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Ask the expert…

0 Comments | Lincolnshire Echo, Jul 28, 2010

Inheritance Tax after the Emergency Budget David Wood, solicitor, Langleys The effect of the Government’s announced freezing of the Nil Rate Band for Inheritance Tax at Pounds 325,000 for at least five years until 2015 should not be underestimated.

‘Since October 9, 2007, married couples and registered civil partners have enjoyed a transferable Nil Rate Band, effectively giving a married couple a combined Nil Rate Band of Pounds 650,000.

A couple who presently have assets including the house, investments and savings (but excluding business assets) of Pounds 650,000 would not presently pay any Inheritance Tax on their deaths. Assuming however the value of their assets grows by just seven per cent per year, they will be worth a combined Pounds 911,000 by July 2015. If our couple were to die in July 2015, the Inheritance Tax payable on their combined estates would be Pounds 104,400.

Couples in their seventies would do well to consider their Inheritance Tax affairs and to undertake any necessary planning sooner rather than later. This could make a very significant difference to the financial well being of their beneficiaries in due course.

The estates of farmers and business men and women will usually only bear a disproportionately small amount of Inheritance Tax because of the very valuable Business and Agricultural Property Reliefs. Given the present state of public finances it is perhaps surprising that these reliefs were not restricted or reduced in any way in last month’s emergency budget.

What is much more surprising, given that most of the population would prefer not to pay more tax then they absolutely have to, is that people often give little or no thought to preserving or maximising these fabulously valuable reliefs.

A little planning can make a huge difference.

Business owners who are selling a business should contemplate a gift of some of the business (which would benefit from Business Property Relief), perhaps into trust, before it is sold. Once the business has been sold, no Business Property Relief will apply to the sale proceeds and the opportunity to use the relief will have been lost.

For those business owners who own business assets when they die, the opportunity of recycling the Business Property Relief and therefore using it twice, where they are survived by a spouse should never be overlooked. Recycling the relief effectively increases the rate of Business or Agricultural Property Relief from 100 per cent to 200 per cent.

In reality, what this does is to give Business Property Relief on non-business assets such as the house or savings and investments
inheritance tax