Spring clean your finances - now is the time to consider succession planning and making tax effective gifts
Clearly with the astronomical costs to our economy from the global pandemic, the Chancellor will be looking to raise more tax revenue. The forthcoming increase in National Insurance and dividend tax, becoming a Health & Social Care Levy, is an indicator of this. But how else might the tax be raised? Commentators are clear that Inheritance Tax (IHT) and Capital Gains Tax (CGT) are likely to be targeted, so now is the time to consider succession planning and making tax effective gifts.
At present, a married couple has up to £1m in IHT exemptions when they have both died. IHT exemptions have never been so generous for home-owning married couples with children. In addition, there is the free ‘uplift’ for CGT purposes on death for assets, so on inheritance the recipient’s base cost is the probate value and not the original value of the asset. If there is no IHT to pay this could be considered a double benefit. Specific IHT exemptions are also available for agricultural property and business property. The IHT nil rate band and residential nil rate band, along with the CGT annual exemption have all been frozen until 2026. In itself this will result in an increase in tax revenue as the exemptions will not increase in line with house price rises for example. But the rates of tax themselves have not been frozen, so it is possible that they will be increased over the coming years.
We do not know what our Chancellor has in mind, but we would encourage clients to review their IHT and succession planning. Now is the time to take advantage of the generous IHT exemptions that are currently in place. For example, there is a little used IHT exemption ‘regular gifts out of excess income’. For an individual with significant pension income, or regular bonuses, they could make gifts of these to their families without the usual ‘7 year rule’ applying. Excellent record keeping is key for this exemption to be successfully claimed by your Executors.
We would be happy to meet with you to discuss your IHT exposure and discuss tax planning and to ensure that your Wills and powers of attorney are all up to date, so you are in as best a position as possible in these uncertain times.
For more information, contact Christine Butterfield on 01305 216205