Inheritance Tax Planning: back on the agenda
Background
The inheritance tax planning could be set to make a comeback. There has been evidence over the last couple of years that people have been reluctant to take action because: -
- Asset values have reduced
- There was political uncertainty
- The Conservatives had promised to introduce a nil rate band of £1 million
Of course, had the nil rate band increased to £1 million, given the availability of a transferable nil rate band, this would have meant that a married couple could have left £2 million free of IHT on the second death and many people would have dropped out of the inheritance tax net altogether.
The election of a Coalition government in an era of austerity has provided more certainty on the short-term future of inheritance tax. In particular, it now seems very unlikely that we will see a nil rate band of £1 million in the foreseeable future and, indeed, paradoxically the nil rate band has been frozen at £325,000 until 5 April 2015.
Moreover, if asset values, particularly those linked to investments, return to their former “pre-credit crunch” levels, more people will become aware of how inheritance tax can reduce the value of invested wealth on death. Those who have been sitting on the fence over the last few years awaiting developments will now be much more disposed to act.
Inheritance tax planning can take place on death and/or during lifetime. One of the most effective forms is to make lifetime gifts. However, there are two potential drawbacks. Firstly how does the donor maintain control over the gift and secondly how can they gain access to the trust funds if needed? Potential planning will often fall into one of these three categories: -
- No access or control required
- Control required but not access
- Access and control required
If you have any questions about inheritance tax planning, please do get in touch on 020 8891 6375.
