Wealth planning, IHT planning, CGT planning

In last week’s newsletter we looked at family wealth and how it can be distributed amongst the members of the family to reduce tax charges. 

Following the Summer Budget, any IHT planning should be revisited, particularly in relation to the family home. If there are investments which are expected to be exempt from CGT on sale, you should check that the right claims have been made at the relevant times to preserve that exemption.     

IHT planning

The promise in the Summer Budget of a £1 million IHT exemption is not going to be a reality until 2020 at the earliest. An additional home-related nil rate band of £100,000 per person will be introduced from 6 April 2017. That will be increasedby £25,000 each year until it reaches £175,000 per person in April 2020.
As both the normal nil rate band (NRB) of £325,000 (frozen until 2021), and the home-related NRB of £175,000 are transferrable to the surviving spouse or civil partner, it will be possible to transfer a total NRB of £500,000 on the first death.This leaves the survivor with a double helping of £500,000 NRB – reaching the magic figure of £1m. The transfer of the home-NRB to the survivor applies evenwhen the first death occurs before 6 April 2017 (new IHT 1984, s 8G) when the home-NRB comes into effect.
However, the home-NRB can only be set against the value of the deceased’s home which is left their direct descendants i.e: children including step-children and adopted children, grandchildren or great-grandchildren. Where the donor wants to make provision for other relatives such as nephews, nieces, or perhaps siblings, their Will needs to be clear what assets or sums of money must pass to which individuals, in order to make maximum use of the home-NRB. This may require the couple’s Wills to be redrafted.
The home must also have been a residence of the donor, not an investment property. If the deceased had more than one home the executors will be able to choose which home is to be set against the home-NRB.
Where the home has been sold before death, but on or after 8 July 2015, the value realised from that sale will be available to set against the home-NRB.However, we can’t be sure how this ring-fence of proceeds will work in practice, as the legislation to implement this feature of the home-NRB will be included in Finance Bill 2016.    
We do know that the home-NRB won’t be available to estates valued at over £2.35m, and it will be tapered down by £1 for every £2 of the estate value over £2m.
If your clients believe they can leave IHT planning to the next generation, as it can all be sorted out with a deed of variation to their Will, you should point out that the use of deeds of variation for tax purposes are under review. 

This is an
extract from our tax tips newsletter dated 23 July 2015. The newsletter
itself contained links to related source material for this story and the
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