Inheriting tax-The potential Pitfalls which may await

Inheriting tax Learning objectives By the end of this session attendees will be able to understand the advice to be given not just to recipients of lifetime gifts but those giving the assets away. By the end of this session attendees will be able to demonstrate how inheritance tax is calculated on estates and lifetime gifts. By the end of this session attendees will be able to explain the need for differing types of life assurance to meet the needs of those giving and receiving lifetime gifts and ultimately the estate on death.

Background

1796 1894 1975 1986 Inheriting tax Death Duty Introduced Estate Duty Historical Background 1796 Death Duty Introduced 1894 Estate Duty 1975 Capital Transfer Tax 1986 Inheritance tax

When was the £325,000 nil rate band introduced? Inheriting tax The Inheritance Tax nil rate band is currently frozen at £325,000 until 5 April 2021 When was the £325,000 nil rate band introduced? 2009 £437,088 est 2021 How much would a house worth £325,000 in 2009 be today £458,994 £506,643 IHT tax take in 2009 £2.4bn 2009 £4.9bn 2016/17

Inheriting tax In the news…

Inheriting tax? Housing wealth in the UK is becoming increasingly concentrated amongst older generations ‘grandparents generation’ aged 65 and over who have a home that they might pass on to children and/or grandchildren; around 4.5 million people in the UK would fall within this category; ‘sandwich generation’ of parents aged 45-64 who had living parents from whom they might expect to inherit as well as adult children who might be looking for support; around 7.7m UK adults fit this definition; ‘children’s generation’ of adult children aged 25-44 who have parents and grandparents living in owner-occupied accommodation; we estimate that there are around 4.2m people in this situation in the UK; £400bn wealth mountain sandwich generation, the typical expected inheritance from parents was around £160,000 £10-£22.5bn £50bn lifetime gifts £7.6-£17.1bn £38bn lifetime gifts Source; Royal London April 2017, harassed baby boomers.

Inheriting tax In the news…

Case study

Inheriting tax Case study Emily has been contacted by a firm of heir hunters who have notified her of the death of her second cousin Nigel in November 2017. Nigel was a paramedic with the London Ambulance service who lived alone in Camden he had a valid will in which he named Emily as the sole beneficiary. Nigel was a keen supporter of his local Shelter and had made various donations throughout his working life making an annual stipend of £1,000 since 2008 and 10% of his estate. In September 2008 his elderly father died leaving him with £392,000 which he placed £312,000 into a discretionary trust to utilise his then nil rate band (2008/09). His colleague and close friend Caroline’s son Eric has autism and Nigel decided to place £35,000 in to a vulnerable person’s trust for Eric in April 2012. Nigel’s estate amounts to £803,333 on which there is IHT to pay how much IHT will have to be remitted HMRC to satisfy the tax liability?

Inheriting tax Case study

Inheriting tax Case study PET failed

Inheriting tax Case study CLT caught

£4,000 gift Inter vivos Inheriting tax Case study Accumulated Chargeable Lifetime Transfer £312,000 less 2008/09 annual exemption £3,000 less 2007/08 annual exemption £3,000 £306,000 ‘Failed’ Potentially Exempt Transfer £35,000 less 2011/12 annual exemption £3,000 less 2010/11 annual exemption £3,000 £29,000 £306,000 £335,000 less Nil Rate band £325,000 excess above NRB £10,000 tax at 40% £4,000 taper to 40% £1,600 £4,000 gift Inter vivos

Inheriting tax Case study £11,600 Level term

Inheriting tax Case study PET failed

Inheriting tax Case study ‘Failed’ Potentially Exempt Transfer £35,000 less 2011/12 annual exemption £3,000 less 2010/11 annual exemption £3,000 £29,000 Estate £803.333 gift to Shelter £80,333 net estate £723,000 less Nil Rate Band (£325,000 - £29,000) £296,000 excess above NRB £427,000 tax at 36% £153,720 net distributable estate £569,280 £153,720 WOL

Inheriting tax Case Study What did Nigel do for a living? At Budget 2014, the Government announced it would extend the existing exemption for members of the armed forces whose death is caused or hastened by injury while on active service to members of the emergency services responding to emergency circumstances.

Inheriting tax Learning outcomes By the end of this session attendees will be able to understand the advice to be given not just to recipients of lifetime gifts but those giving the assets away. By the end of this session attendees will be able to demonstrate how inheritance tax calculated on estates and lifetime gifts. By the end of this session attendees will be able to explain the need for differing types of life assurance to meet the needs of those giving and receiving lifetime gifts and ultimately the estate on death.

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Important notes Information based in this presentation is based on current tax rules, which can change. Tax treatment is based on our interpretation of current legislation and depends on individual circumstances http://www.aviva-for- advisers.co.uk/adviser/site/public/news/ detail/get-into-gear-for-tax-year-end

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