Every consumer would like to think they are receiving the best advice from their adviser and, I am...
Every consumer would like to think they are receiving the best advice from their adviser and, I am sure, every adviser strives to do exactly that, but how easy is it to accomplish this noble objective?
In the UK, the tax system is very complex and constantly evolving so keeping up-to-date is increasingly difficult. Added to this there has been a proliferation of consultative documents, reviews, green papers and white papers over the past few years, to say nothing of court cases which have caused either an actual change in legislation or a clarification of the interpretation of the existing rules.
Two examples highlight the difficult issues facing anyone involved in the advice-giving arena. The green paper entitled Simplifying the taxation of pensions issued on 16 December 2002, pinpoints a number of issues that need to be addressed in the run up to A-day which has now been confirmed as 5 April 2005, but there is still uncertainty in many areas. There are a number of planning opportunities discussed in the paper but a major area of debate seems to revolve around planning for the lifetime limit.
This has been initially set by the revenue at a value of £1.4m although a strong body of opinion argues this figure should be increased to £1.8m and it remains to be seen if the Revenue takes this lobbying on board.
n in terms of the post A-day treatment of death benefits ' another issue that it is currently not possible to give accurate advice.
Also, we cannot forget that carry forward and carry back will disappear in the post-6 April 2005 world. Clients need to be alerted to this and in particular clients with retirement annuity contracts who still retain the ability to carry forward significant amounts of unused relief. These people should be looking to make the best use of this option before it is discarded.
All advisers who are active in the inheritance tax (IHT) planning market will doubtless be aware of the gifts with reservation (GWR) provisions as set out in S.102 and Schedule 20 Finance Act 1986. Generally, if a gift is made, whether outright or via a trust, and some benefit is retained by the donor, the full value of the gifted property is deemed to still form part of the donor's estate on death. However, a recent judgement in the Court of Appeal ' in the case of CIR vs Overseen ' appeared to confirm that it is possible to get round the GWR legislation. By making the initial gift into a trust for the benefit of the spouse and then making a subsequent appointment of benefits away from the spouse, typically to the children. Some life offices have been recommending the use of a similar type of arrangement involving investment bonds for some time and the Eversden decision has given the green light to this type of planning.
However, this was clearly an unacceptable situation for the Revenue and it moved to change the legislation very quickly so that, from 20 June 2003, planning of this nature will no longer be effective for IHT purposes. This means that what was good advice a few days ago is now extremely bad advice.
Could it even be argued that those advisers who did not highlight the advantages of spousal interest trusts to their clients in strong enough terms have actually been negligent? Certainly a planning opportunity has been lost and this is just another illustration of how difficult it is for IFAs to walk the advice tightrope in 2003.
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