Inheritance Tax planning like a Cameron – what your clients want to know now

Ever since Cameron set out his stall against the Brexit, revelations about his spending and finances – both professionally and personally – have been coming out thick and fast. What a coincidence.

The coverage in the press, while calculated to make Dave look ‘dodgy’, has in fact highlighted the legal and sound advice on IHT planning that hundreds of families in the UK follow every year.

But the ability of even the Sunday Times – which regularly publishes advice on how to avoid Inheritance Tax – to imply that there is something unsavoury in Cameron’s actions has highlighted something more: the lack of awareness amongst the general public of their own exposure to inheritance tax, and the legitimate steps they could take to minimise their exposure.

At my own firm, Just Wills and Legal Services, we have seen a rise in enquiries regarding Inheritance Tax Planning since the news broke that Cameron received a gift of £200,000 from his mother in 2011, enabling him to potentially avoid up to £80,000 in Inheritance Tax.

Part of our job as estate planners is to help our clients to find the answers to the questions they didn’t even know they needed to ask. So when clients come to you, perhaps unaware that they can reduce their IHT exposure, or even that they are exposed, how can you best guide them?

Have they accurately assessed the value of their estate?

With rocketing house prices, many people who previously would not have been affected by IHT now have estates above the threshold. Even those who still owe a large percentage of their mortgage often fail to take into account that if they have a life insurance policy, or Death in Service arrangement, then on their death that debt millstone may be transformed into a valuable asset.

And beyond that, few are aware of all the elements that can comprise your complete estate.

Are they aware of the latest rules on Inheritance Tax?

Many people are vaguely aware that there have been recent changes to the Inheritance Tax threshold, but the internet is full of rumours and out of date information.

Many are mistakenly under the impression that the threshold rise due in April 2017 is already in effect.

Others are unaware that if their spouse has predeceased them, Inheritance Tax on their own estate will be assessed according to a combined threshold under current rules, not the rules that applied at the time of their spouse’s passing.

For the most up to date Inheritance Tax advice, you can download JWALS free guide to The 7 Inheritance Tax Mistakes to Avoid

Taper Relief, Lifetime Gifts and the 14 year rule

Even clients who are aware of the 7 year rule on Lifetime Gifts are often unaware of how they might trigger the ’14 year rule’ by gifting more than once within the seven year taper period.

As all the papers have explained in brief, should David Cameron’s mother live another two years (making it seven years since the gifts were made in 2011), then the estate will be completely exempt from the IHT on that £200k gift.

But do your clients know a Potentially Exempt Transfer from a Chargeable Lifetime Transfer; a Bare Trust from a Protective Trust? Do they know how they may accidentally trigger the ’14 Year Rule’?

Are they clear on the difference between a reduction in the amount of the gift taxed, and relief on the full tax due?

A well-planned estate is invaluable not only to your client, but – in terms of word of mouth referrals – to your business too. And part of reassuring your clients that their estate and their family is in safe hands is to make sure that they are aware of the choices that are best for them, explained in a way they can understand clearly.

So don’t assume your clients all know exactly what they want – what they want most is your professional knowledge and expertise!

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