Clients are asking about the Budget changes to inheritance tax on business and farms. Businesses and farms can qualify for 0% tax on death, allowing the asset to pass to the next generation intact, without selling, breaking up he business, or borrowing to pay tax. The restriction of this relief to the first £1m, and the taxation of the rest at 20%, is a big change. They want to know how to protect their family and their business and pass their wealth on.
If you could make one change to tax, what would it be?
The allowance for making gifts without paying inheritance tax has been set at £3,000 since 1986. Nearly 40 years later, that might now be worth over £8,000. The nil rate band threshold for inheritance has been set at £325,000 since 2009, which might now be worth £500,000. More clients are taken into the tax net by fiscal drag.
What do you know now that you wish you’d known at the start of your career?
Families increasingly dispute wills and family trusts. This finally justifies my career long obsession with a good note of meeting recording the client’s clear instructions on what they wanted, and why.
Are there any new rules that are causing a particular problem?
The changes to inheritance tax for non-UK domiciled clients means a change in thinking from where the client’s home is to where the client lives long term. This will make it even more important to understand where a client has lived and when.
Also, pensions are to be brought into the IHT net in 2027. This is a big change as this asset has for many years been held on to and passed to the next generation IHT-free. The spouse exemption defers the IHT, but it is paid later by the spouse when they die. Clients will have to balance drawing down on the pension and the immediate income tax on withdrawals, with later IHT on funds not drawn. Making use of the IHT exemption for surplus gifts out of surplus (pension) income is likely to be very helpful; these gifts have no seven year survival period and no financial limit for IHT.
Has there been a recent change in HMRC practice which has impacted your work?
For years, the advice has been to keep your business and die with it, leaving it tax-free to the next generation, and to keep your pension for the same reason. The Budget has turned that planning on its head. Clients may be more inclined to give those assets away in their lifetime.
What are clients asking about?
They are as driven by protecting assets as they are by tax. Clients don’t want to pass assets on, only to face the risk that the next generation do the wrong thing or a third party such as a spouse claims on them. Trusts can provide the asset protection, control and flexibility the family need.
And finally, you might not know this about me but...
I used to be nervous about public speaking. I asked an actress about it – she helped to teach me how to overcome it and I haven’t been bothered by it since.
Clients are asking about the Budget changes to inheritance tax on business and farms. Businesses and farms can qualify for 0% tax on death, allowing the asset to pass to the next generation intact, without selling, breaking up he business, or borrowing to pay tax. The restriction of this relief to the first £1m, and the taxation of the rest at 20%, is a big change. They want to know how to protect their family and their business and pass their wealth on.
If you could make one change to tax, what would it be?
The allowance for making gifts without paying inheritance tax has been set at £3,000 since 1986. Nearly 40 years later, that might now be worth over £8,000. The nil rate band threshold for inheritance has been set at £325,000 since 2009, which might now be worth £500,000. More clients are taken into the tax net by fiscal drag.
What do you know now that you wish you’d known at the start of your career?
Families increasingly dispute wills and family trusts. This finally justifies my career long obsession with a good note of meeting recording the client’s clear instructions on what they wanted, and why.
Are there any new rules that are causing a particular problem?
The changes to inheritance tax for non-UK domiciled clients means a change in thinking from where the client’s home is to where the client lives long term. This will make it even more important to understand where a client has lived and when.
Also, pensions are to be brought into the IHT net in 2027. This is a big change as this asset has for many years been held on to and passed to the next generation IHT-free. The spouse exemption defers the IHT, but it is paid later by the spouse when they die. Clients will have to balance drawing down on the pension and the immediate income tax on withdrawals, with later IHT on funds not drawn. Making use of the IHT exemption for surplus gifts out of surplus (pension) income is likely to be very helpful; these gifts have no seven year survival period and no financial limit for IHT.
Has there been a recent change in HMRC practice which has impacted your work?
For years, the advice has been to keep your business and die with it, leaving it tax-free to the next generation, and to keep your pension for the same reason. The Budget has turned that planning on its head. Clients may be more inclined to give those assets away in their lifetime.
What are clients asking about?
They are as driven by protecting assets as they are by tax. Clients don’t want to pass assets on, only to face the risk that the next generation do the wrong thing or a third party such as a spouse claims on them. Trusts can provide the asset protection, control and flexibility the family need.
And finally, you might not know this about me but...
I used to be nervous about public speaking. I asked an actress about it – she helped to teach me how to overcome it and I haven’t been bothered by it since.
