Wealth Management Update – August 2019
Inheritance Tax simplification review
In February 2018 we were told there would be an IHT simplification review announced in the Autumn Budget. It didn’t materialise at that time but there seems to be progress. The review was split into two, the first report covered administration and was released in November 2018 and the report on the tax element was released in July 2019.
With so much going on in the world with Brexit etc. it is unlikely there will be any action on the proposals this year, but it is possible that there will be some mention in the Spring Statement of 2020.
Below is an overview of the main elements that we think are most relevant from the tax report of the review in July this year:
- Combination of all £3,000 annual gift and marriage gifts into one overall “personal gifts allowance”. It is suggested this should be increased with backdated inflation to approximately £12,000 per annum
- Review of the small annual gifting allowances
- Gifts from income to be set at a percentage of income or a set monetary amount and the required “regular” element removed
- Reduce seven-year period to five years
- Scrap the 14-year rule
- Abolish taper relief
Payment and Nil Rate Band (NRB)
- Clarify who is liable for IHT on lifetime gifts
- Clarify allocation of NRB to lifetime gifts
Capital Gains Tax
Make CGT payable after the death of asset holder – liability transferred to new owner
Death benefits from term policies should be free of IHT, even if not in trust
If you would like to read the finer details you can do so via the link below … happy reading!
We will keep you posted.
Unmarried couples … do’s and don’ts
Getting married isn’t necessarily high on everyone’s list of priorities, but just cohabiting can have a major impact on your tax and estate planning arrangements.
Contrary to popular belief it doesn’t matter how long you have been together or how long you intend to remain together, the benefits attributed to married couples are not available to those who cohabit or are in long- term relationships.
The first thing to mention is that if you aren’t married to your partner but your Will leaves them everything when you die, there will be tax on anything over the Nil Rate Band (NRB) allowance of £325,000 – there is no spousal exemption!
This means IHT will be payable on first death, and potentially also on second death on the same assets, and this will no doubt be at an increased amount because the estate of the second to die will also have its own assets as well as those from their deceased partner!
Add to that, the deceased partner will lose any Residential Nil Rate Band (RNRB) they may have had because they aren’t leaving their property to their descendants.
Therefore, by not being married, you will potentially pay significantly more tax than a married couple in the same situation.
One solution to this would be to get married! Simple yet effective, but understandably not for everyone. So, another solution would be trust arrangements. Trust arrangements are a most effective way to protect inheritances, prevent liability for IHT and make sure all allowances, e.g. RNRB, can be utilised.
Although no one likes to think about it, after the death of a partner those left behind can move on to new relationships and family scenarios; as well as saving tax, the protection element of a trust that ensures your assets reach your intended beneficiary, e.g. your children, is invaluable.
Any costs incurred by trust arrangements are heavily outweighed by the potential tax savings and other benefits they provide.
A quick win for you would be to make sure that your life cover is in trust, as this will mitigate tax on the first and second death as well as providing protection. In addition, always make sure that pensions have a nomination of beneficiary or trust arrangement attached to ensure they reach your intended beneficiaries.
If this situation applies to you or to a member of your family then the persons involved should, at a minimum, review their Wills to ensure they aren’t creating an unnecessary tax liability. Please get in touch to see how we can help.
Part 4 of 4 – ISAs: How to pick the perfect ISA
There used to be two types of ISA available, now there is an abundance of different options for all situations and it can be difficult to work out which one is best for you.
The premise of any ISA remains the same, in that it is a tax-efficient environment for your savings to grow, which will be free of tax when withdrawn.
Before you decide in which ISA to invest, make sure you have a clear objective for the funds, including how long they will be invested for and how much you will invest, either monthly or as a lump sum.
Choosing where to hold the ISA is also important, it should be reputable and offer all the functionality and access that you need, as well as having reasonable charges.
The choice of investments is very important and the only advice we can give without knowing your circumstances is to ensure you diversify your investments to minimise risk.
Our best advice would be to seek the help of a professional. As Financial Advisers, Penguin are well versed in investment accounts as well as seeing how they fit your circumstances, objectives and other investments. Having the knowledge and expertise of a Financial Planner behind an investment really does make a whole heap of difference.
Retire “retirement” …
Retirement used to be a “reward” for all the years of hard work endured, but is the concept now out of date?
For many these days, retirement may not cross their minds – they may just want to slow down, move into a different field, or they may want to give up work at 35 to live on a desert island.
Retirement, or the concept of retirement, is different for everyone but it is no longer what used to be considered a traditional retirement – so much so that some have started referring to it as “Life Two”.
People become so concerned about their retirement years (whatever they may be to you):
- Will I run out of money?
- Will I lose my identity?
- How will I fill my time?
- What do I want to do?
Instead of feeling the fear, panicking for ten years or more and feeling sick about having to retire, why not set some time to think about it – get organised so you can have the best later years possible.
