Partner Article

IHT – have the wheels finally come off?

Recent figures from the Daily Telegraph revealed that nearly quarter of a million families are expected to pay Inheritance Tax over the next five years - mostly due to the rise in house prices, which will force many thousands of people over the IHT threshold which has been frozen until 2019.

There’s a growing divide between the Government’s view of IHT and that of the public. The Government appears to be keen to collect more by introducing a raft of changes designed to close perceived holes in the system, whereas there’s concern by individuals that an increasing number of ‘ordinary’ people are being caught – more often because of fiscal drag (ie the freezing of the nil rate band) and other changes.

We’re starting to see more ‘next generation’ individuals aged 40 to 60, asking for advice on IHT with regard to their ageing parents estates. Although there’s little that can be done with a main home, there’s opportunity to plan for other assets. This usually comes down to three routes:

1. spending wealth so there’s minimal value at death,

2. giving all assets away to others (typically the next generation), or

3. the often preferred route of giving assets away but continuing to have control.

The first route often isn’t an option given that most parents want to provide financial support to children and grandchildren. The second route is an option, but will mostly depend on the recipient’s age and what risks there are in losing money from business failures or marriage breakdown.

In the past, Trusts have been an effective way to control the gifting with asset protection. However recent changes announced by the Government now mean that they’re a less attractive option and add to the list of disincentives introduced since 2006.

Other routes such as limited companies, are being used to replicate some of the control/tax benefits of Trusts to hold personal investments, but it’s disappointing that the Government takes a negative view of Trusts and is subsequently encouraging outright gifts to those most at risk of losing wealth.

The OTS and the Mirrlees report have both recommended a full review into IHT but as yet, we haven’t seen any reaction to this by the Government or HMRC. Perhaps it’s time they looked at this proposal again rather than continue to tinker with the system?

Gary Heynes is the National Head of Private Client at Baker Tilly.

This was posted in Bdaily's Members' News section by Baker Tilly .