‘Now is not the right time to outline long-term plans’.
Those were the words from the Treasury as it announced that this autumn’s Budget would not be going ahead. This didn’t come as a surprise; many people will have seen the scrapping of the Budget as the only option given the current state of mid-coronavirus flux.
But what does seem certain is that when the Budget eventually happens, we will face a tougher tax regime that seeks to pay towards the huge financial buffer put in place to protect jobs and the economy during the pandemic.
None of us can say for sure what those changes will be, or just how they will affect people, families and businesses. And with regime change likely, you may be unsure about how best to prepare for the future or whether to do so at all.
We’re urging our clients not to press pause on their financial planning. In fact, now is a great time to take stock; to get your affairs in order and revisit any existing arrangements. Build a detailed picture of your assets – your possessions, property, money, investments, shares – and start to think about passing these on to the right people in ways that will retain their value and give maximum benefit.
As Private Client solicitors, we help clients achieve that by advising on creating trusts and on making lifetime gifts, both of which can reduce beneficiaries’ liability for what is possibly the most unpopular tax of all – Inheritance Tax (IHT). Under current rules, up to £500,000 out of one person’s estate (‘estate’ being the things you own) can be passed on to beneficiaries without triggering IHT. That half-a-million figure is made up of £325,000 out of the estate, plus £175,000 representing the ‘main residence’ band (ie your main estate is being passed to a direct descendent). Once that £500,000 figure is reached, the value of anything above it is usually taxed at 40%. That percentage can be reduced a little if you leave some money to charity. And a whole estate passed on to a spouse or civil partner should not attract IHT at all.
While IHT only kicks in if the assets you are passing on are valued at more than £325,000 (or £500,000 if the main residence band applies), it remains a real concern for those people and families that have more to their name. The prospect of handing over to the Treasury almost half of the value of assets in excess of the £500,000 limit can be unappetising, to say the least.
Earlier this year, MPs called for the standard 40% rate to be cut to 10%. They also called for most reliefs, including the ‘seven-year rule’ (the rules that says that IHT will be charged on gifts worth more than £325,000 if you die within seven years of making them) to be scrapped. With the government eager to claw back money handed out during the coronavirus, it is difficult to see how reforms that would ostensibly lead to lower recoupment via tax would appeal to the Treasury at this time. But that of course depends on the merits of other new provisions.
Let’s see what comes of the rescheduled budget. And if we can offer one piece of advice in the meantime, it is: don’t leave your financial future, and that of your loved ones, to chance.
- Make a Will.
- Review an existing Will to check it’s up-to-date as well as still being relevant and viable.
- Consider ways of clearing and structuring debts (remember that while debts reduce the value of an estate – potentially taking it below the IHT threshold – they still need to be paid out of the estate before inheritance can be distributed to beneficiaries).
- Get good advice on maximising your tax-free allowance and on dealing with assets during your lifetime to tee-up a better financial outcome for your beneficiaries.
Whether you are a natural planner or not, there’s really no substitute for thinking ahead when it comes to passing on the assets you’ve worked hard to accumulate. Our team is here to help you do that.