Budget 2015 – Inheritance Tax Anticipation
19th March 2015
There was plenty of anticipation of changes to the inheritance tax regime before yesterday’s Budget, in particular a possible increase in the lifetime allowance from the £325,000 where it has been stuck for the last 6 years, given the potential popularity for such a change amongst voters.
In the event the limit has remained unscathed, and the only mention of IHT was to announce a review of the use of Deeds of Variation which can be used to reduce the amount of tax payable on an estate – these are a method by which the terms of a deceased’s Will can be altered retrospectively with the agreement of beneficiaries, and are often used to divert assets in such a way as to improve the tax position. For instance a grandparent may have left her assets to her children in her Will, but the children would rather those assets had been left to their own children (i.e. the deceased’s grandchildren), because they have sufficient wealth and the addition to their own property would only create an IHT problem for their own estates. In such a case a Deed of Variation can be entered into whereby the assets in question are passed to the grandchildren thus bypassing the deceased’s children, and potentially saving them from an IHT bill.
The potential removal of this opportunity would appear to be a negative measure for taxpayers, as it removes a bit of flexibility in dealing with an estate. There has been a tendency for people to put off inheritance tax planning on the basis that it could be “sorted out” retrospectively after the death of the person in question. However it has not always been possible to put this into effect as it requires everybody’s agreement, and this attitude has been no substitute for proper review of one’s estate and making sure that the Will reflects your wishes in a tax effective manner – only in this way can anybody be sure that IHT will be minimised.
Written by Peter Hedgethorne, Director