Don’t hold your breath for Inheritance Tax reforms
David Cameron wanted to squeeze reforms into the Autumn Statement to ensure that only the very wealthy would pay inheritance tax (IHT).
This was nothing new as it echoed promises from both George Osborne and even John Major 23 years ago. Even with this history, some are still hopeful of reforms if the Conservatives are voted back into power next year.
You need to start addressing the IHT issue now
Jonathan Gain, chief executive of Stellar Asset Management observes that with house prices rising and equity and bond markets having had a good three years, a growing number of people need to start addressing this issue.
He reminds us that “the nil-rate band – the point after which 40 per cent IHT kicks in – is £325,000 for singles and £650,000 for couples. It was set at that rate in 2010 and has not changed since.”
Don’t be put off by IHT
One of the main reasons people put off dealing with IHT is they think it’s going to be an expensive exercise with legal arrangements and loss of control of their assets to their families.
The reality is that it’s not such a drastic exercise to go through to protect your estate from punitive inheritance taxes.
Jonathan Gain says, “Alternatives to trusts do exist, perhaps the best of which are tax planning strategies incorporating Business Relief (or Business Property Relief, as it once was).
Enterprise Investment Scheme vehicles and Alternative Investment Market (AIM) shares all utilise business relief to offer IHT exemption after just two years, alongside investment strategies targeting “capital preservation”.
Lower risk “capital preservation” investment strategies and investing in an Aim IHT Isa are perhaps the best way of taking advantage of this. Not all Aim stocks are eligible for IHT relief so some specialist expertise is required in selecting stocks, and a portfolio approach gives you diversification, reducing risk.
Run to a cautious mandate and expertly managed, perhaps with insurance in place to mitigate any negative market movements, this can offer a very simple way of reducing your exposure to IHT.
You can invest £15,000 in a tax year, and from next year we now know it will be £15,240. You can also transfer existing ISAs. The usual capital gains tax and income tax benefits of the Isa regime kick in immediately; the IHT relief kicks in after two years.
Beyond AIM, you can invest up to £1m a year into an Enterprise Investment Scheme (there are no IHT benefits with VCTs).”
You can always give it away!
The first £3,000 given each year is tax-exempt. Additional gifts of £250 to any one person and any number of people are exempt. Charitable donations are also exempt.
Other gifts are allowed but require you to live another seven years to be fully effective.
Our message is, failing to plan is planning to fail and there are more options than just giving away money when it comes to an inheritance tax liability.
This means that you can take control rather than waiting for what may or may not happen with whichever Government is in power.
If you would like to discuss how you can plan for future events please call us on 01825 76 33 66 or send us an email.