What Darling really did with Inheritance Tax

Toby Young

Yes, but can't married couples now use the same Nil Rate Band wheeze to, in effect, leave their children £1.2 million tax free?

Mr P J Rogers

As one of the 'sensible' people, my understanding now is that there is no need to write new wills, but simply to continue with the old, unless (of course) one's circumstances change in such a way that new will(s) are necessary. Is this not so?

C Powell

This change does nothing for individuals or those who are not married or those, like the 2 sisters recently in the news, living together who cannot be married nor anything for individuals wanting to pass their assets onto children. See today's letters in the Times where people have already cottoned onto this. What this mini-Budget does do is hammer pensioners (again), those in share-saving schemes and small businesses. Couple that with the forthcoming council tax increases and the 100% (!) increase in tax for the lower paid last spring and DC should have plenty of ammunition to use against GB in the coming weeks.

James Burdett

I think this is a 2 stage Con and we need to be aware of it. First it does nothing for the sensible people who wrote a decent will. Secondly it therefore won't cost anything like the amount Darling says it will. Thirdly when his non-dom figures are miraculously closer to George Osborne's than the Treasury's and his 30k charge brings in close to 4bn and he isn't paying 1bn for his IHT changes, he will lop 5bn off his borrowing requirement and 'prove' that Labour are prudent still. It is an absolute and total con.

Fraser Nelson

Toby, if this was a real tax cut and allowances had been genuinely doubled (as we have been led to believe) then you would be right. But my understanding is that, because this is a fake tax cut which simply restates existing allowances, you wouldn't be able to get to £1.2m. Am I right, David?

Alex, London

Good article. Shame this won't be published in the (pro-Labour) press or aired on the (pro-Labour) BBC News

Robin Stephenson

As my friend Dave makes clear above, it is wholly erroneous to believe that the IHT threshold has been doubled- the combined IHT rate for couples will remain at £600,000.00, and will only increase in the terms which Brown had informed us of in previous budgets. So for a married couple, on the second death, the saving will be precisely zero. And of course, even if on the first death the first spouse didn't have an IHT planning will in place, it was possible to do a post death variation to establish a discretionary trust anyway. So the taxation yield to the treasury will be identical. In fairness, he has made the measure retrospective, but this will only affect a reasonably small number of families. Robin Stephenson Solicitor Knight & Sons Robin Stephenson

Toby Young

Fraser, that's the key question. Does anyone out there know the answer?

Davy B

Toby,

I am afraid you are wrong, all that is being allowed is for husband and wife to club together their existing allowances to get £600,000. This is now automatic, rather than having to be done by Will.

This is the only change, in reality there has been no raising of the threshold at all.

With reference to those who already have Nil Rate Band Discretionary Trust Wills having to rewrite their Wills, it is true that this is not essential, however it does mean that those with the Trust will have created a Trust on their death (with all the attendent formalities and costs) for no practical purpose at all. Therefore the best (and cheapest option) is to change your Will.

Toby Young

Thanks, Davy. Looks like I'm going to have to change my will then ...

John Whitworth

I remember looking into this Trust business. You need trustees (lawyers) and you need to pay them money and go on paying them money. The new arrangement means you don't need lawyers at all, except to make a will which is very cheap. Not needing lawyers is always an excellent thing. So thank you George Osborne for bringing this to pass.

Davy B

Sure I could do you a deal Toby :-)

Tiberius

With the Treasury's record under New Labour, I have no intention of changing my will and taking out the DT. Who remembers Child Tax Credits which lasted one year before being replaced with Children's Tax Credits; then the Working Tax Credit which initially had to be paid via employers, but then changed to central administration; or the 0% Corporation Tax band on taxable profits up to £10k, which, when found to be enthusiastically utilized by small companies, was repealed, but not before a single year's (FY 2005?) transitional arrangement which levied a tax charge on distributions made out of the exempt band; and the announcement that property could sheltered from tax within a pension fund wrapper, only for the provisions to be withdrawn at the 11th hour when investors had paid out to set up their schemes? I would not recommend blindly accepting that Darling's IHT changes will remain in their present form. Labour Chancellors all have form.

Cogito Ergosum

What's all this nonsense about doubling the threshold. For me as a single person there is nowt.

Davy B

Good point from Tiberius. This government keeps moving the goalposts. All we humble professional advisors can do is advise on the current law. However assuming that the new scheme will stay in place (as it will really cost the revenue little), it is actually detrimental to keep the current Trust in your Will. Not only are you using up the first nil rate band with the trust, with all the attendant costs, if the nil rate band grows faster than the investments/property in the trust you will lose out again. For example hubby dies tomorrow and first 300k of his estate goes into trust. Wife dies in 2010 when band is £350k. She only has £350k taken off her estate plus the 300k in the trust. So she has got 650K to next generation tax free. Alternatively if hubby dies tomorrow leaving everything to his wife, then she dies in 2010. she gets double the then nil rate band and gets 700k tax free to the kids! Those who have planned ahead are penalised.

Tiberius

Thanks for that advice, Davy B. No wonder Captain Brownadder couldn't stop giggling through Darling's speech - he knew he'd created the perfect conundrum for taxpayers. And since this legislation is immediate (even, perhaps, only in the Bill Clinton sense of "is"), there's no time to consider whether to "opt in or out." Better ring our solicitors...

David Hadley

Agree with the general thrust that this is a con. However as a tax anorak I should point out that due to timing there is a slight difference between the proposals and a discretionary will trust. Best illustrated by an example.
Mr A dies today when the IHT exemption is £300,000. His wife died in 2002/03 when the exemption was £250,000. Using the discretionary trust will route £550,000 could escape IHT (£300,000 +£250,000). Under the new proposals as I understand them £600,000 will escape IHT (2 times £300,000).

Davy B

David Hadley has a good point.

It must be remembered that those widows whose deceased partners have already set up a Discretionary Trust will be penalised and they can't go back and undo it, unlike couples who are both still alive!

Dan

I like a lot of others am a bit annoyed at this sudden and seemingly unplanned change to IHT legislation. as mentioned by a couple of entries here I am loathe to go and change my will just yet until I see the full backlash of this change. One thing I am uncertain of is whether my current DT will continue to mitigate against long term care costs in it's current form. Anyone care to comment on that? PS: pretty irritated at having paid £600 for a possible worthless set of documents...

Helen Smith

This may be a simplistic question, but my mother died earlier this year and stipulated that the executor (me) set up a trust fund to allow us to benefit from the double IHT allowances (my father is still alive). I was on the point of doing that when the new threshold came in. There is now no point my setting up the trust fund. Is there any legal requirement on me to do this? And, by extension, for people who have a trust fund written into their wills - like my father - do they have to change their wills or can the executors just ignore that instruction? Does anyone check, or is it just up to the beneficiaries?