RSS feedsFor those working with private clients, there are a variety of inheritance tax, trust and other estate planning points that have changed in recent months and should be taken into account when reviewing their financial affairs.
It has never been more important to be clear about a client’s domicile and residence status. The new rules, which came into force on 6 April, now mean that a non-UK domiciled client who has been resident here for seven years, and who wishes to remain taxed on the remittance basis, will have to pay a £30,000 levy. The test for UK residence has also changed and this will affect those with clients who live abroad but who regularly visit the UK.
Formerly, if a client arrived on Monday and departed on Wednesday, that was one day of residence in the UK since the days of arrival and departure were ignored. Now, the test is whether the individual was here over midnight, so a similar journey would now be two days of residence. There is a special dispensation for those merely in transit in a UK airport overnight.
The new nil rate band from 6 April, of £312,000, means that for widowed clients who inherited their late spouse’s full estate, an enhanced nil rate band of £624,000 under the new transfer rules could be available in the event of the client’s death.
It is important to identify widowed clients as they are the real winners from the changes made in the pre-Budget report of October 2007. It significantly alters the estate planning advice process when a client has an enhanced nil rate band. Form IHT216 on the HMRC website (www.hmrc.gov.uk) will guide you through the process involved in confirming what enhanced nil rate band is available.
While this form is normally completed on the second death, it remains the best guide to use when working with clients today to confirm the likely IHT liability which could arise on their death. It will also point to the paperwork which will need to be gathered in preparation for the claim.
Another change is the regulations for the IHT100 form. For those making gifts, which are chargeable transfers (basically gifts to a discretionary or interest in possession trust), no IHT100 form is required to report the gift if the gift is cash or quoted shares and the settlor’s total chargeable transfers in the last seven years do not exceed today’s nil rate band.
This is a vast improvement on the old rules where all gifts of £10,000 and
over had to be reported. Different rules apply if the gift is another type of
asset.
Finally, if your client has a holiday home abroad they may well have a will in
that local jurisdiction. The further question is whether the client has told
their UK lawyer about that foreign will. To ensure ‘best fit’ between multiple
wills it is often best to cross-refer to the other will to avoid any question of
one cancelling out the other, so point the client to their UK lawyer to ensure
their will here is still in order.
A busy time for those involved in estate planning work.
Vital questions
• What is the client’s residence and domicile status?
• Does the will contain a nil rate band will trust? Should it be reviewed?
• Does the client own a holiday home abroad?
• Does the client have an EPA or new Lasting Power of Attorney in place?
• Does the client have a record of lifetime gifts made in the last seven years?
• Does the client have any existing trusts?
• Does the client have surplus income from which exempt income gifts could be
made for IHT purposes?
Julie Hutchison is head of estate planning at
Standard Life
