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The Office of Tax Simplification (OTS) has published a number of recommendations for how inheritance tax (IHT) could be amended and simplified. While these amendments do not go so far as to shake the foundations of the tax itself, nevertheless the proposals would require all practitioners to come to terms with the amendment of a number of rules that have stood firm for decades.Some of the key proposals include:1. Reducing the current IHT period during which lifetime gifts are brought into account on death from 7 years down to 5 years and, at the same time, abolishing tapering relief on chargeable lifetime gifts.2. Replacing/reforming some existing lifetime IHT exemptions (such as the annual exemption, the exemption for gifts in consideration of marriage, and the exemption on normal expenditure out of income), with an overall personal gifts allowance.3. Removing the CGT uplift on assets that pass free from IHT due to an exemption. In effect that would mean that the recipient would receive the asset at the deceased’s base cost, akin to hold over relief.4. Making it so that death benefit payments from life insurance policies pass free from IHT without the need for the policies to be written into trust.It will remain to be seen whether any of these proposals are considered any further by the Law Commission or the Government. The Labour Party has already published a policy document suggesting further, more radical amendments to the UK tax code in general and so one suspects that the above proposals will only survive so long as the Conservative Party remains in power.

This research should serve as a good reminder to everyone that it is important that your family and professional advisors know what funds you have in what accounts. Should the unthinkable happen tomorrow, would your executors know what monies they must account for, and possibly pay tax on?Lack of certainty can have a number of impacts. For one thing, executors are under a duty to account to HMRC for tax due to the date of death and during the administration period. However, should further funds come to light at a later date this will drag out the administration process. In addition, small sums held in bank accounts can be applied towards the estate’s inheritance tax; banks will often release small sums without requiring a grant of probate which, in a catch-22 scenario, the Probate Registry will not release until inheritance tax has been paid.These undiscovered sums are also monies that should be passed to the relevant beneficiaries under the deceased’s Will, or according to the intestacy rules if the deceased died without a Will. If those funds are substantial, they may represent a valuable benefit to that recipient rather than languishing in an account.Clients should make the lives of their executors and professional advisors as straightforward as possible and provide them with a schedule of their assets, including details such as the names of third party account holders and any relevant account numbers. As and when these details change it can be very useful to provide an updated schedule, for example at an annual estate planning meeting.

Johnson’s announcement of his proposed tax cut is certainly grabbing the headlines but it is worth pausing to reflect on the ways it might impact professional advisors and their clients.Journalists quick out of the gates this morning have estimated that raising the threshold at which 40% income tax is paid from £50,000 to £80,000 will save an individual earning £80,000 per year around £3,000. Indeed, for pensioners the cut could be even more beneficial, with estimated savings of up to £6,000 due to the fact that pensioners will not be liable for the increase in National Insurance which is feted to accompany the cut to help pay for it.With more take-home pay in their pockets, tax payers may feel less inclined to take advantage of tax mitigation opportunities such as Gift Aid or maximising their pension contributions.One can be confident that Mr Johnson and his team have rigorously focus-grouped the proposed plan, but it is worth noting that the tax cut is not being achieved by lowering the income tax rates, which Mr Johnson’s rival for the Conservative leadership Dominc Raab suggested only last month, but instead raising the threshold at which higher rate income tax is paid.

Harry, Meghan and their child will find themselves in a position familiar to any US taxpayers living outside the US. The potential liability to both US and UK tax is one which can become complicated quickly, however there are solutions that can help clients avoid taxation in both jurisdictions (even if it still leaves them with a headache!).The UK and the USA have entered into a number of double tax treaties, under which the two jurisdictions agree which authority has the primary taxing rights in various circumstances. It is worth remember though that the US and UK tax years do not cover the same period (US tax years ending 31 December and UK tax years ending 5 April) and so clients need to ensure that any planning is carried out at the appropriate point to ensure that the requisite criteria are achieved.A further headache is over who each jurisdiction considers the ‘taxpayer’. In certain circumstances this might not be the same person or entity and, consequently, one jurisdiction might not offer a credit for tax paid in the other jurisdiction. It might also be that one jurisdiction offers a relief or exemption which is not matched in the other jurisdiction, thus leaving the taxpayer with an unexpected liability. For example, UK taxpayers can usually claim 100% relief from capital gains tax on the sale of their main residence. However, the corresponding US allowance is only on the first $250,000 of gain. it may be therefore that a UK resident, US citizen will find themselves with a US tax charge on the sale of a UK property which is standing at a significant gain, even though the UK itself doesn’t charge.It is possible for a US citizen to ‘expatriate’ (i.e. give up their citizenship) and thus extricate themselves from the US tax regime. However, in order to expatriate without being liable for a punitive exit tax charge or suffering under the yoke of being a ‘covered expatriate’ (which comes with significant tax disadvantages), clients must ensure they do not meet any one of several criteria.Fortunately, for children born to UK/US parents there are several avenues which may allow the child to give up their US citizenship without reference to most of these criteria.The new royal baby will be born into a complicated, unusual and, at times, baffling system. And that’s just the Royal Family.

