According to figures from HM Revenue and Customs, Inheritance Tax (IHT) revenues are up again, with £5bn being paid in the 2017–18 tax year. This increase comes despite the introduction of the residence nil-rate band in 2017.
With more families falling into the IHT bracket, campaigners are hoping that the current review by the Office of Tax Simplification, will pave the way for a simpler and fairer system.
SIMPLIFICATION IS KEY
With parents often looking to fund house purchases for their offspring, the 7-year rule that means transfers become exempt for IHT purposes after that time, is integral to tax planning.
The low amount of £5,000 that can be given away to children upon marriage should be a prime candidate for overhaul; so too should the annual tax-exempt gift allowance of just £3,000.
Many believe that a positive step would be to remove the overly-complicated residence nil-rate band. In the meantime, whilst we’re awaiting the outcome of the review:
WHAT ASSETS CAN BE PASSED ON FREE OF IHT?
Everyone has a nil-rate band enabling them to pass £325,000 of assets tax-free. Most gifts made more than seven years prior to death are also free of IHT, as are gifts made between married couples and civil partners. Additionally, the residence nil-rate band rises annually, reaching £175,000 in the 2020–21 tax year.
There’s a £3,000 gifting allowance each tax year (if unused, this can be carried over for one year). Wedding and civil partnership gifts are exempt, up to £5,000 to a child, £2,500 to a grandchild, or £1,000 to anyone else. Gifts of up to £250 per beneficiary per tax year are exempt, provided the recipient hasn’t received part of the £3,000 allowance.
Regular gifts from income can be exempt in certain circumstances. There is normally no IHT payable on gifts to charities or larger political parties. Pensions are not usually counted as part of an estate for IHT purposes, though other taxes may apply in some circumstances.
Inheritance Tax is complex; professional advice is always recommended.
The Financial Conduct Authority does not regulate some forms of taxation advice.
Do you discuss financial matters with your children? In the UK, we can be very reticent when it comes to having family conversations about money. But as our children grow, they need to know the financial basics in order that one day they can successfully manage their own money.
So, knowing how to draw up a budget and what should go into it, how interest rates affect the amount of money you pay back on a loan or mortgage, and how compound interest can help savings grow, are all good life skills to learn at an early age.
STARTING THE CONVERSATION
Data suggests 58%1 of parents report finding it difficult to talk to their children about financial matters. One of the main reasons parents give is that they feel children shouldn’t be burdened with adult responsibilities, like concerns about money. It can in fact be very empowering to give your children the skills and confidence they need, so that they don’t face money worries in the future.
With so many financial transactions now carried out by the swipe of a card, gone are the days when parents could use a shopping trip as a chance for children to learn about how much things cost. So, it’s more important than ever that children understand from a young age that money is finite and sometimes hard choices have to be made in order to keep within a sensible spending limit.
However, there are practical ways to encourage children to save, such as a Junior ISA, which gives children the opportunity to see how a savings account operates, and how their money can grow over the years. Explaining how much family treats such as holidays cost, and how they are budgeted for, will give a child an understanding of the rudiments of money management. When interest rates rise, explaining to a child what the implications are for your mortgage and the family budget will help prepare them for the day when they take their first steps on the housing ladder.
1The Money Advice Service
Once you reach 50, it’s time to get serious about planning your retirement. True, it could still seem ages away, and you may not be thinking of giving up work anytime soon. However, putting a retirement plan together will help you understand what your finances will look like when you decide to take life easy.
Retirement planning isn’t just about getting your money organised, although that’s vitally important. Depending on your circumstances, you may want to think about completely changing your lifestyle, moving home, travelling the world, or simply putting your feet up. And like all big projects in life, the more time you can invest in thinking it through, the better.
START BY TAKING STOCK
Getting financial advice will help you get a true perspective on how your pension planning is shaping up. We will help you work out the value of your current plans, including your state pension entitlement. If you’ve lost track of pensions held with past employers, now is a good time to get them traced. If you’ve several pension plans, we will be able to help you work out if it would make sense to consolidate them.
And don’t just think about pensions; having money in ISAs will help in planning your retirement income tax-efficiently.
DO YOUR SUMS
Don’t leave it until the last minute to work out how much money you’ll need to live on in retirement. Some costs will go down, like travel to work, but others like utility bills are likely to increase as you spend more time at home. Factor in the cost of the travel, holidays and hobbies you’re likely to want to pursue when you have more time.
The last few months have seen the release of positive economic reports and grounds for optimism remain with regards to future growth rates, certainly in terms of the US economy. However, while no one is currently predicting the onset of a sharp slowdown or recession, there are signs that the global economy may be starting to lose momentum.
The OECD* composite leading indicator, which covers advanced economies plus China, India, Russia, Brazil, Indonesia and South Africa, has been in decline since peaking in January and slipped below trend in both May and June. This led the OECD to concede that its lead indicators are: “pointing tentatively to easing growth momentum”.
There are a number of potential issues that could act to restrain the pace of growth across the latter half of the year. Top of the list remains the re-emergence of protectionist policies and the continuing trade tensions between the US and the rest of the world. In addition, the prospect of a no-deal Brexit and the impact of monetary tightening in the form of interest rate rises, also have the potential to precipitate a softening in global growth over the coming months.
DEAL OR NO DEAL?
Perhaps the principal area of concern in relation to global economic growth prospects, remains the spectre of a full-blown trade war. Such a possibility has been evident since Donald Trump was elected US President on a protectionist agenda nearly two years ago and still looms large.
The prospect of a no-deal Brexit did seem to increase during the summer months. Although the full ramifications are difficult to predict, it would seem safe to assume that such a scenario will have negative economic consequences for the UK, as well as causing economic upheaval across the rest of the EU.
While the UK government continues to suggest that securing a deal remains “the most likely outcome”, it recently started publishing a series of technical notices designed to prepare businesses, citizens and public bodies for the possibility of a no-deal Brexit. This new volume of literature will sit alongside the 68 technical notices that the EU has already produced on such an eventuality.
*Organization for Economic Cooperation and Development
With property prices stabilising across the UK and falling in London, what steps can you take to ensure you get a good price if you’re planning to sell your home?
With four-fifths of properties now sold below asking price1, experts agree that being realistic about price can be key to getting a sale. Over-pricing can lead to low levels of interest in your property, whereas offering your home for sale at a realistic figure is likely to entice more potential buyers and can lead to an increase in the amount offered. If several buyers are really keen, they may be prepared to put in bids over the asking price to secure their purchase.
CREATING THE RIGHT IMAGE
Before getting those all-important photographs taken, it really pays to have a good declutter and a thorough clean. It’s particularly important that bathrooms and kitchens look pristine and tidy. Grubby worktops, baths and taps that have seen better days, can be very off-putting to potential buyers.
Simple steps like making sure the property is well-aired, last night’s cooking smells aren’t lingering and there’s no washing-up sitting in the sink will all help to create the right atmosphere.
Light rooms are a big attraction, so if you have small rooms that are painted in dark colours, it might be worth giving them a makeover in more neutral shades that won’t put off viewers.
Kerb appeal is as important as the experts claim. Many prospective buyers tour the neighbourhood before arranging a viewing, so making sure that the front of your house is presentable, especially the area around the front door, really can help your property get noticed.
Gardens can be an attractive feature for growing families, so making sure that you include pictures of your outside space in your sales particulars is important. Keeping lawns cut, flowerbeds tidy and children’s toys neatly stowed away will all help ensure you create the right impression.
Of course, some buyers are looking for a property they can renovate, so may not be deterred by a lack of aesthetic appeal.
1NAEA Propertymark, March 2018