Monthly Archives: October 2018

The inheritance tax nil rate band has been frozen at £325,000 since April 2009 and the Government appears to have no plans to increase this threshold in the near future. When the increase in house prices in London and the South East is compared over this time period it is small wonder that so many estates are now subject to inheritance tax.The Government did introduce the new residence nil rate band in April 2017, which provides parents with an additional slice of inheritance tax relief if they leave all or part of a residential property to their children or further descendants. This was designed so that parents could leave up to £1,000,000 between them to their children tax free.However, this additional slice begins to taper off once an individual’s net wealth exceeds £2,000,000, meaning that parents whose combined net worth exceeds £4,000,000 will lose the right to claim some or all of the relief. For many families in London and the South East the family home represents a significant proportion of this figure, which does not leave much room before the residence nil rate band is lost. The relief also only applies if assets are left directly on death, meaning that individuals with certain Wills (for example where assets are left on a discretionary trust and not appointed out within two years) will miss out on the residence nil rate band completely.It will be interesting to see how the figures for 2017/18 compare to the figures in this article in due course once the residence nil rate band is taken into account.

Citywire has commented on the Court of Appeal decision of HMRC v Parry & Ors where the appellant argued that a lifetime pension scheme transfer was not a transfer of value for Inheritance Tax purposes. HMRC won on the contention that it was.The Court of Appeal also agreed with HMRC’s assertion that the failure by the pension saver to take lifetime income benefits at a time when she was in ill health, specifically the late stages of a terminal illness, was a further ‘disposition’ under the Inheritance Tax Act and therefore a separate Inheritance Tax charge arose.Pensions are a very useful tool in the estate planning arsenal, however this case demonstrates the care that must be taken when reviewing existing provision and before any changes are made. Further, timely planning is key as ill-health may eliminate the possibility of a tax-efficient transfer into another scheme.

Whilst the focus on today’s news should of course be on congratulating the happy parents-to-be, it is also a good opportunity to consider the impact of mixed domicile marriages on estate planning.The question of Megan’s domicile remains an open one, depending on the extent to which one considers marrying into the Royal Family an intention to be closely connected to the United Kingdom. Whilst their children will be UK domiciled under UK law (because, generally speaking, domicile of origin reflects the domicile of the father), Megan could find herself with a different domicile to that of her children.For couple in a similar scenario, this can have a significant impact on estate planning opportunities, for example UK domiciled spouses only have a limited spouse exemption when passing assets to their non-UK domiciled spouse. It may also mean navigating the choppy waters of double taxation relief as more than one jurisdiction seeks to claim taxing rights over the same assets.One expects that the couple will not be lacking in professional advisors however. It is also worth remembering as well that Megan will become deemed UK domiciled for IHT (as well as all other UK taxes) after she has been resident for 15 out of the last 20 UK tax years. This will cause many of the UK estate planning complexities to fall away, albeit that it may bring with it a host of other matters to consider.

The fact that nearly seven million parents have given children an early inheritance shows that lifetime estate planning is not something which is restricted to the high-net worth and ultra-high net worth community.Assisting children to get onto the property ladder and supporting grandchildren through education and university are two of the most common reasons for passing wealth down through the generations.Independent financial and legal advice should be sought before carrying out any significant estate planning, however this research shows that it is a financial tool that is harnessed by millions and could surely be used by more than that.