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Will power

A properly thought out will is the biggest single way to mitigate against the impact of IHT. Gregor Watt reports

The traditional route into journalism used to be an apprentice-ship on a local paper, where a cub reporter started at the very bottom covering the local births, marriages and death – or hatches, matches and dispatches. After a suitable period in this hinterland, reporters would graduate to other roles in the paper and promptly forget all about their experiences as they tackled more interesting and varied subject matter.

IFAs, however, should be less quick to forget the oppor-tunities that these three events offer for tax planning.

The royal wedding last month brought with it endless speculation about all manner of inconsequential detail of the big day as well as the usual spurious attempts to link various products and services to the publicity band wagon.

But it also served as a rem-inder that weddings can offer significant opportunities for IHT mitigation. In addition to the annual gifting rules (where individuals can make one gift of up to £3,000 in any one year in addition to any number of £250 gifts) at a wedding or civil partner-ship each parent of the couple is able to gift £5,000 while grandparents can gift £2,500 each. Other wedding guests can gift up to £1,000 each.

With 1,900 guests at their wedding, Wills and Kate could have received gifts of up to £1.8m – not that they need the money.

Anita Montieth, technical manager at the Institute of Chartered Accountants in England and Wales, says: “More and more people, such as the royal couple, are living together first so the number of traditional wedding lists with a toaster and a cutlery set are diminishing. A sign of the times is more people asking for money as their wedding present. This is a welcome gift for both parties as it can be exempt from IHT.”

In addition to the standard gifting rules, there are a couple of ways that money can be passed down the generations and be automatically exemp-ted from IHT. The two most obvious are the opportunities for grandparents to pass assets down to their grandchildren.

Grandparents can contri-bute up to £3,600 a year into a stakeholder pension in their grandchild’s name up to the age of 18. The annual limit applies to gifts to a single beneficiary, so £3,600 can be invested each year for multiple grandchildren.

Child trust funds also offered opportunities for grandparents to contribute to their grandchildren’s savings. Until they were scrapped in 2010 by the coalition Government, grandparents could contribute £1,200 into a CTF and such gifts were automatically placed outside the consideration of IHT.

Although the final details of the junior Isa are yet to be published, it looks like annual contributions of up to £3,000 will be able to made and it is likely that contributions will also be allowed in addition to the annual gifting allowance free from IHT.

In addition to trusts and potentially exempt transfers, the biggest single oppor-tunity to mitigate the impact of IHT is the creation of a properly thought out will.

Recent research from Standard Life suggests that as many as 51 per cent of adults have no will in place. The reason cited by the majority is they “simply have not got round to it”, yet dying without a will in place can add significant cost to getting an estate through probate and can lead to assets being passed on to unintended beneficiaries.

Standard Life head of estate planning Julie Hutchison says: “There is real inertia here. Despite the cost of a will not being a barrier, people’s lack of action could ultimately cost their families more. The legal fees in untangling estates when someone dies without a will can be higher and the inheritance tax bill could be higher, not to mention the stress for the family and the potential delay in distributing assets. People spend their lives trying to provide the best they can for loved ones but they are falling at the final hurdle by not protecting their futures when they are no longer here.”

And even those who have a will in place need to have a regular review to make sure that the beneficiaries of the will are still correct and that the will is up to date with current legislation.

The Standard Life research found 30 per cent of people with a will last reviewed it between three and 10 years ago, with 10 per cent last looking at the provisions set out in their will more than 10 years ago.

Hutchison says: “There were significant alterations to the inheritance tax rules in 2006 and 2007. Add to that changing family dynamics, including divorce, more children, and introduction of grandchildren, and old wills could be seriously out of date.

“People should ensure they keep a close eye on their will and speak regularly to their professional adviser to ensure it is up to date and reflects changing legislative and personal circumstances. Dying without a will in place, or leaving an old out-of-date will can cause enormous stress on loved ones.”


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