We all know better than to take a government soundbite (or an opposition one for that matter) at face value, don’t we? We have been “had” like that before. Well, we have had quite a few of them to deal with lately – and big ones at that. For example, “no tax on death benefits”, “£1m passing inheritance tax free” and, of course, “less tax relief for high earners”.
While we, being a sceptical bunch, will naturally question the headline, the same will probably not be true of your clients. And that is understandable on two grounds. First, each headline taken on its own looks eminently sensible. What is to question? Second, who can blame them for not having the time or inclination to look beyond the headline? Their lives are full of more important things, like family, bills, holidays and qualifying for the knockout stages of the Champions League.
But there may well come a time for your clients when one (or more) of these headlines is actually relevant to them, and that is when they will need your advice.
I have been giving a bit of thought recently to the “no tax on death benefits” headline, so let’s have a butcher’s at that one first. It was announced by the Chancellor at the Conservative party conference last year, about the time of (and arguably to deflect attention from) the defection of the aptly named Mr Reckless to “The Ukips” (I apologise here to Stewart Lee for stealing his brilliant pluralising of the name of said party in one of his excellent Comedy Vehicle programmes. I wouldn’t want him putting me into the same category as Joe Pasquale now, wouldI?).
Anyway, what Mr Osborne said was: “There are still rules that say you can’t pass on to the next generation any of your pension pot when you die without paying a punitive 55 per cent in tax. I could choose to cut this tax rate. Instead, I choose to abolish it altogether.”
While he may have intended that to be what came to pass, it plainly has not. Like the other soundbites (or, if you prefer, promises) I referred to above it, first, is not strictly true and, second, requires a mass of legislation and guidance to make it work.
The problem with the second point is that the very process of producing the rules gives the “rule writers” the opportunity to introduce small print and conditions to limit the number of people who can benefit from the process and thus limit its tax cost to the Treasury.
These limitations will not have been referenced in the headline but they will have a material effect on who is able to benefit from the announced change. So what sounds, at first pass, like an “everyone’s a winner” type provision turns into a “so you (HMRC) win again” type provision.
And the neat thing about these conditions introduced at the legislative stage is that “the people”, if they noticed at all, just take away the headline and not the detail. They will very rarely pore over the legislation. Why would they? A variation on the stealth tax theme if ever there was one.
In relation to the “choose to abolish it altogether” promise, the magnitude of the difference between this statement and reality is quite spectacular. Without informed advice, in the words of Michael Caine, “not a lot of people know that” – or, in all likelihood, care. At least not until it affects them or their family.
If any of your clients have any meaningful level of pension fund, the complex rules relating to who can receive death benefits, in what form and subject to what tax, will be very important to them. Who better than their financial adviser to make them aware of the resulting pitfalls and opportunities?
Tony Wickenden is joint managing director at Technical Connection