The Times has reported that one in five people aged 65 and over has a total household wealth of more than £1,000,000. On reflection perhaps this doesn’t seem that surprising given the rise in the value of pension funds and residential property over the last few decades.Perhaps the clearest consequence of rising wealth amongst pensioners is that more and more have estates in excess of the available reliefs from inheritance tax on death. For married pensioners who leave their wealth to their spouse on death, the surviving spouse can leave up to £650,000 on their subsequent death free from inheritance tax (by using their and their spouse’s respective nil rate bands). If their wealth is under £2,000,000 each on death then they may also take advantage of the residence nil rate band, which provides an additional slice of inheritance tax relief if they leave all or part of a residential property to their children or further descendants. Taking all of this into account, it is possible for parents to leave up to £1,000,000 between them to their children and further descendants tax free.One way in which the Government could have sought to address the issue of increasing inheritance tax exposure for the middle classes would have been to raise the nil rate band allowance from the current threshold of £325,000, which has stayed level since 2009. In previous years the threshold rose each financial year, similar to the income tax and capital gains tax personal allowances. The residence nil rate band is a much narrower exemption which only applies in certain circumstances and so cannot be considered a like-for-like substitute.For those concerned about their future tax bill and/or those looking to pass wealth down to younger generations there are a number of tax-efficient methods for doing so. The UK rules on lifetime giving permit individuals to make unlimited tax-free gifts, provided the donor survives those gifts by seven years. On top of this individuals can make up to £3,000 of gifts each financial year free from inheritance tax (whether or not they survive seven years), as well as taking advantage of other specific exemptions, such as gifts to newly-weds for their wedding. Gifts that are made out of an individual’s surplus income each year can also be made tax free, although care should be taken over the definitions of both ‘surplus’ and ‘income’.Finally, rising wealth should be a reminder that preparing a Will should be seen as a high priority for all individuals. As a minimum Wills provide individuals with the peace of mind that their affairs will be properly administered after their death in accordance with their wishes. However, for those facing a potential tax bill on death, a Will is the key to unlocking the potential tax savings by directing wealth to those recipients which attract the highest savings.

“Lucky that I love a foreign land for, the lucky fact of your existence”.  Unfortunately despite the very catchy lyrics of Shakira’s 2001 hit, the Spanish Revenue are arguing that she did not in fact love a foreign land enough, and she was in fact resident in Barcelona rather than in the Bahamas, as claimed.”I ain’t guilty it’s a musical transaction”.  Being resident in Spain has similar consequences to being resident in the UK in that (unless you are able to benefit from the remittance basis of taxation) you are subject to tax on your worldwide income, hence why the Spanish Revenue are claiming Shakira owes them £13 million in taxes.Rather than being a “Beautiful Liar” (I promise no more Shakira lyrics) it may be the case that Shakira misunderstood the residency rules in Spain, or miscounted her days.  The UK laws on residency are fairly clear cut, but unless you are automatically resident ensuring residency (or not) relies on counting days in the country, and for international pop stars who travel a lot for work, it can be difficult to keep track of how many days have been spent where.As the article mentions, this is only one of a number of high profile tax cases in Spain in recent times, which should hopefully serve as a lesson to all of us (not just footballers and popstars) to constantly review our arrangements to ensure compliance with relevant laws.

Although the increase in probate fees to £6,000 for those estates worth more than £2,000,000 will understandably grab the headlines, the underlying policy contains more detail which should not be ignored.Firstly it is worth remembering that this highest band is a significant reduction on the £20,000 band proposed in 2017. Secondly the government has confirmed that the threshold under which no fees are paid at all is being raised from £5,000 to £50,000. Although the government projects that about 80% of applicants will pay £750 or less, this is still a significant increase on the previous fee of £215 (or £155 for those applying through a solicitor).However, many of the issues which were raised last year still remain. The greatest concern for a number of executors will be how to gain access to sufficient assets to pay the fee without a grant of probate. For those wealthy estates which pass entirely under the spouse exemption, liquidity has historically been less of an issue because no inheritance tax is due. Once the new rules are introduced however this will add an additional layer of complexity for executors to wrangle with.

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.