Financial advisers would do well to review their clients' will trust arrangements following changes announced in the pre-Budget report (PBR), threesixty warns.
The IFA support services provider says some policies might now be outperformed using inheritance tax exemptions instead.
Chancellor Alistair Darling announced on Tuesday any unused part of the nil rate band (NRB) of a deceased person should be transferable to their spouse or civil partner and available to be used at the time of the survivor’s death.
If the NRB were not used on first death it would be available to the widow or widower later at the then current level.
Threesixty says that, for example, if someone died today and used their NRB in full, the NRB would be £300,000. If they didn’t use the NRB and it passed to the survivor who died in 2010, the survivor would have an NRB of £350,000 of their own plus an NRB of £350,000 from the first to die, giving an extra NRB of £50K.
David Ingram, Partner at threesixty, says: “It has been possible to achieve similar benefits to this situation up to now by setting up will trusts, which are designed to be chargeable transfers on death so that they use the deceased’s NRB while the surviving widow or civil partner can still benefit from any income or capital growth from the trust if needed.
“But IFAs who have set these up for clients should now review the potential benefits of these trusts or consider transfer of NRBs.
“With the trust route any capital gains in it would be outside of the estate of the survivor on his or her death and there is certainty about who are the beneficiaries.
“But this route means the opportunity to benefit from the rise in the NRB of the first deceased’s will be foregone.”
The firm says IFAs should also review the implications of the PBR for clients with long-held portfolios, especially those held within trusts.
Darling announced that disposals made on or after 6 April 2008 will not benefit from taper relief or indexation relief.
Threesixty says IFAs will need to consider rebasing exercise or even disposing of client assets in long-held portfolios prior to 6 April 2008.
Ingram says: “It is likely that the market will be affected by the volume of deals likely to take place as investors seek to benefit from existing entitlements to taper and indexation reliefs before they are lost in April.
“It seems possible therefore that this measure has not been properly thought through and there may be changes before the legislation is enacted.”
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