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.
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.
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.
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:
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.
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The British government has announced plans to raise the age at which pension pots can be accessed from 55 to 57.
Inheritance tax (IHT) was introduced by the Finance Act 1986 to replace capital transfer tax and applies for transfers made on or after 18 March 1986.
There is a common misconception that trusts are only used by the wealthy. However, they are accessible to all and can be a useful tool as part of a wider inheritance tax planning strategy. There are various reasons why a trust may be set up; some can be written into your Will and others can be set up independently. Here we explain what trusts are, what they do and the different types of trust available.