Inheritance tax -IHT is a concern for many clients and some may be looking to carry out
estate planning in such a way that the liability to IHT is mitigated as far as possible.
‘Liability’ should be discussed in two separate ways. Liability itself is concerned with who must actually send any IHT due to the revenue. Who bears the ‘burden’ of IHT may be different and not something that HMRC is concerned with but will undoubtedly be of interest to your clients.
Lifetime Chargeable Transfers:
IHT charged on the value of a lifetime chargeable transfer (taking into account
the Nil Rate Band) normally falls due six months after the end of the month in
which the transfer takes place however, if the transfer takes place between 6th
April and 30th September then IHT is due on 30th April the following year.
The liability for and burden of IHT in lifetime transactions lies with the
transferor although it is possible for the transferee to agree to pay the tax. There
is only likely to be a lifetime chargeable transfer where assets are put into a
discretionary trust (as gifts to individuals are a PET). If the tax is not paid by the
transferor by the due date then the trustees will become liable.
Where a person dies within 7 years of making a lifetime chargeable transfer on
which tax was due then additional tax may become payable though credit will
be given for tax paid. This will be due six months after the end of the month in
which the death occurred. The primary liability for this tax lies with the transferee
(i.e. the trustees). If the tax remains unpaid then HMRC can seek payment
from anyone who has an interest in the settlement or from the personal
representatives of the deceased’s estate.
PETS which become chargeable:
Where death occurs within 7 years of making a PET and a tax liability arises it
must be paid six months after the end of the month in which the death occurs. The transferee is primarily liable for the tax and bears the burden. If the tax is unpaid then the personal representatives of the estate are liable.
IHT due on death:
IHT payable on death is again due six months after the end of the month in
which death occurred. Where the liability and burden for IHT fall depends on the
property comprised within the estate. On the deceased’s free estate the personal
representatives will be liable for the IHT. If the Will is silent as to the burden then
tax is normally borne by the residue. If the testator has stated in the Will that
gifts are to bear their own tax then this direction will normally prevail.
Where the estate contains settled property in which the deceased had an
interest then the trustees are liable for the IHT due. The burden falls on the
property held by the trust.
If there is property that passes outside the Will or intestacy then it is the
beneficiary of that asset that bears the burden, although liability still rests with
the personal representatives.
As all the current IHT rules are currently being reviewed you should act sooner rather than later to put IHT mitigation into place.
News was slow over the Christmas period but when the Pensions Minister, Steve Webb, issued a statement to say that 17% of the current UK population would reach the age of 100 the press made the most of it. Headlines included – over 10 million centenarians but it was not made clear that this would take many years to happen.
This really should not have come as a shock, life expectancy has been rising for many years but the change will not happen quickly. At the present time the 100+ population of the UK is very small. Only 11,800 people in 2010 received a telegram from the Queen but in 1984 it was just 3,300. In 2021 this figure is predicted to rise to 26,000, in 2035 97,300 and in 2080 627,000 with at least 21,000 of those will be aged at least 110.
Figures also suggest that around 3m of today’s under 16s will reach 100 and 5.5m of those aged 16-50. Only about 12% of today’s 51-65 years old will achieve a three figure age.
As National Statistics says in its latest edition of ‘Population Trends’, ‘The major contributor to the rising number of centenarians is increased survival between the ages of 80 and 100, owing to an overall improvement in medical treatment, housing, living standards and nutrition’.
As none of as know how long we are going to live the question is – What are the implications of outliving my money and what are the implications of my money outliving me?
Financial planning and Estate planning is essential and should not be put off until its too late
Following a review Barclays is planning to stop offering financial advice through its retail branches by closing Barclays Financial Planning as it was deemed no longer commercially viable.
Barclays said it expected to offer retail investment advice online, and that it expected financial advice in bank branches to decline.
‘Barclays has been conducting a detailed review of its financial planning advice over recent months. This review has concluded that, given the changes to the retail investment marketplace, it is unlikely that this business would be able to deliver a return that would justify the investment required,’ said a spokeswoman.
Barclays said it will shift its focus to online execution only service Investor Zone and that existing plans and investments currently held by customers will continue to be serviced.
The bank was recently fined £7.7 million by the Financial Services Authority for mis-selling two Aviva funds.
After a warning from the credit rating agency Moody’s that Spain’s credit rating might be downgraded, the euro slid hard against the dollar yesterday (16th December 2010). Spain is the big worry for the eurozone. Ireland and Greece were nasty blips, but they could be coped with.
A bail-out for Spain would be much harder to swallow. To sort that one out, the leaders of the eurozone would have to come to a much more long-term solution to the region’s debt problems.
Spain has three main batches of debt to worry about:
• the central government has to raise and refinance a very substantial sum in 2011, some €170bn
• loans from the regions, €30bn worth also needs to be rolled over next year
• and another €90bn of borrowing by the banks.
Foreign investors aren’t keen on eurozone debt at the moment and a further problem for Spain’s government is that it has historically relied on overseas buyers “for about 50% of all the money it raises.”
That’s all bad enough. But it could get worse. Moody’s is worried that banks might have to raise more capital, which would probably have to come from the Spanish government. And there’s also the danger that austerity measures aren’t being imposed strictly enough. In all, Spain could end up needing to raise a total of €365bn, or 34% of its GDP next year.
Portugal is trying to borrow more money from the markets via a bond auction this week. It will be selling ten-year government bonds. It’s the first of the most indebted eurozone countries to try to sell its debt this year.
The problem isn’t so much that the auction might fail. The real problem is the rate at which Portugal has to borrow.
As Bloomberg notes, the yield on Portugal’s existing ten-year bonds has been driven up over 7% on ten of the last 62 days (in other words, the price of ten-year bonds has fallen). A year ago, it cost Portugal just 4% to borrow money for ten years.
Why is that significant? Because 7% seems to be the magic number at which countries are destined for a bail-out. “Greece needed a rescue within 17 days of its ten-year yield breaching 7%… while Ireland lasted less than a month after it cracked that level in October.”
Portugal’s real problem is that its economy is stagnant and its private sector is over-borrowed. As with so many other global economies, years of overly-lenient interest rates allowed consumers to party at a time when their economy should really have been reformed to improve productivity growth.
The problem is that if Portugal is bailed out, it reduces the amount of money left over in Europe’s big bail-out fund for other troubled countries. And there are at least two of those lining up. There’s Belgium, which has a large national debt and no government to tackle it. And then there’s Spain, which is trying to raise money from the market later this week too. The yield on ten-year Spanish government bonds is around 5.5%.
The good news for the eurozone is that both Japan and China have weighed in to say that they will support Europe. Japan has said it will buy bonds issued by the bail-out funds, while China has said it will keep buying Spanish debt.
What does all this mean for the euro?
All that can be said with any certainty is that the euro faces very uncertain times. And while its future is in doubt, there will be lots of volatility, as investors swing from optimism to pessimism with every new initiative announced by Europe’s leaders.