Are you relying on political aspirations for your estate planning?

Ken Clarke, the shadow business secretary, recently described the Conservative party proposal to raise the inheritance tax nil rate band to £1 million per person as “an aspiration” rather than a “priority” (read the transcript here). David Cameron swiftly countered with affirmation that “a promise is a promise”.

Whether the conservatives do gain power and raise the exempt level to £2 million for couples is speculation. However, many people are basing their estate planning on the hope that this will not only happen, but the new levels will survive future changes in government. Basing a long-term estate planning strategy on this course of events occurring is not without risk.

Mitigating IHT has always been a case of starting the planning process early and taking advantage of straightforward planning opportunities. The existence of the ‘potentially exempt transfer’ (PET) exemption, which allows gifts of unlimited amounts to escape IHT completely if the donor survives for seven years, is a particularly useful yet often underutilised opportunity.

Many people are loathed to make outright gifts of assets or capital for various reasons – concern about their own future financial security or fears that the beneficiaries will squander their newly received wealth. There are few planning solutions which are effective for IHT whilst ensuring the beneficiaries don’t receive any monies immediately and allowing potential access for the donor. The Flexible Reversionary Trust is the most useful mechanism to achieve these objectives. You can read a comparison of this planning with other alternatives in this Taxation Magazine article ‘A flexible friend'.

The Labour government introduced contentious new legislation in 2006 to curb transfers into trust. All transfers into trust were bought in line with the discretionary trust ‘relevant property regime’. Any transfer into trust in excess of the nil rate band (£312,000 for 2008/09) is subject to a 20% tax charge on any excess. However, this means that it is more important to start planning early, as each person can re-use their nil rate band every seven years. Using the Flexible Reversionary Trust you don’t have to relinquish access to the capital transferred and your beneficiaries do not have a right to receive the monies. Why gamble that the Tories will gain power, increase the nil rate band and future governments retain the raised levels when you can achieve the same result now with simple and uncontroversial planning?

Email Christian Ward Subscribe by RSS or Subscribe by Email