IHT planning more crucial than ever

The great bank bail-out and associated issues will have a direct impact on future government IHT planning, inheritance tax planning specialist and wealth manager WAY Fund Managers Ltd warned.

The Treasury will be under ‘intense pressure’ to raise additional billions from UK tax payers to cover the £500 billion plus needed for the Government’s banking lifeboat plan – and additional funding may also be needed to rebuild local authority and charitable organisation coffers in the wake of Icelandic bank bankruptcies, said the WAY chairman and technical director Paul Wilcox.

“Recently we issued an alert advising households not to be complacent over IHT planning in the event a Tory government came to power and raised the joint IHT threshold to £2m.

“We are now convinced that irrespective of which party comes to power at the next General Election, inheritance tax, which brings in billions of pounds a year to an overstretched Treasury, will continue to be seen as a golden goose,” said Wilcox.

“While markets are currently experiencing unprecedented volatility, collective action by administrations around the world will eventually see a return to equities’ values, and we are likely to see a sharp bounce back for investor portfolios.

“Given the likelihood of a major recovery in share values a couple of years down the line, now is the time for investors to move assets out of their estates and start the 7 year clock ticking, using sophisticated trust style planning where they can retain access to those assets in the future should this be necessary,” he said.

“By gifting at currently depressed values, gifts (or loans) can be made at lower taxable values and inevitable, subsequent growth will occur outside the donor’s estate.

“Since gains are now taxed at 18% compared with higher rate taxpayers’ 40%, we recommend structures which use direct investments such as highly flexible collectives which can be unwound should the donor require funds later, or if the need for IHT mitigation melts away,” added Wilcox.

Neither should homeowners be complacent about the recent sharp fall in property values, he warned.

“Clearly, older homeowners will be lulled into a false sense of security, thinking that the current slide in values will shield them from IHT.

“Prices have fallen since the credit crunch began to bite, but there are already signs of a gradual stabilising, and the Government has a new homes target to meet, so builders will start to build again as banks gradually regain the confidence to lend - and there is likely to be a surge in values in property prices – perhaps as early as 2010.

“IHT is often described as a stealth tax, but there is nothing stealthy about a massive 40 per cent bill slapped on the estate of those who have not made the appropriate plans.

“Just a few weeks ago the Tories, as a pre-election booster, were talking about raising the IHT threshold to £2m – or £1m for each partner in a married couple.

“But you really have to ask yourself if this can be in any way a realistic ambition – for any chancellor – given what we have seen happen to world markets, and the repercussions for the Treasury,” he said.

For more information, visit wayinvestments.co.uk