The matter of inheritance is top of the agenda for Chancellor George Osborne in the countdown to the general election and the subject was also a hot topic in his Spring budget statement.
The Chancellor announced that the UK economy grew 2.6% in 2014, faster than any other advanced economy but lower than the 3% that he predicted in December. He also reported record levels of employment and trade deficit figures that are “the best for 15 years”.
There was good news for personal tax payers with the announcement that ISAs will become more flexible, and that basic rate tax payers will not be taxed on the first £1,000 savings interest they earn. A move towards digital tax reporting to replace the paper tax return is also promised.
But the hoped-for announcement of an increase in the inheritance tax threshold nil rate band from its long standing level of £325,000 was not forthcoming. Instead, the Chancellor announced a review into the avoidance of inheritance tax through the use of “deeds of variation”.
Beneficiaries of a dead person’s estate can choose to direct part or all of their inheritance to another person through a deed of variation. They are often used within families to ‘miss a generation’ and so mitigate inheritance tax.
An example would be where an elderly parent dies, leaving everything to a comfortably off son or daughter. Knowing they will not need the money, the son or daughter decides to re-route all or part of the legacy directly to the next generation, through a deed of variation, so reducing the value of their estate and the amount of inheritance tax that will be due when they die.
Alison Hall, Partner at Hay & Kilner commented: “A review of inheritance law around deeds of variation is something of an old chestnut, but the announcement of this review does mean that anyone involved in administering an estate, where there is any intention to do a deed of variation, should probably move on that decision sooner rather than later. Under current legislation such a deed can be made at any time up to two years after death, but if the door were to be closed, it could result in fairly substantial reworking of sums for the next generation.”
News leaked in advance of the Budget suggested that the Chancellor was likely to announce plans to raise the threshold at which people pay inheritance tax on the family home up to £1 million, but this was not included in the Budget announcement, leaving an expectation that this will, instead, be used as a vote catcher and be included in the Conservative election manifesto.
Alison Hall comments further: “Yet again, the prospect of an increase in the inheritance tax nil rate band threshold has been deferred, despite being widely tipped.”
“Best advice for the time being, whilst the threshold remains at £325,000, is to review circumstances with advisers to see if there is anything that can be done through lifetime gifts or other means.”
For further information, please contact Alison Hall, Partner at Hay & Kilner
Call:0191 232 8345