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Taxation
Other than in exceptional circumstances investment decisions should take precedent over tax planning decisions.
Nevertheless your tax position is crucial to us when we construct a 3 Box portfolio for you. Once we understand your tax status we will be looking to make efficient use of tax allowances and reliefs such as ISAs throughout our management of your capital and on an ongoing basis during our regular reviews. In our Personal Investment Report we will include recommendations regarding use of your tax allowances and reliefs including an initial review of capital gains and Inheritance Tax.
End of year tax statement
Each year, shortly after the tax year-end, we send you a statement which lists all income and gains in your portfolio. This will facilitate the completion of your tax return.
Self Assessment tax service
In addition we have a team of tax specialists who can undertake your Self Assessment tax returns on your behalf, including liaising with your payroll department, checking your tax coding, checking your P11D forms, resolving any outstanding issues with the Revenue and dealing with any random Revenue audits. Costs available on request.
Inheritance Tax planning
Inheritance Tax is a concern to many people nowadays and there are a number of avenues to explore in order to find an appropriate solution. These may involve the use of insurance policies, Discretionary Will Trusts, Discounted Gift Bonds and Gift and Loan Trusts. Our Inheritance Tax calculator will give you an initial feel as to whether you need to seek further help with Inheritance Tax planning.
At Close we can look at all these issues for you and your family
2007 Pre Budget Report - Changes to Inheritance Tax (IHT) Nil Rate Band (NRB)
In his Pre Budget Report delivered on 9 October 2007, the Chancellor announced a significant change to the IHT rules for married couples, civil partners, widows and widowers.
The Chancellor proposed that for deaths occurring on or after 9 October 2007, any unused proportion of the nil rate band on the first spouse's or civil partner's death can be carried forward to the estate of the second spouse or civil partner when he or she dies.
Example 1
Mr A dies during the 2007/08 tax year leaving an estate of £300,000 of which £150,000 is left to his children and the balance of £150,000 passes to his wife, Mrs A, under the spouse exemption. Mr A therefore uses 50% of his nil rate band, leaving 50% unused.
Mrs A dies in November 2010, with an estate of £700,000. For 2010/11 the nil rate band is £350,000, so Mrs A has a total nil rate band of £525,000 (her own band of £350,000 plus 50% of £350,000 from Mr A). This leaves £175,000 liable to IHT.
In this example, if all of Mr A's estate had passed to Mrs A instead, then on Mrs A's death in 2010/11, her estate would have benefited from a total nil rate band of £700,000 (2 x £350,000 as Mr A would not have used any of his nil rate band on his death). In this case, there would be no IHT to pay, as Mrs A's estate is within the total nil rate band that is available.
The proposed changes are to have retrospective effect, so that the unused proportion of the IHT nil rate band will be available to all survivors of a marriage or civil partnership who die on or after 9 October 2007, regardless of when the first spouse or civil partner dies/dies.
Example 2
Mrs B dies in October 1977, leaving all her estate of £20,000 to her husband, Mr B. Mr B dies in April 2008 with an estate valued at £600,000.
None of Mrs B's nil rate band (or the Capital Transfer Tax equivalent) was used on her death in 1977, as the transfer to Mr B would have been exempt from tax. Consequently, on Mr B's death in April 2008, a total nil rate band of £624,000 (his own £312,000 plus 100% of his wife's £312,000) is available. As Mr B's estate is less than the available nil rate band, no IHT would be payable.
The proposed changes allow the unused proportion of the nil rate band to be transferred from more than one deceased spouse or civil partner, subject to an overriding limit of one additional nil rate band. So, if someone has survived more than one spouse or civil partner, on their death it would be possible to claim the unused proportion of the nil rate bands from each of the relevant estates.
Example 3
Mr C dies during the 2006/07 tax year, leaving all his estate to his wife, Mrs C. Mrs C remarries, and her second husband, Mr D dies during the 2009/10 tax year, again leaving all his estate to his wife, Mrs D (formerly Mrs C).
Mrs D dies during the 2010/11 tax year with an estate worth £900,000.
Although both Mr C and Mr D used none of their respective nil rate bands, it is only possible for one additional nil rate band to be used when calculating the IHT due following Mrs D's death.
The total nil rate band available on Mrs D's death would be £700,000 (her own £350,000 plus a capped additional nil rate band of £350,000 from the spouses she survived), leaving £200,000 of her estate liable to IHT.
Should you have any queries regarding the above, please speak to your usual contact at Close Wealth Management or contact our Tax Team on 01606 810100.
