News/Events

Planning for when you are gone [24th April 08]

With the big changes in the Inheritance Tax (IHT) rules in the 2006 Budget, the pre Budget in October 2007 and now the recent Budget, it is clear that a good deal of re-thinking is needed to create a successful strategy for estate planning.

Firstly, if you made a will in the last 2 years and have not reviewed it, then now is a good time to go to your solicitor and have a good chat!

Secondly, the first change refers to the type of trust that may have been set-up for your children or indeed grandchildren.  With a trust, the Trustees can determine who should receive the benefits and in what proportion and maybe the trust allows a fund to be held until the beneficiary reaches a certain age e.g. 18 or 21. So it’s quite flexible. Under the new IHT rules, the treatment of some trusts, for tax purposes, has been amended and has led to people re-considering the type of trust to use in their Will.

There is no doubt that a Trust will still provide an ideal way of placing funds in the right hands, the major question is which type of trust is right for you? Needless to say, IHT is a complex area of financial planning and it’s most definitely advisable to get expert advice before making specific decisions.

The next big change relates to the introduction of the new rule relating to the Nil Rate Band for IHT for people who are married or have a civil partner. The Nil Rate Band is the IHT threshold e.g. for 2008/2009 it is £312,000 ( up to £624,000 for a couple) and the whole value of the Estate above this figure would be liable to 40% IHT tax unless an exemption applies.

The unused percentage of an individual person’s IHT free allowance can now transferred to the surviving spouse or civil partner. There is good news and bad news as it is retrospective legislation as long as a spouse or civil partner died before 09/10/2007 leaving a surviving spouse or civil partner. If, like one of my clients where she was the surviving partner and very regrettably died at the end of September 2007, there is no advantage – if only she had survived another 2 weeks and the beneficiaries would have been £120,000 better off!

Just to make this rule clear by way of an example and as IHT thresholds are designed to increase. Suppose a gift had been made by a deceased partner of 150,000 in 2007/08 e.g. 50% of the £300,000 limit available at that time and the surviving partner died in 2010/2011. Then 50% of the threshold at that time, projected to be £350,000, would be added to that of the surviving partner, i.e. £175,000 + £350,00 giving a total of £525,000.

 My tips are;

1)      Make sure your will is up to date

2)      Consider granting a LPA ( Lasting power of attorney)

3)      Don’t forget each individual has an annual exemption e.g. £3000 

4)      Remember that you can make exempt gifts from your surplus income

5)      Most important of all, always keep a note of all gifts made and keep your paperwork in place so that they can be claimed upon your death.

It must be clear this is a most complex area and expert advice is needed for 2 reasons as, firstly, you want to be absolutely sure your assets are protected as far as possible from any potential IHT liability. Secondly, you must ensure you have full control over when and in what manner your beneficiaries receive their inheritance.

The old phrase of 2 certainties in this world ‘death and taxes’ comes to mind so make an appointment to see you solicitor and qualified IFA now before it’s too late!

This article was written by Langtons - Published in the Western Morning News, Money, 29th April 2008