT threshold then you should probably retain this nil rate band trust structure. The value of the trust assets would then exceed the extra nil rate band that would otherwise be available.

With the threshold frozen for at least six more years, it seems probable that nil rate band trusts should be coming back into fashion.

The truth of the matter is of course that we are all different. There is no one size fits all solution for Inheritance Tax.

That is what makes my job so interesting.

Bob Wheatcroft, Partner

If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletter

Subscribe

Get in touch

To find out more about how we can help you or your business, call us on 0808 144 5575 and speak to a member of our team. Alternatively use our contact form to send us a message or arrange a callback.

CALL 0808 144 5575

or

Contact Us

All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.

Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson Accountants, Business & Financial Advisers is a trading style of Armstrong Watson LLP. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.

Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales No. 8800970. Registered office: 15 Victoria Place, Carlisle, CA1 1EW

Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales No. 7208672. Armstrong Watson Financial Planning & Wealth Management is a trading name of Armstrong Watson Financial Planning Limited. Registered Office: 15 Victoria Place, Carlisle, CA1 1EW