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Don&#39t look a gift house in the mouth

Successful businesses need to consider constantly both the short and anticipated long-term factors that may impact on their markets and clients in order to shape and continually adjust their tactics and strategy. Failure to consider short-term issues hits the bottom line and is very quickly evident. Consequently, remedial action must usually be taken sooner rather than later.

But failure to consider the often gradually emerging longer-term factors can mean that what might otherwise have been incremental adjustments turn into do-or-die U-turns.

All this seems pretty obvious and has been far more eloquently discussed and analysed in the now classic Charles Handy book, The Age Of Unreason – you know, the one with the boiling frog.

When it comes to considering the impact of key drivers on your marketplace in the longer term, the fact that the average age of the population in the UK and Europe is getting significantly higher is something that is very important.

The United Nations&#39 population division recently published its forecasts for the world&#39s population. Here are some of the findings:

•The world population is growing but the rate of growth is declining everywhere as people have fewer children.

•The average fertility rate is predicted to fall from 2.8 children per woman to two children by 2050. European women have an average of 1.42 children.

•The poor have more children than the more well-off.

•Europe&#39s population is set to fall from 728 million to 632 million in 2050.

•The median age is just over 37.7 in Europe and will have risen to 47.7 by 2050.

•European countries will soon need to consider an environment where those under 14 and over 60 outnumber those of working age.

It is that last statistic that is causing families and governments so much stress. Add to that the fact that, due to a great many factors, including a reliance on the long-term belief that there will be a healthy state pension in retirement, individuals have not saved enough to sustain them in retirement and it should be clear that the role for value-for-money financial products and advice should be strong.

The difficulties in encouraging and actually achieving higher levels of investment have been well discussed. There is also the interesting issue of what happens if £27bn-£40bn of consumption(depending on what survey of the savings gap you are looking at) is taken out of the economy.

Be that as it may, the fact that an increasing proportion of the population is older should cause advisers to consider with greater interest the subjects that impact on those older individuals who have assets and financial needs and who will value and pay for financial advice, either directly or indirectly.

That property prices have increased substantially does not need to be pointed out. But if so much of your target market&#39s wealth is tied up in this asset class, it is worth considering the property-related financial issues that can arise.

The good news is that, save for some exceptions (for example, if you are trading in property), profits realised on property sales are free of capital gains tax if the property has been occupied pretty much throughout your period of ownership as your principal private residence. But inheritance tax remains an issue for many individuals.

Of course, transfers of property or interests in property between spouses are exempt but it is impossible to ignore the reality of the sometimes substantial IHT payable on a transfer of property other than between spouses.

The lack of exemption for transfers between couples living together in a long-term relationship will become more frequently raised as time goes on. It is probably true to say that most couples currently in their 60s, 70s and 80s – let alone 90s – are married. That was what you did all those years ago if you wanted to live together. This is patently not the case today. Last week, I referred to the number of cohabiting but unmarried couples revealed in the census report. Assuming these relationships survive without the glue of a marriage certificate, these people could have an IHT issue in respect of their property sooner than married couples do.

Even today, when the spouse exemption helps many married couples to defer the IHT liability on their property, there is still a keen interest in IHT planning that enables them to continue living in their home until death but also reduces or avoids IHT on the property when it eventually passes on, say, to the children. Given the reservation of benefit rules (gift with reservation), this not is easy but there is definitely interest and increasing levels of activity.

There are, of course, other propertyand age-related areas of activity including equity release and the impact of property owning on the liability to pay for care fees should long-term care become necessary.

In the light of the relatively insurmountable GWR rules, it may well be that there is more interest in what can be done in respect of the property to avoid a contribution to care fees than to avoid IHT. The rules for assessable capital in respect of care fees and property over which one has the freedom to dispose for IHT are not the same. As a result, it may be possible to make a gift of a property and continue to live in it rent-free and avoid the property value being taken into account as a valuable capital for the purposes of care fees while falling squarely within the GWR rules for IHT by virtue of the rent-free continued occupation. I will look at this in more detail next week.


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