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Wednesday, May 27, 2020
Tax planning during lockdown might seem like a strange concept, but if you are fortunate enough to be in the position of having surplus income or capital, now might actually be a key time to consider your position.
Why?
The answer to this is surprisingly simple. After spending billions of pounds on the furlough scheme and other measures to support our economy and NHS at this critical time, it seems inevitable that there are going to be tax changes ahead. With major changes to the Inheritance Tax regime having already been discussed pre-lockdown, this is something that the Government may choose to expedite.
Common sense suggests that for those with a potential inheritance tax liability (broadly, anyone with assets over £325,000), taking advantage of various allowances under the current system now reduces the risk of an unwanted future tax bill should the rules become less generous.
What can I do?
Our earlier article found here explains some of the rules around gifting. Changes to the law suggested recently have included a lifetime gifting allowance and/or far more restrictive rules concerning gifts out of income. Taking advice with a view to making large gifts sooner rather than later may not be a bad idea. It also means that wealth can be passed at a time when younger generations on reduced income worried about the financial impact of yet another recession, may be most grateful for it.
For those that have been widowed in the last 18 months or so, there is another point worth noting. Where their spouse’s residence has passed to them, the Residence Nil Rate Band (RNRB) will not have been used. Although this is currently available for transfer to be used on the death of the surviving spouse, the RNRB is somewhat controversial and could well be scrapped to try and increase Inheritance Tax income for the Government.
Entering into a Deed of Variation to divert the deceased’s share in their property to qualifying beneficiaries such as children, would allow an application to be made to claim the RNRB immediately. These steps must be taken within 2 years of death. If completed this would mean that if the allowance is abolished before the surviving spouse dies, and a tax saving of up to £70,000 will have been made.
Questions?
If you have queries about lifetime tax planning please contact Felicity Nelson on 0191 255 0242 or felicitynelson@samuelphillips.co.uk for a no-obligation discussion. At Samuel Phillips Law we know that legal assistance is just one piece of the jigsaw and we work together with various specialist advisors to ensure that we find the best overall solution for you.
Written by Felicity Nelson, Senior Associate and Head of Wills, Probate & Trusts
