Lifetime estate planning is about matching the available options with personal goals. Our legal partner, Ashtons, offers the following guide:-
Inheritance Tax Planning
The law has changed substantially in recent years with the introduction of the Transferable Nil Rate Band and Pre-owned Assets Tax. But the underlying advice remains the same – start planning early on, particularly if you are in a position to make use of some of the options for lifetime giving; and review your situation regularly to ensure that your planning keeps pace with any opportunities offered by changes to the law.
One of the questions we are often asked is whether someone who already has a Nil Rate Band (NRB) Discretionary Trust Will, should change it or keep it. Certainly, if you are a widow or widower who has remarried, retaining a NRB Discretionary Trust may well help to maximize the Nil Rate Bands which will be available.
Otherwise, although you originally put the NRB Discretionary Trust in for tax-saving reasons there may be other advantages to retaining the protection of a trust in your Will. A trust could help to protect your assets if your surviving spouse needs long-term residential or nursing care; to ensure that those you want to benefit do so (this is particularly relevant in the event of re-marriage or cohabitation); or to protect assets if a beneficiary is facing claims from a third party, e.g. on a divorce or bankruptcy.
A trust provides flexibility and gives a number of options at the time of death. This is useful as no one can be certain what changes will be made to legislation in the meantime. If not needed, a trust can easily be wound down after death. You should review your position and check whether a trust may be suitable for you, and if so, what type.
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is often forgotten when it comes to making gifts. At 18 per cent for basic rate taxpayers and 28 per cent for higher rate taxpayers and trusts, CGT is less onerous than it was a decade ago and less onerous than IHT. However, it should always be considered in conjunction with IHT.
Income tax may also be a factor, in terms of making best use of both spouses’ annual Income tax allowances.
Business Assets can attract generous reliefs for both CGT and IHT. These reliefs are Entrepreneur’s Relief and Business Property Relief/Agricultural Property Relief respectively. However, there some very specific criteria which need to be adhered to if you are to qualify for these.
The first step is to assess what level of income you will need to pay for care, and to what extent you will be dependent on your capital. There are various issues to consider including the way in which your assets are held and, if relevant, whether one spouse may need care while the other is still in the family home.
The Next Step
The key to effective planning is to consider all aspects of your circumstances and then to weigh up which of the estate and tax planning strategies will give the best outcome.
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