Mar 12, 2021
Rishi Sunak’s announcement in last week’s Budget that inheritance tax (IHT) is essentially to remain as it is will come as a relief to many.
It had been feared that both IHT and Capital Gains Tax (the tax paid on the increased value of something you sell) would be targeted as part of the Chancellor’s effort to recoup some of the country’s recent heavy expenditure. But the government announced that the IHT thresholds on the nil-rate band (a person’s ‘tax-free’ allowance; currently £325,000) and the residence nil-rate band which applies when passing on property to a child or grandchild, currently set at £175,000, will be frozen until 2026.
The individual Capital Gains Tax (CGT) allowance will also remain at its current level of £12,300 until 2026. Continuation of the current position will lead to some people sitting back and leaving their existing financial plans in place. While that may be fine in some cases, we wouldn’t encourage clients to take their foot off the financial planning pedal. It’s likely that significant changes will at some point be introduced to both the IHT and the CGT regimes, so it’s sensible to keep a close eye on developments. And, in any event, financial plans – including those around minimising tax liabilities – should never been treated as a static arrangement. Just as rules around disposing of assets change, so too do estates and family situations. Plans put in place today may not stand the test of time.
We recommend that clients review their financial planning at least every 3 to 5 years. Additionally, when significant events happen within a family, it is always wise to assess their effects on the arrangements you have in place. Is there a way of achieving greater tax efficiency? Should you think about gifting a sum of money to a child on their wedding, or a grandchild on their birth? (These types of gifts should not attract IHT, as long as you live for at least seven years after making the gift.) Similarly, putting money into a trust can be an effective way of reducing any subsequent IHT bill.
The intricacies of structuring an estate – including how to preserve its value and how to pass on as much of that value as possible to loved ones – will vary from situation to situation. And key to making the best arrangements is to treat future planning as something to always be on your radar. Changes in the law and, specifically, in tax rules will happen and could dramatically reduce the benefits that your loved ones stand to gain. What’s important is that you have the right support to help you move with the changes and adapt your plans as necessary.
To speak to us about any aspect of future planning, contact the Private Client team on 01264 353411 or email firstname.lastname@example.org and a member of the team will help guide you through the process.
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