THE BUDGET AND ESTATE ADMINISTRATION

25/03/2010

Following the Budget announcement on 24 March and the related statements from HMRC, this article summarises some implications for those who are involved in Estate Planning or are trying to handle the complexities of an Estate.

Remember this was an Election Budget and we can expect a reality check from a second emergency budget after the election!

• The Chancellor confirmed the basic rate of Income Tax will be 20%, the higher rate will be 40% and the additional rate will be 50%. Personal allowances will remain at their existing amounts. Income shifting (moving Income to Capital) will remain high on any tax adviser’s radar!

• Entrepreneurs' relief doubled but there are no changes to Capital Gains Tax (CGT). A capital gain of £2 million could pay tax of £200,000 while an Income gain of the same amount would be charged tax of £1,000,000. A mouth watering £800,000 difference but lets wait for the second budget to see if CGT remains the same!

• The Inheritance Tax (IHT) nil rate band remains frozen for the next four years at £325,000. This means that advisers can now revisit using Nil Rate Band Discretionary Trusts in wills as part of an Estate Planning strategy. An asset with capital growth potential (or debt linked to that asset) will give a higher deduction on a second death than the transferable allowance.

• No other changes to IHT announced although some relatively small tinkering could raise more revenue in the future; these could include tightening the rules on gifts and potentially exempt transfers and an increase in the standard rate on larger estates – for example a 50% rate on estates over £2 million.

• A series of anti-avoidance measures were announced or re-announced in the 161 pages of 71 budget notes released simultaneously, together with confirmation of further changes to the disclosure of tax avoidance scheme rules. HMRC will consider over the summer of 2010 how IHT can be brought within the regime for the Disclosure of Tax Avoidance Schemes (DOTAS). Amongst other things, this will examine whether appropriate descriptions (known as "hallmarks") that govern what must be disclosed can be developed in an IHT context.

• The obvious next step for a new Chancellor will then be to bring IHT into the Targeted Anti Avoidance Rule (TAAR)  – a regime allowing HMRC to set aside a structure which they believe is set up only to create a tax advantage

The new rules continue to create uncertainty and complexity for both professional advisers and for consumers. If you are personally handling an Estate or have a client who needs help speak to one of our professionals on 0800 496 9000 or 01225 750 261, or please contact William Feeny, a Director at Kings Court.