Over the last year there have probably been more uncertainties for us than we have experienced in a long time, and for some of us possibly ever. Plans have been made and then unmade and uncertainty has become a part of everyday life for many.
As well as all the uncertainties that come entwined with Covid -19, or Brexit, I have been also worrying about inheritance tax (IHT).
Yes, really. In my defence it is my job, but after working with clients for 21 years, over which time the legislation has only really been changed in small ways, comparatively speaking, I really thought that IHT was going to be overhauled in the March Budget.
Why would this cause me to worry? Partly because of the uncertainty this would create for clients who need to plan for their families and partly because the best laid plans made by many might have needed to be revisited on a grand scale.
So the Budget came and went on 5 March 2021. Nothing. Then "Tax Day" on 23 March was a first. Still nothing. Although there was a hint we might see something later this year.
I think it would be fair to say that some change will be coming at some point. A 2020 All-Party Parliamentary Group for Inheritance and Intergenerational Fairness reported that the IHT system should be modernised, and the current reliefs and exemptions removed. They proposed a flat rate of tax on lifetime gifts and on gifts, possibly 10% and rising to 20% on estates over £2m. The Society of Trust and Estate Practitioners (STEP) reported in early March that they had polled its members and the majority favoured a simplified IHT system which would reduce avoidance and increase fairness for families.
So what should you do now?
It is perhaps useful to draw an analogy with trying to plan for your next foreign holiday. I've been interested to see that people broadly fall into one of two camps here. There are those who will book a holiday even though uncertainty exists around the rules that will allow them to go because for them, it is important to have something to look forward to. If they have to rearrange then so be it. Then there are those who won't book something in case it is cancelled and the disappointment of that would outweigh any benefit they might have felt from having something in the diary.
So could IHT be said to be the same? Well no, not really.
If you do your IHT planning now and you have to change it as the rules shift then I think that is manageable for most of us. Contrast if you wait to do your IHT planning then there could be more than just disappointment to contend with if you don't get your planning in place in time, there could be a very big tax charge. And by "in time" that might be if you die but it also might be if you have missed out on some of the opportunities available to us today. I am thinking in particular about exemptions for business and agricultural assets, but also for those who have a joint estate over £1m.
We work with clients over many years to make sure their estate passes to the right people and tax is minimised where possible. It is a long-term plan and any uncertainty we are feeling now - whether due to changing tax legislation or just life in general - shouldn't stop us from starting a conversation to make sure you and your family are properly protected.
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