IHT-Solutions

How to best describe your services?

A perennial issue for private client solicitors and other professionals is how best to describe services that they provide which are aimed at that segment of the population which are entering into and are in retirement.

In particular, services such as Wills, lasting powers of attorney, trusts, inheritance tax advice, equity release advice and nursing home planning together with associated financial advice are all relevant to this group.

There is, however, no clear way of defining how to best describe this group other than by virtue of its age.

I thought that a simple poll on this blog may at least elicit some opinions and so on a purely non-scientifc basis, I present the poll below. Please vote and make any relevant comments, particularly if you have any other good suggstions for a suitable service title.

How many times can you use your IHT Nil Rate Band ?

The answer is simple. How many years will you live divided by 7.

Whilst, for many people,they may never need to utilise more than one nil-rate band (currently £325,000.00) to avoid IHT or £650,000.00 for a married couple or civil partners utilising the transferable nil rate band, there are, of course, a number of people whose assets will exceed the limits set by one IHT nil rate band.

The good news is that with appropriate IHT planning you can fully use your IHT nil rate-band at any time of your life by making an appropriate gift, often into trust, of the current nil-rate band. If you then live another 7 years, the slate is wiped clean and you can start again utilising the then current nil-rate band, as applicable.

As an example, if you take a married couple who are both currently 70 years old, their current acturial life expectancy will be 15.2 years (man) and 17.7 years (woman). On the assumption that this couple has significant assets at the age of 70 and lived their acturial lives, you will see that it is possible for them to gift tax-free three IHT nil-rate bands.

Even on the assumption that the IHT nil rate band remained fixed at £325,000.00, this would potentially save £780,000.00 of inheritance tax as follows:-

1. Gift at age of 70 - £325,000.00 x 2

2. Gift at age of 77 - £325,000.00 x 2

3. Gift of IHT threshold on death of survivor (over 84 years) - £325,000.00 x 2

As you will note, the total of the gifts made within the IHT thresholds equates to £1,950,000.00, The rate of tax is 40% and thus this creates the saving of £780,000.00 IHT, in this example.

Evidently, this post, sets out good reasons to carefully consider IHT planning from an early age,

If appropriate. I am aware of a number of innovative financial products whereby gifts can be made into trust and utilise the full IHT nil-rate band applicable whilst still allowing the donor to retain a substantive income and/or capital from the same.

Dealings with such products are, of course, properly regulated by the FSA and outside my ambit of regulation, I am, however, very happy to recommend specialist IFA's who deal with this type of product, on request.

A New Tax Year, a New IHT nil-rate band

Tomorrow, the 6th April 2009, is the start of the new tax year.

In line with long-standing announcements of the government, the IHT nil-rate band will increase from £312,000.00 to £325,000.00.

An increase of £13,000.00 in the band at an IHT rate of 40% means a potential IHT saving in the new tax year of £5,200.00 for an individual and £10,400.00 for a married couple or civil partnership where the survivor is able to claim both their own and the transferable nil-rate band.

On the 6th April 2010 the nil-rate band will increase to £350,000.00 per individual.

There is little in the economy to be cheerful about at the moment but at least the burden of inheritance tax is becoming less of an issue for many people.

Will they or won't they?

The promise of a £1,000,000.00 nil rate band for inheritance tax by George Osborne at the 2007 Conservative Party conference is widely seen as the moment that stopped Gordon Brown calling an early general election and converted a Labour lead in the opinion polls into a Conservative one.

To date, despite much scepticism, the Conservatives have emphasised that the proposed increase in the nil-rate band would remain a key policy if they win the next election.

It is, therefore, of some interest that today, Ken Clarke the new shadow business secretary has described the policy as an aspiration. In the light of the current economic crisis and the likely black hole in public finances that any new Conservative government will probably inherit, I think that there is a good deal of sense in what Clarke says, despite protestations by the party.

It is quite clear that the recession has pushed Inheritance tax down the political agenda as quite literally many more voters have less to fear from IHT especially due to the introduction of the new transferable IHT nil-rate band in October 2007. Conversely, lower property and asset prices have meant that the tax take from IHT over the last 18 months has been considerably reduced and the cost of increasing the threshold to £1,000,000.00 will be somewhat cheaper to the exchequer than it would have been a few years ago.

As a result, it is my hunch that any new Conservative government will aspire to reach a £1,000,000 IHT threeshold during the course of a 5 year parliament and will move in this direction by significant increases in the threshold, each year.

We will have to wait and see whether a Conservative government is elected by Spring 2010 and if so, the policy that is put into effect.

A really unusual IHT relief

My attention as recently been brought to an inheritance tax relief which presumably was used so rarely that the Revenue did not even produce a pre-prepared relief claim form.

In the light of the current state of the economy there is every likelihood that the relief may be used in far more case.

So what I am talking about? The relief claimed is in respect of potentially exempt transfers (PETs) made within the seven years prior to the date of death, where the value of the PET has fallen upon the date of death.

As an example, if a bachelor testator died in November 2008 with an estate valued at £512,000 in date of death assets and an additional gift of a property valued at £400,000.00 had been made in 2006 (a PET), there would be a tax liability based on the 2008/2009 IHT threshold of £312,000.00 totalling £240,000.00 (40% of £600,000.00).

If between the date of the PET in 2006 and the date of death, the property that was gifted had fallen in value by 20% (£80,000.00), it is possible to claim IHT relief on the loss incurred on the PET of £32,000.00 (40% of the loss) by simple application to the Revenue.

Evidently, this relief will not affect all PETs but if applicable, consideration should be given as to whether or not it may, in the current economy.