Don’t leave Inheritance Tax to chance, warns accountant
Couples are still risking large tax bills on their estates by not planning their inheritance properly, according to Old Mill accountants and financial advisers.
Recent changes to Inheritance Tax (IHT) rules, announced in Alistair Darling’s Pre-Budget Statement, suggested a move to more straightforward tax planning. His guarantee of the full use of IHT nil rate bands for each partner means that, from October 9, 2007, a couple is able to pass on £600,000 of taxable assets tax-free.
But married couples and civil partners must not rely on these changes when planning to pass on their estate, warns Chartered Financial Planner Julia Banwell. “Quite a few of our clients think they can now leave everything to the surviving spouse and ‘save’ their nil rate band for their partner,” she says. “But with legislation and government policies likely to change many times over the next 5-50 years it would be imprudent to rely on these new proposals in the long term.”
Rather than taking any chances with IHT, couples should consult their financial advisers and solicitor jointly, to draft a practical will to protect their assets for the future. “Many advisers underestimate the importance that flexible and well drafted trusts can play in a family’s longer term strategic tax and financial planning,” says Julia. “The absence of such planning can be financially disastrous for all concerned.”
For example, using a Nil Rate Band Discretionary Trust can protect assets in the event of the survivor requiring long term nursing care. They can also ensure that one’s estate is passed onto blood relatives, should the surviving spouse remarry, as well as protect against future divorce settlements among the inheritors.
“The increasing complexity of modern living means that some of our clients are wanting to look at ways of preserving assets they have worked hard to build up,” explains Julia Banwell.
Aside of these issues, couples must also consider the impact of potential investment growth and future indexing of the nil rate band level on their possible tax liability. “It is likely that your investments will grow in value more quickly than the nil rate band, meaning an estate which currently slips under the nil rate level could be liable to IHT in future years – something which can be avoided by putting it into a Discretionary Trust.”
In all cases the surviving spouse would be a discretionary beneficiary of the Trust, so they would not be put at financial disadvantage, Discretionary Trusts still have a large part to play in providing your family with maximum flexibility, regardless of current government policies. It is far better to base your financial planning on certainty within current rules, rather than hoping they will stay the same.
Ends.
Notes to editors
For more information contact
Julia Banwell - Chartered Financial Planner
Tel: 01749 335048
E-mail: julia.banwell@oldmillgroup.co.uk
Alan Stone - Marketing Manager
Tel: 01749 335007
E-mail: alan.stone@oldmillgroup.co.uk
About Old Mill Accountants and Financial Advisers
Old Mill accountants and financial advisers employ 140 staff in three West Country offices. The rural services teams are headed by Partners Mike Butler (Yeovil) and Ian Sharpe (Shepton Mallet). Looking after nearly 1,000 farmers they are one of the leading specialist farm accountants, and are happy to help with any financial and tax-related enquiries from the media.