Fear of Potential Tax Rises Spurs Passing Down of Wealth


While COVID-19 has sparked some uplifting stories – the achievements of Sir Captain Tom Moore possibly ranking at number 1 – the reality is that the pandemic has affected thousands of families in a less positive way.

With the global death toll now sitting at more than three quarters of a million*, many people have been forced to consider the impact that their own mortality may have on their families, should the unthinkable happen.

With younger generations set to be hardest hit financially by the crisis, many parents and grandparents are reassessing ways of passing down their wealth sooner rather than later, spurred on by the fear of potential future tax changes that may come in to force as a means to cover the cost of the government’s growing spending to deal with the pandemic.

Below are some of the options families have been discussing with their financial advisers, that may be worth considering if you have not done so already.

Early Inheritance

With a level of uncertainty surrounding how future taxation rules might change, older generations are looking at ways to pass on their assets now to secure current tax rates and reliefs while they still can. For example, under current inheritance tax (IHT) rules, unlimited sums can be gifted tax-free under the seven-year rule. However, with IHT rules likely to be reformed, and a chance the seven-year rule could be abolished, it could be wise to act sooner rather than later.

Tax-efficient Transfers

With Capital Gains Tax (CGT) also on the Chancellor’s radar, now could also be a good time to gift assets due to the negative economic impact the pandemic may have had on the value of those assets. For example, if the value of shares has fallen, they attract less CGT. While assets can be passed between spouses without triggering CGT, the same does not apply when gifting them to a child or grandchild – as shares are valued at the point they are gifted, passing them on now while values are lower will thus attract a lower IHT bill.

Regular Gifts

Every tax year we can all give away £3,000 worth of gifts without them being added to the value of our estate. This is known as your annual exemption. You can carry any unused allowance over to the next tax year, but only for one year.

In addition to your £3,000 allowance, you can also give away:

  • Gifts between a husband and wife or civil partner – you can give them as much as you like during your lifetime, as long as they live permanently in the UK
  • Gifts made as part of your normal expenditure – providing the gift does not reduce your standard of living and is not from capital, you can give away money from surplus income
  • Wedding or civil ceremony gifts – you can give up to £5,000 to a child, £2,500 to a grandchild or great grandchild and £1,000 to anyone else
  • Gifts for maintenance to help with another person’s living costs – this can be your spouse or civil partner, ex-spouse or ex-civil partner, or relatives dependant on you due to old age or infirmity. It also includes maintenance and education of your children (including step and adopted) in full-time study or those under the age of 18
  • Gifts to UK-established charities, museums, the National Trust and political parties
  • Small gifts of up to £250 per person – these can be used to cover things such as birthday or Christmas presents

Family Trusts

Currently, £325,000 per person and £650,000 per couple can be put into a trust without triggering an immediate IHT charge. Trusts have been used for many years to provide a future source of income where the exact needs of the beneficiaries are not yet clear e.g. to find education costs of grandchildren or perhaps assist with a property purchase deposit.

Only Gift What You Can Afford
Despite a burning desire to help the ones we love, those considering gifting assets must be sure that the current situation has not also adversely affected what they can afford to gift. Many pension pots may have been hit hard by recent market volatility and some incomes could have been reduced by a sharp drop in dividend yields.

Nathan Mead-Wellings, Managing Director at Finura, comments: “While none of us have a crystal ball to look into the future, at Finura we combine our expertise with the use of industry-leading software to simulate a number of ‘what if’ scenarios. This enables us to answer questions such as ‘How much income can I take?’, ‘What would happen in a market downturn?’ or ‘How are my assets best combined for maximum tax efficiency?’. In such uncertain times as these, it is especially useful to be able to help Clients better navigate the various ‘transitions’ in their life.”

If you would like to discuss any of the above in more detail, please contact your Finura adviser.

Articles on this website are offered only for general information and educational purposes. They are not offered as, and do not constitute, financial advice. You should not act or rely on any information contained in this website without first seeking advice from a professional.

Past performance is not a guide to future performance and may not be repeated. Capital is at risk; investments and the income from them can fall as well as rise and investors may not get back the amounts originally invested.

You are now departing from the regulatory site of Finura. Finura is not responsible for the accuracy of the information contained within the linked site.

* https://en.wikipedia.org/wiki/Template:COVID-19_pandemic_data


Other News

Tax Year End Planning Checklist For Individuals – 2023/24 Tax Year

As tax year end approaches, there is still time to make use of your available reliefs and allowances.

This tax year end planning checklist covers the main planning opportunities available to UK resident individuals and will hopefully help to inspire action to reduce tax for the 2023/24 tax year and to plan ahead for 2024/25.

Higher Rate Taxpaying Is A Growing Club

As tax rate band thresholds are changing, understanding the impact on high rate taxpayers and the economy is crucial.

5 Top Tips To Boost Your Pension Savings

It was recently revealed in the media that the amount we need to enjoy a ‘moderate’ retirement has increased by £8,000 per annum, a 38% increase, in just one year.