Letter Of The Law

Inheritance tax – beware!

by John Thom, Miller Hendry

Jeremy Vine on Radio 2 featured it on his lunch time radio show and Stephen Byers, the former labour government minister, has called for its abolition. Were they discussing child poverty or third world debt? No - inheritance tax. Inheritance tax (IHT) can no longer be viewed as a tax on the wealthy but on the middle classes and given the terms of the last Budget, abolition is not high up the Chancellor’s list of priorities!

As house prices across the UK have continued to rise more and more families are being caught in the IHT net. Many Perthshire families now have assets exceeding the nil rate band threshold for inheritance tax, currently £285,000.

In the last Budget the Chancellor took radical steps to alter the inheritance tax rules relating to Trusts. The Chancellor appears to view Trusts as a device to protect the assets of the wealthy from his grasp. Whilst Trusts can be used to minimise tax liabilities, the Chancellor underestimated the number of families that would be caught by the changes to the inheritance regulations. There are hundreds of thousands of Trusts in existence within the UK, many of which may be adversely affected by the change in the last Budget

Most Wills contain Trust provisions to look after assets for young children who may be unfortunate enough to lose their parents or their grandparents at a young age. In these circumstances Wills typically provide that the estate will be looked after for the children until they attain the age of 18, 21 or 25. Under the Chancellor’s proposals, there is the possibility of additional inheritance tax liabilities arising in these circumstances. This seems particularly iniquitous where the Trust is simply aimed at protecting the assets for the benefit of a young child and when the assets may have already suffered a charge to inheritance tax on the death of the parent and/or grandparents.

There was considerable lobbying of the government after these changes were announced in the Budget and there has been a minor climb down by the government.

There are many steps you can take to mitigate inheritance tax charges. It has never been more important than now to take professional advice when making or reviewing your Will. It is also important that any Trusts you have set up are reviewed in light of the tax changes announced in the last Budget.