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www.simplybizgroup.co.uk
Insider on Retirement • Winter 2016
It was back in 2007 that the then Shadow
Chancellor, one George Osborne, announced
that if a Conservative Government came
to power it would raise the inheritance tax
threshold to £1m.
When £1m is not £1m
Pushed on whether this was £1m per individual or £1m per
couple, shadow cabinet ministers were a trifle vague, but it was a
neat headline that captured public imagination and spooked the
new Prime Minister, Gordon Brown, into abandoning thoughts
of an early election.
On to 2010 and George could drop his Shadow prefix but in
the course of his first stint in power the magic £1m fails to arrive
on the statute books during the full term of Parliament.
Disappointing, but there was an understandable defence.
Coalitions mean compromise and the Liberal Democrats took an
entirely different view on what should constitute an estate tax
so this ambition was foiled.
So, fast forward to July 2015 and the first true Conservative
budget for 18 years. George announces measures that add up
to a £1m nil rate band for a couple and the following days news
headlines gave him the plaudits accordingly. Now it would be
churlish to ‘cock a snook’ at any tax allowance provided to us
but a cursory glance at the underlying details show that the
headlines were illusory and need proper attention by anybody
whose estate exceeds or might be expected to exceed the
existing nil rate band of £325,000 (or £650,000 for couples with
qualifying transferable allowance).
by John Humphreys What’s new?
Head of Sales & Regional Manager
(North & Scotland)
WAY Investment Services
Let’s first give a précis of the new main residence nil rate band
(RNRB):
This measure introduced an additional nil-rate band when a
residence is passed on death to a direct descendant. This will be:
It will then increase in line with Consumer Prices Index
(CPI) from 2021 to 2022 onwards. Any unused nil-rate band will
be able to be transferred to a surviving spouse or civil partner.
The additional nil-rate band will also be available when
a person downsizes or ceases to own a home on or after 8th
July 2015 and assets of an equivalent value, up to the value
of the additional nil-rate band, are passed on death to direct
descendants.
There will be a tapered withdrawal of the additional nil-rate
band for estates with a net value of more than £2m. This will be
at a withdrawal rate of £1 for every £2 over this threshold.
The existing nil-rate band will remain at £325,000 from 2018
to 2019 until the end of 2020 to 2021.
This cute, ensuing
headline, may lead to
complacency as intuitively people
will consider their estate shy of an
inheritance tax liability, but later
find the underlying complexities
of the new legislation will mask
their true position
Consequential considerations
I don’t know why George Osborne didn’t simply adjust the
basic nil rate band threshold, as suggested by Andrew Tyrie
(Chairman of the Treasury Select Committee) in his open letter
to George Osborne castigating the proposed RNRB rules for their
‘complexity’, but in this particular area of financial planning he
has made it more important than ever to take professional advice.
Following the Brexit vote, with a new Prime Minister and
Chancellor, we were interested to see how all of those factors might
influence policy going forward, particularly regarding IHT and the
RNRB. The new Chancellor, Philip Hammond, delivered his Autumn
Statement last November, in which there was no mention of any
proposed amendment to the castigated RNRB rules, hence (at this
juncture) one can only assume that they will be implemented as
proposed on 6th April 2017.
The headline grabbing aspect of the above, of course, is that by
adding together the existing nil rate bands to the new RNRB,
couples will have an aggregated £1m allowance threshold by
2020/21.
This cute, ensuing headline, may lead to complacency as
intuitively people will consider their estate shy of an inheritance
tax liability, but later find the underlying complexities of the
new legislation will mask their true position. Let’s just touch on
a couple of aspects to illustrate.
Many people will have prudently taken steps to protect their
estate in the past by writing their house into a discretionary
will trust. To qualify for RNRB, however, the home has to pass
directly down the family line (either absolutely or as an
immediate post-death interest) or the allowance is not granted.
It is important therefore that wills in particular are re-visited to
make sure that they still have maximum relevance.
Thinking ahead is also very important. Inheritance tax
planning is too often based on current rather than projected
liability. With the new tapering away aspect to RNRB, plans
should consider life expectancy and property growth factoring
to consider the liability that may have to be met.
1 £100,000 in 2017 to 2018
1 £125,000 in 2018 to 2019
1 £150,000 in 2019 to 2020
1 £175,000 in 2020 to 2021
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Professional IHT
mitigation for
managed portfolios
of collectives
The new WAY ‘Managed Portfolio’ Flexible Inheritor Plan
is actually no more or less than a tax-protected professional
portfolio management service with the added benefit of
complete IHT relief after 7 years.
Of course, the plan does involve such a portfolio being held by
trustees on behalf of the taxpayer and his/her family but the
flexibility, access and tax benefits are broadly similar to those
normally associated with any similar freestanding portfolio.
Even the costs are similar and taxpayers have 24/7 online
internet access to their portfolio valuations.
This new opportunity is brought to taxpayers by a firm which
over the last 12 years has overseen gifts into our flexible trusts
of over £150m, of which £74m has already fallen out of the IHT
tax net, leading to a potential IHT saving of some £29m for your
clients. We can now repeat this with the added benefit of your
clients being able to establish their own bespoke portfolios.
Contact us: 01202 890895 or
[email protected]