“Stability has been the order of the day, with today’s Finance Act outlining no major changes from those announced in the Summer Budget regarding changes to the inheritance tax system. The gradual introduction of a Residential nil-rate band in addition to the existing £325,000 nil-rate band has now become law. With a significant amount of people’s wealth in the UK tied up in their home, today’s news confirms that more families can now benefit from this nest egg. This is good news for investors and we encourage people to speak with their financial adviser or solicitor to ensure that their will makes the most of the revised allowances, and to consider other appropriate estate planning solutions that ensure maximum benefit for their beneficiaries.
“In its pre-election manifesto, the Conservative Party made clear its intention to make the family home exempt from inheritance tax for many people, and now that this pledge has been met, we hope the changes made will be allowed the opportunity to bed in during the remainder of the current Parliament.
“While the changes are clearly positive news for investors, in reality many people are still going to be affected by inheritance tax. The nil-rate band and residential allowance combined will only reach a maximum of £1 million in 2020, and then only for couples – with married couples and civil partners benefitting from their allowances automatically switching to the surviving spouse. Furthermore, the existing nil rate band has remained frozen at £325,000, and high value estates will not benefit from the additional residential allowance as it is scaled back on estates worth over £2 million. Given that property prices continue to rise in general, many thousands of estates will continue to be impacted by potentially sizeable inheritance tax bills. By the Chancellor’s own admission in the Summer Budget, even when the potential £1 million exemption level is reached in the 2020-21 tax year, the number of estates forecast to have a tax liability is around the same figure as in 2014-15[1]. It is now clear that for many, there remains a very real need for advice on how to maximise the inheritance they can leave behind.
“Investors have a number of options available to them when planning to pass on their estate, including investing in companies that qualify for Business Property Relief (BPR). Since its introduction in 1976, BPR has incentivised investment into many smaller businesses, helping them to fulfil their growth potential while aiding investors through the inheritance tax exemption it offers after two years. Unlike with making a gift or settling assets into trust, the investor retains control over the investment, and can sell their shares if they need to. However, money taken out of the investment will no longer be exempt from inheritance tax.
“With the state pension age on the rise and the unpredictability of later years and cost of potential care to consider, the challenge for many people is knowing how much to retain to provide for their own future. Investments in shares that qualify for Business Property Relief can give investors greater levels of access to and control of their assets than other estate planning solutions, so they can be flexible in their planning.”
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