Inheritance Tax (IHT) – Budget 2011 roundup

Inheritance Tax (IHT) – Budget 2011 roundup

1. Charity donations encouraged
2. No changes to basic rules
3. No review of IHT legislation announced

As far as IHT and estate planning are concerned, this was a fairly uneventful Budget.  The only real point of note is the inclusion of a tax rate reduction for charity donations.  The basic rules remain unchanged, with no mention of the proposed legislation review by the Office of Tax Simplification (OTS).

Please read on for the IHT headlines in more detail…

Charity donations
From 6 April 2012, the IHT standard death rate will be reduced from 40% to 36% when 10% or more of the net estate value is left to a registered charity.  The saving will increase the charitable donations and will not increase the amount received by any beneficiary. We note that this change and the calculations to be used are currently open to individual interpretation, and look forward to further clarification when the legislation is passed later this year.

Basic rules
The nil rate band is still frozen until 2014/15, but will then increase in line with CPI each following year. The DOTAS (Disclosure of Tax Avoidance Schemes) regime will be extended to include IHT planning via trusts from 6 April this year.  The regime will not apply to the WAY’s current range of IHT mitigation plans, but would affect any new trust based plans that we introduce.  We will of course provide as much information and assistance as we can when introducing any new plans that are subject to the DOTAS regime.

OTS review
Some expected an announcement regarding the Office of Tax Simplification (OTS)’s proposal that there should be a top down review of Inheritance Tax as a whole.  This was not forthcoming in this Budget, but may still be announced at some point in the future.  We believe that any changes would likely be made with the aim of raising more tax – the driver for change more practical than ideological.  We will of course keep an eye on this proposal and inform you of any effect this would have on the WAY range and your clients’ investments.

WAY has taken great care to ensure that our IHT mitigation plans are, and will remain, effective.  We liaise with HMRC on all new plans, concepts and subsequent changes in relevant legislation to make certain that our plans are still innovative and, above all, useful in the current financial environment.

Mark Benson, TEP CertPFS,
Technical Manager, WAY Investment Services Limited
28th March 2011
www.waygroup.co.uk

Posted on 28th March, 2011 | Tags: Basic Rules, Budget 2011, Charity Donations, Financial Planning, IHT, IHT Mitigation, Legislation |
Comments: Have Your Say

Plan for the worst!

Hope for the best but plan for the worst! Most folk like just enough uncertainty to keep life interesting but not so much as to make them over-anxious. Unfortunately, the current environment puts many people in the second camp.

We are currently facing a ‘flu pandemic and whilst most of us logically know that the chances of it affecting us very badly are relatively slim, we still hate the suspense of waiting our turn at the snuffles. This feeling is exacerbated by the Press, especially when they splash all over the newspapers that yet another apparently healthy individual has (sadly) died from swine ‘flu.

In the wider world the economic and stockmarket uncertainty is also corrosive. Unemployment is rising fast and has a long way to go yet, public sector, corporate and private debt levels are testing and house repossessions and bankruptcies are likely to continue heading northwards. A prime example is the news emanating from Lloyds TSB, which is releasing all its bad employment news incrementally (hoping we won’t notice the big picture). Its recent announcement, which takes target group redundancies above the 8,000 mark, is unlikely to be its last.

And again, the Daily Mail recently reported that senior Tories are now privately admitting that the aspiration to raise the inheritance tax threshold to £1 million and scrap stamp duty for first-time buyers on homes worth up to £250,000 may be delayed because of the recession. One could say that Ken Clarke had already let that particular cat out of the bag in March but it was vehemently denied by the Cameron camp at the time. Personally, I am old enough to know that very few new governments fulfil their manifesto promises made whilst in opposition – and quite understandably so, since they construct their manifestos on grand assumptions which are often far from the subsequently discovered truth (once they actually see the books)!

This leaves investors very poorly served, especially those more elderly and wealthy individuals who should be tackling their Inheritance Tax (IHT) situation sooner rather than later. As one of my oldest and longest-standing friends likes to say: “Hope for the best but plan for the worst.” This is what I would recommend to all those taxpayers who are worrying about whether they should take action to avoid or reduce IHT.

Yes, you should take action. Take all the various steps you need to reduce your potential tax, including getting the 7 year clock ticking now and/or lending financial assets to specialist trusts at currently depressed values. If it subsequently transpires that the planning is not needed then any carefully considered planning can be effectively unwound. Using the right vehicles will incur little extra costs beyond the standard costs associated with establishing any other kind of investment strategy. This warning may sound alarmist but the uncertainty over IHT will be with us for at least another year – until the next General Election – and even then the news is likely to be negative for many years to come. And especially so at a time when there will have to be massive cuts in public services and across the board tax increases to re-balance the nation’s books.

The bigger uncertainty at the moment for most people is the state of the UK economy. Recent stockmarket rises would seem to imply that the recession is all but a thing of the past. And yet many serious pundits are warning of much worse to come. Logic does appear to suggest that the combination of sky-high debt levels across the public, corporate and personal sectors and the delayed effects of the economic slump have not fully worked through the system. With banks still re-building their balance sheets (and likely to continue to do so for some time), lending is not going to improve any time soon. Whilst many individuals and companies have been able to manage their deficits over the last year one can imagine that a continuation of the current credit and earnings drought will eventually take its toll.

My own view is that this cycle will, just as with every previous cycle, pass and we will see recovery. The uncertainty for everyone is when that is likely to happen. With the banks apparently terrified to lend to property buyers, entrepreneurs or even established companies; with southern and eastern Europe all on the verge of bankruptcy; with UK unemployment likely to sail through the 3 million mark leading to more distressed debt and property repossessions; with most stockmarket companies likely to slash dividend rates over the coming months and with the threat of a return of inflation just around the corner, the uncertainty will continue until at least the autumn and probably a great deal longer.

It seems appropriate to end by reminding you again of my friend’s apt catchphrase: “Hope for the best but plan for the worst!” And to reiterate what I’ve already said elsewhere, that this is what I would recommend to all those taxpayers who are worrying about whether they should take action to avoid or reduce IHT. In fact, I would only add one rider to all of the above: “- and do it now!”

Paul Wilcox,
Chairman & Technical Director, WAY Group.

Posted on 28th August, 2009 | Tags: Financial Planning |
Comments: Have Your Say