Think of it as a project, but a fun one for your future “Life Two”.
There are three main things to consider:
- Your identity
- Your time and,
- Your finances,
It is so important to think about them all if you want to feel ready for and relaxed about your retirement. Focusing too much on one may mean you have a lot of money but no idea what you want to achieve with it or how you will achieve it. On the other hand, you may have lots of great ideas about how to spend your time but no money to make them happen. All a bit pointless really! To have a successful retirement all three things need to be addressed and included in the Life Two plan.
You should probably think about this plan twenty years before you want to retire, more if you can think that far ahead. And always seek help from professionals when looking at your finances – they can definitely help with this element of the plan – the rest is up to you.
The overall message is, don’t see retirement, or in fact any major transitional period in life, as scary. Instead, see it as exciting and full of opportunity. Keep it balanced, mix in fun and purpose, always include those important people in your life and always remember that your retirement is what you want it to be, not what you are told it should be.
We talk about ‘Financial Freedom’ Planning – being is a position to be working out of choice, not a necessity.
We recently wrote a blog on ‘A quick guide to Financial Freedom Planning’
Probate fees: Trust us on this one!
When an individual dies, the executor named in their Will must obtain a “grant of probate”. It is this document that allows the executors to follow the individual’s wishes in their Will and distribute the estate accordingly.
To apply for Probate there is, of course, a fee to pay. The government has decided to make changes to these fees which mean that, in future, probate fees will be based on the size of your estate. The new fees are:
- Estates worth less than £50,000 will pay nothing, meaning estates worth between £5,000 and £50,000 will save £215 compared with the old system
- Estates worth from £50,000 up to £300,000 will pay £250, a rise of£35
- Estates worth from £300,000 up to £500,000 will pay £750, a rise of£535
- Estates worth from £500,000 up to £1 million will pay £2,500, a rise of £2,285
- Estates worth from £1 million up to £1.6 million will pay £4,000, a rise of £3,785
- Estates worth from £1.6 million up to £2 million will pay £5,000, a rise of £4,785
- Estates worth more than £2 million will pay £6,000, a rise of £5,785
This means that an individual with an estate of £50,000 or less could end up paying nothing, but an individual with an estate worth £2 million or more could end up paying £6,000 – or, even worse, £12,000 as married couples would need to pay the fees on first and second death!
In addition to this, your executors may not have sufficient funds available to pay the probate fees and may end up having to borrow elsewhere to start the probate process! Not a situation we would like anyone to be in.
Therefore, in most cases we would recommend setting up a Probate Trust. The purpose of the Probate Trust is for you to place assets into the Trust to cover your estimated probate fees. By using this Trust, the assets are held outside of the estate and cannot be frozen on death, so are easily accessible to your executors to pay the probate fees.
If this is something you think would be useful (and why wouldn’t it be) please get in touch to arrange a meeting for us to discuss it further.
Notes on Brexit
The Tory leadership contest has come to an end and Boris Johnson is officially the new party leader (and with that appointment, the new Prime Minister).
Looking at market reactions to the news, the pound is still down so it doesn’t seem that he has added any certainty to the markets on a long-term basis.
Boris probably shouldn’t get too cosy in his new job, as the odds of a general election happening this year are still quite high. What the outcome of that would be no one knows, but it didn’t go well for Theresa May in 2016. Boris also faces the same dilemma that confronted May, in that the Tories, like most of Parliament, aren’t decisive about what kind of Brexit they want, and by being too extreme or staying too much in the middle, he risks losing support. It’s a lose-lose situation.
Add to this the fact that new European commission President, Ursula von der Leyen, has made it clear that the EU is definitely not open to renegotiating the key terms of the withdrawal agreement that MPs had such issues with means that while Boris might talk the talk, he could find it difficult to walk the walk.
While there’s still little movement on the Brexit front, and most media attention has been focused on the Tory leadership election, there were things happening behind the scenes.
MPs attempted to amend legislation being drawn up that aims to manage the effect of a collapsed devolution in Northern Ireland. The amendment in question would prevent the Government proroguing Parliament in order to force through a no deal Brexit. However, the amendments did not receive much support from MPs and the bill has been passed to the House of Lords for their scrutiny. If they complete the package of amendments, they can send the Bill back to the House of Commons for review.
BEST SAVINGS SELECTION
Top three Cash ISAs
£100 Gross %
£1,000 Gross %
£5,000 Gross %
|Buckinghams hire BS||via branch||1.50||1.50||1.50|
|Kent Reliance||kentreliance.co.uk||n/a||1.50 (2 year bond)||1.50|
|Charter Savings Bank||chartersavingsbank.co.uk||n/a||n/a||1.48|
Please check with the terms and conditions before opening any account. If in doubt consult with your financial adviser directly as the above are for information only.
Source: Moneyfacts Magazine August 2019 Edition