Private Capital Matters Winter 2009

Planning in uncertain times

There is no doubt that the economy, both at home and abroad, is presenting many challenges to individuals and businesses across the UK. It is of course the case that at such times planning becomes even more important and you may be feeling that now is an opportune time to review your personal affairs.

The last two or three years have seen major reforms in capital gains tax, with the abolition of taper relief, and inheritance tax, the reform of trusts and the ability for married couples and civil partners to now utilise their combined nil rate bands on the second death.

Many wills and trust structures will now be inappropriate under these new rules or it may be that your will is out of date for other reasons. The absence of a will can of course be very expensive and cause considerable inconvenience to your next of kin.

We advise private clients on a wide range of issues covering business interests, property and other family assets.

Please feel free to contact us for a 'without obligation' discussion on how we can help on any of the following issues.

Joe Swift
0845 165 5061
joe.swift@cobbetts.com

Terry Cooper
0845 404 2508
terry.cooper@cobbetts.com

The impact of inheritance tax
For many people, inheritance tax is the largest amount they will effectively pay to the Exchequer during their whole life. As things stand, there is a flat rate of inheritance tax of 40% charged on the excess over the current nil rate band.This was set at £312,000 from April 2008.

The estate for this purpose includes all the assets held at death, assets held in certain trusts and crucially the value of gifts made in the seven years prior to death.As former Labour Chancellor, Dennis Healey, once observed: "to save inheritance tax you just need to have a good adviser and know how long you are likely to live!"

If you want to save inheritance tax then advance planning is essential and this has to take into account the present and likely future value of your assets, your individual family circumstances and, most importantly, the future security of you and your spouse or civil partner.

Inheritance tax – the transferable nil rate band
Following the proposal in 2007 by George Osborne, the Shadow Chancellor, to increase the nil rate band to £1m if the Conservatives win the next election, the Government introduced the so-called transferable nil rate band.

It used to be the case that in order for a husband and wife or civil partners to utilise both nil rate bands, it was necessary on the first death for a legacy of at least that amount to be left to other members of the family or into a discretionary trust.

This is no longer necessary and if all assets are left to the survivor then on the second death two nil rate bands can be deducted for inheritance tax purposes.Does this mean that legacies to children and grandchildren or into discretionary trusts are no longer necessary?In some cases this will be the answer but in many cases it may still be preferable if at least some of the assets are left to other members of the family or into a trust from which the surviving spouse or civil partner can still benefit.

It may be, for example, that you have valuable assets which are expected to increase significantly in value over the coming years at a rate which will exceed likely increases in the nil rate band.On the other hand, you may wish to use trust structures to protect assets and preserve them for future generations.

No two cases are the same and the question to ask in every case is: "Under our current will arrangements where will our assets go and at what cost in taxation terms?"If you don't know the answer, or maybe you don't like the answer, then I am sure we can help. Couples who are not married or in a civil partnership cannot benefit from the transferable nil rate band and they should certainly still consider the use of nil rate band trusts in their wills and the possibility of lifetime gifts.