Download Paul Wilcox: Use it or lose it - every seven years

survives seven years, they may, of course, use it again because it is only transfers/gifts in the last seven years
before someone demise that are added into their IHT
calculation.
So my wife - who rather unfairly has an ONS life
expectation of a few years more than me - and I should
be thinking about using as much of our nil-rate band
as possible, as soon as possible, to make gifts out of
our taxable assets.
Paul Wilcox: Use it or lose it every seven years
Born in the Chinese Year of the Rat, Paul Wilcox learns this makes him intelligent,
pragmatic and competitive - which may explain why he is so keen to make as
much of his nil-rate band (or bands) as he can.
Yes, I admit it - I am a rat. But, of course, I am not
admitting to a whole series of negative personality
traits which make me obnoxiously unattractive - no,
I am simply admitting I was born in the Chinese year
of the Rat.
And I am pleased to say that this, according to
Chinese interpretations - as I understand it allegedly that I am intelligent, pragmatic, diligent,
stable, competitive, temperamental (well, maybe),
a lover of family, energetic, materialistic (only up
to a certain point), unpredictable (yes, in the most
positive way) and social.
Enough of this flippant talk. The main point of that
stream of consciousness is it is around the time
for yet another ancient birthday for me and I was
reminded by a colleague that all was well, actually.
This is because the new ONS mortality tables show
I am probably going to live for at least another
16 years. Thank you very much.
I suppose that is a phenomenal positive compared
with many people, but it has got me thinking.
I should be making sure my wife and I are now
properly using our nil-rate band for inheritance tax
(IHT). You see, these ‘reusable’ nil- rate bands are
of great benefit to anyone with an estate in excess of
the current nil rate band at the time of their death remember, hopefully 16 years hence.
I am sure many readers will remember the slogan for
the campaigners wanting to save rural Post Offices ‘Use it or lose it’ was the rallying cry. And, of course,
the same is absolutely true of the nil-rate band.
If a client uses the nil-rate band allowance and then
Source:http://www.professionaladviser.com/professional-adviser/opinion/3006859/paul-wilcox-use-it-or-lose-it-every-seven-years
Having worked in tax planning for many years, we
are very aware that gifting assets out of our estate
need not mean we and our family give up all potential
future access - should we need funds somewhat later
to assist family or even to cover health or long-term
care costs for ourselves.
The trick here is not to gift assets away into the ‘black
hole’ called absolute gifts to children, but to establish
flexible, discretionary trusts with those gifts. The
trustees of these separate individual legal entities can
then look after the future interests of all members of
the family - including oneself - via all of the carefully
drawn powers within those trusts.
If we have the assets available to make such gifts, then
we clearly will have three bites of the cherry before we
are due to shuffle off our mortal coil. This means we
can both protect around £1m each and make sure that
value is (a) available for future financial crises, and
(b) whatever remains at our demise can be retained
by the trustees to pass to or use for the ongoing benefit
of our family.
IHT v CGT?
The only problem for some is that realising assets
to make them available for gift into such a trust
might create a capital gains liability. Paying capital
gains tax (CGT) to avoid IHT is not necessarily that
beneficial.
Still, do not forget that ISA investments are CGTexempt and so can be realised for gifting purposes.
Furthermore, if they remain in the estate at death,
their value may incur a crippling 40% rate of IHT.
Even where realising assets could involve a
minor CGT liability, there is always the attractive
option of placing a sum equal to the gain into an
Enterprise Investment Scheme (EIS), which does
two wonderful things. It rolls the gain over, until
the EIS is sold - which may be never - and it offers
a 30% income tax rebate on any income tax paid
over the previous two years!
I commend to you and your clients therefore the
example of the Duke of Westminster, who allegedly
left £9bn to his family with little or no IHT (because
it was all in flexible discretionary trusts), rather
than Cilla Black, who left £15m to her sons yet
they finished up only receiving £9m between them
while the Chancellor received £6m. To emulate
the former, your clients must use it or lose it
- every seven years.
Paul Wilcox is the chairman of WAY Tax & Trustee
Advisory Services
With the right powers, those trustees can make
interest-free loans to children - to stop any funds
then being passed on to divorcing in-laws, for
instance. They can even add the surviving spouse
as a beneficiary and then make loans to them rather
than them take reversions from their own trust - this
will also create a debt against their ongoing estate to
further reduce any final IHT bill.
There are any number of other situations where trust
assets can be more useful than free assets over which
subsequent spouses or creditors can have a call.
Paul Wilcox: Use it or lose it - every seven years