Inheritance Tax planning in a post budget world Q&A

Is it correct that a failed PET can still restore the RNRB? Can this be challenged? Has it been tested to your knowledge?

Yes, a failed PET can restore the RNRB. This is based on the value of the estate at the time of death without the addition of any failed gifts which would occur in the actual IHT calculation. We are not aware of this being challenged and the rules are clear.

Any smart things to be done with property wealth avoiding GWR? Gifting to trust/children/grandchildren. Selling for less than market price. Leasehold carveouts.

Gifting property to trusts or children/grandchildren is complicated but can be effective, but it must be done carefully to avoid GWR and POAT. Selling for less than market price or leasehold carveouts may have limited effectiveness and could attract scrutiny. Expert legal advice should be sought.

If you draw 50% of a drawdown pension and gift it today, and the remaining 50% next year, would that be allowed under surplus income rules?

No, this would not be allowed as surplus income. The income must be regular and there be an established pattern. Two years would not create an established pattern.

How do you make an exempt gift that is greater than £3,000 per annum?

You can use the normal expenditure out of income exemption, provided the gifts are regular and from surplus income.

If you do a DOV and the previous person has no NRB (or you are not aware of the previous person's NRB situation) how or who pays any tax?

The estate of the deceased person would be responsible for any IHT due and would need to agree to the variation if the IHT is increased.

If there's a married couple and they make a gift to a child and he dies within the 7 years, does the gift continue if the spouse does not die?

Yes, the gift continues, and the 7-year clock applies to the original donor.

Do we think someone will qualify for the 36% IHT rate on their non-pension estate, if the 10% they are gifting is purely from leaving the pension to charity?

It depends on how the legislation is drafted, but it is possible.

How will £1m BPR restriction impact asset-rich family businesses, and will trusts holding BPR assets qualify if the beneficiary allowance is used?

The £1m BPR restriction will require careful planning for asset-rich family businesses including passing on parts of the business during lifetime. Trusts holding BPR assets will be subject to the new limits, and the allowance will be split among multiple trusts if applicable. We await final details of the trust rules as these are currently at consultation stage.

Do spouses inherit any unused BPR allowance?

No, spouses do not inherit unused BPR allowances.

Moving from AIM to unquoted attracts replacement relief, but does this relief fall to 50% from April 26, until 2 years have elapsed from the original transfer?

It is unclear whether the relief will fall to 50% immediately or after 2 years. Further clarification is needed.

If it's possible to use BR like NRB could the Rysaffe rules come into play?

The consultation on trusts and BR is still ongoing, our understanding is there will be an anti-fragmentation rule to ensure trusts cannot get multiple allowances at 10 year anniversaries)

How will the BPR cap apply to discretionary trusts holding AIM shares with multiple beneficiaries—individually or as a single entity?

The BPR cap will apply to the trust as a single entity, and the allowance will be split among multiple trusts if applicable.

Did I hear right: BR investments included in estate for RNRB qualification?

Yes, BR investments are included in the estate for RNRB qualification.

Is there a timeframe for gaining clarity on being able to place BR qualifying shares of up to £1m (trading company) into trust every 7 years?

The consultation is ongoing, and clarity is expected in the next Finance Bill.

If a person owns 49% shareholding do they still qualify for BPR?

Yes, a 49% shareholding can still qualify for BPR.

When does the £1 million BPR limit come in? April 2025 or April 2026?

The £1 million BPR limit comes in April 2026.

Are pension transfers to spouse/partner still likely to be free of IHT in the event of death or is this something that a government "may look at"?

Pension transfers to a spouse/partner (and charity) are still likely to be free of IHT.

Probate will have to be seen by pension providers before benefits transferred to spouse or children?

Not necessarily. But pension providers will require official confirmation from HMRC regarding the nil rate band before fully settling benefits.

Will the value of a member's final salary pension scheme be taken into account on death for IHT if he/she dies before taking benefits if he/she was single?

Yes, the value of the final salary pension scheme will be included in the estate for IHT purposes from April 2027. It could currently if the scheme does not have discretionary disposal and the beneficiary is not a spouse/civil partner

A defined benefit pension pays a widow's/dependent pension post April 27. Is it brought under IHT regime?

The proposal is that dependants scheme pensions are exempt from IHT.

Do we yet know how benefit claims under a guarantee period for annuities are to be treated for IHT purposes?

Guarantee period payments are included in the estate for IHT purposes currently. Presumably this will remain.

Will annuity income which is a result of a guarantee period payment to an estate be subject to IHT?

Yes, annuity income from a guarantee period payment will be subject to IHT (it is currently).

How are DB arrangements/benefits (if at all) treated for IHT calcs?

The proposals are DB arrangements are included in the estate for IHT purposes. Some schemes currently are depending on their distribution arrangements.

EoW irrelevant after April 27?

No, expressions of wish will still be relevant where the scheme has discretionary disposal, but the treatment of pensions for IHT will change.

Where do you see annuities fitting into this (subject to outcome of consultation)?

Some will use them to prioritise their income needs, for some they may use them to fund whole of life policies, others may seek long guarantee periods.  Customer objectives as always will be key.  

Shouldn't the examples with DGT's and ISA's consider the income tax impact of drawing from the pension to put into trust?

Yes, the income tax impact should be considered when drawing from a pension to put into a trust. Our example assumed a beneficiary drawdown pot that was payable tax free.

Do you think the RNRB's will be an EASY HIT for Rachel to raise more tax?

It is possible, but there are other low-hanging fruits that might be targeted first.

Terminal client (66) pension £1m+ (FP2012). Spouse wealthy. Daughter an NHS doctor. Would leaving her as pension pot cause future LTA issues, or better in cash?

Client needs / wants override but it may be better to llow the pension to be inherited by someone who will not have IHT issues with the money or potentially have it paid to a bypass trust.

Lend money to relatives - spent quickly on living costs then the loan may be irrecoverable - therefore part of the estate but with no value - might that work?

No, this strategy is likely to be challenged by HMRC and considered a gift.

I find one of the obstacles for planning is the potential deprivation of assets and care home fees.

This is a common concern, and careful planning is needed to balance IHT planning and care home fee considerations.

Did I hear correctly that someone's Will can be changed by an attorney if someone has lost capacity? Apologies if I did.

No, an attorney cannot change someone's Will if they have lost capacity.

What is an optimum solution for client w/ multi-million pound PP and definitive beneficiaries, currently a top rate taxpayer due to forthcoming IHT & Income tax?

Consider using a bypass trust or making gifts to reduce the estate's value and mitigate IHT and income tax.

Given the feedback to the consultation about pensions and IHT could a pensions nil rate band be introduced to make things easier?

It is possible, but there is no confirmation yet.

An increasing number of clients are including property trusts in LW&T to safeguard property against care fee means testing. How does this affect the RNRB?

Property trusts in LW&T can affect the RNRB if the property is not passed to lineal descendants.

Is income from a Trust deemed as allowable income when determining if a gift is deemed out of excess income?

Yes, income from a trust can be considered allowable income for gifts out of excess income.

Could a final salary scheme pension be written in an external trust so that on death before retirement it is shielded from inclusion in estate for IHT?

No, a final salary scheme pension cannot be written in an external trust to shield it from IHT.

Introduction

The M&G Wealth Technical team delivered an online technical event wrapping up their bond school series with a look at the use of insurance bonds in financial planning. These are the questions and answers from the live event.