Active Business Series - Estate Planning - September 2012
ACTIVE PRACTICE UPDATES SEPTEMBER 2012Estate planningThat you should leave something behind for loved ones isa gratifying thought, whatever the size of your estate. Personal Planning UPDATEWhy is estate planning Start by asking yourself Transferring the nil-rateimportant? the following questions: bandIf your assets exceed £325,000 (including Who? The amount of the nil-rate band potentiallyany gifts you have made in your last seven available for transfer will be based onyears - see next page for further details), Who do you want to beneit from your the proportion of the nil-rate band unusedyour legacy could be diminished by a 40 wealth? What do you need to provide for when the irst spouse or civil partner died.per cent tax liability, or 36 per cent if you your spouse? Should your children share If on the irst death the chargeable estateleave 10 per cent or more of your estate to equally in your estate – does one or more is £150,000 and the nil-rate band wascharity. have special needs? Do you wish to include £300,000 then 50 per cent of the original is grandchildren? Would you like to give to unused. If the nil-rate band when the survivingEstate planning means your family will charity? spouse dies is £325,000, then that wouldreceive a larger share of your estate. Estate be increased by 50 per cent to £487,500.taxes necessitate careful planning, so due What?care, attention and execution of your plans Currently the maximum nil-rate band thatis essential. Should your business pass only to those may be available to a surviving spouse (or children who have become involved in the civil partner), amounts to £650,000 (2 xDid you know that it is expected that only business? Should you compensate the others £325,000). This combined rate is due totwo per cent of estates this year will have with assets of comparable value? Consider apply until 5 April 2015. Common practiceliability to inheritance tax (IHT)? We can the implications and complications of multiple is to combine the allowances together inhelp you to keep your estate taxes to a ownership. expectation that the transferable proportionminimum. will be better utilised on the second death. When? Inheritance tax rates 2012/13 - If you plan to remarry and your late spouse 2014/15 Consider the age and maturity of your transferred his or her nil-rate band to you, the beneiciaries. Should assets be placed into tax situation can be complicated. Without Nil rate band to £325,000 a trust restricting access to income and/or careful planning, your beneiciaries could Rate of tax on balance 40% capital? Or should gifts wait until your death? lose large tax allowances. Chargeable lifetime 20% transfers For objective advice, please ask us - whenever there is a signiicant change Reduced rate 36% in legislation planning should be reviewed - contact us to ind out more.18 Hyde Gardens www.plummer-parsons.co.ukEastbourne BN21 4PT01323 431 200 firstname.lastname@example.org
Estate planningThe main exemptions Business property relief applies to the assets of a sole proprietor’s business, the Trustsand reliefs share of a partnership business, or equity Trusts allow for more lexible estate in a company which is unquoted (including planning. As well as possibly offering taxThe exemptions, apart from the nil-rate savings, they offer greater control over who AIM listed companies). The importantband have remained unchanged for will beneit from your estate, allowing you distinction is that it cannot be primarily anmany years. Thus, gifts between spouses to protect vulnerable beneiciaries such as investment business, however if you areor civil partners, during their lifetimes or children, but they can be dificult to alter so unsure as to whether your business assetson death, are completely exempt with sound long-term planning is essential. We qualify please discuss this with us.the important exception of a gift in the are happy to advise regarding the beneitsseven years before death, and a legacyfrom a UK-domiciled spouse to a spouse Other main exemptions and implications of forming a trust.domiciled outside the UK, in which case for lifetime gifts Life assurancethe allowance is £55,000. • Gifts of up to but not exceeding £250 Life assurance policies can form a useful• The annual exemption on gifts given per annum to any number of persons part of estate planning as the beneits during the life of the donor totalling • Gifts made out of income that form can be written in trust and not fall into the £3,000 allows a small element of part of normal expenditure and do taxable estate. An investment bond can increase in the effective exemption not reduce the standard of living of be an excellent vehicle for bequeathing each year, in the absence of an the donor almost tax-free. Insurance policies can also inlation increase on the nil-rate band • Gifts in consideration of marriage/ be used to cover any inheritance tax your limit. The allowance can be carried civil partnership of up to £5,000 by beneiciaries might have to pay. forward by one year, allowing gifts a parent, £2,500 by a grandparent of up to £6,000 to be exempt every and £1,000 by any other person. other year. Some estate planning• The unused proportion of the nil- The key elements to questions rate band is transferable from the deceased. estate planning • Are you sure your estate plan relects your current wishes? • Gifts, whether made during lifetime Your Will • If you die suddenly, will your or on death to UK charities, political executors be able to easily locate all parties, national museums and art Writing a Will can be an involved process your records? galleries all qualify for exemption, even without tax considerations. How and there are further conditional • Do you have medium-term and long- will your estate be distributed? Who are exemptions for buildings and assets of term inancial objectives? the executors? Who will look after your any outstanding historical or aesthetic children if they are still minors? These • Do you know the current value of value. are just a selection of the safeguarding your estate? • Gifts made seven years before the issues that require decisions. If the Will is • Are you comfortable with your donor’s death may not be totally free to include trusts, substantial property, or executor(s) and trustees? from inheritance tax. The position pension funds it would undoubtedly beneit • Are you sure you have the right type can also be complicated by (a) gifts from professional advice. and amount of life assurance? with reservation of beneit, and (b) • Have you considered how inheritance pre-owned assets. Both of these may Normal expenditure out of income tax will affect your business? remove the seven year exemption if you have continued to beneit in some This exemption is an important one and • Do you know what will happen to way from the gift. can be used to prevent an estate from your business if you die? growing further, for example by giving • Have you considered the use of trusts Care should be taken here – if you are regular cash amounts to grown up children in estate planning? concerned that previous gifts may not be to inance school fees or similar. You will • Do you know the intentions of tax exempt, or that ownership of the gift need speciic advice on how to ensure that relatives with substantial assets?could be challenged by non-beneiciaries, you meet the necessary conditions.you should seek our advice.The UK offers signiicant reliefs foragricultural property and business assetswhich can both potentially be gifted tax-free if they have been owned for at least Please contact us to discuss any of the issues highlighted in this guide. We can help you to decide whether a trust isseven years. Agricultural property qualiies applicable, and, if so, we can help you to set it up.even if it is farmed by others.