If the charitable gift is as much as 10% of the taxable estate, Inheritance Tax payable on the rest of the estate comes down from 40% to 36%.
Unfortunately our parliamentary draftsmen have made this a complex and complicated arrangement, taking an overview of property that passes by survivorship to a joint owner; trust property that passes to another beneficiary; and property that belongs absolutely to the person making the Will.
All other reliefs have to be deducted before the new allowance kicks in (so there’s no advantage to a man who leaves the other 90% of his property to his wife, because that’s not taxable).
The Revenue anticipate the public having so much difficulty with the new allowance that there is a provision that enables us to “opt out” of claiming the allowance, therefore maybe making savings on valuation fees and
The details are awaited.
They have published a consultation paper suggesting that it should be a criminal offence to give someone advice about how to pay less tax, even if you are not employed as a tax adviser; even if you do it for nothing; even if a third party asks you to advise the taxpayer; even if the advice is given in an article in a newspaper.
In their consultation document they refer throughout to "deliberate wrongdoing" by the adviser. Then they go on to explain what they mean by that - "an act that is capable (directly or indirectly) of bringing about a loss of tax". I think we know who would be suffering the loss, and it isn't the taxpayer. It's any loss to the Revenue.
This would mean that a man in a pub who advises you "buy an ISA" will be guilty of a criminal offence.
HMRC have held back their legislation for the time being, for second thoughts.
Where information or a document is privileged, a party is entitled to withhold it from others who would otherwise be entitled to demand it (such as the Inland Revenue or the court). Privilege is often classified under two sub-headings - legal advice privilege and litigation privilege:
Litigation privilege attaches to confidential communications between a lawyer and his client or a third party, for the main purpose of litigation which is either pending or reasonably in prospect.
Legal advice privilege attaches to confidential communications passing between lawyer and client for the dominant purpose of obtaining or giving legal advice. It would cover for example advice given to a client by a lawyer on tax planning options.
The House of Lords was concerned only with the scope of Legal advice privilege. It held that Legal advice privilege only applies to legal advice and assistance given by a member of the legal profession, not by accountants.
It would be prudent for clients - particularly in high value or complex transactions - to obtain tax advice from lawyers rather than accountants. Advice given by lawyers is protected by Legal advice privilege. It will be difficult, however, following this decision to ensure that advice given by accountants is capable of being so protected. Advice from accountants may, therefore, have to be handed over to HMRC should they request it.
But quirks in some old rules mean this relief is not available to many where the earlier death occurred before March 1972. The Low Incomes Tax Reform Group (LITRG) has challenged this anomaly, but to no avail: Ministers have rejected their pleas to reconsider.
Inheritance Tax (IHT) is a tax that worries many people, even if it does not raise a lot of money in the great scheme of things. It is in principle a simple tax: whatever assets you leave behind on death are valued and the total value over a set amount (the "Nil Rate Band") is subject to tax at 40%. There are various exemptions and reliefs (a key one being transfers to a spouse or civil partner) and some lifetime charges; but that simple framework will serve.
The Nil Rate Band Transfer
One recent change very much for the better, which allayed a lot of fears and made people feel the tax would operate more fairly, was the "Transferable Nil Rate Band". Under this, from October 2007, a deceased person whose previously-deceased spouse didn't use all of their IHT Nil Rate Band (NRB) can make use of any unused proportion. So with the NRB currently £325,000, this means that a married couple can have the benefit of the first to die leaving everything to the surviving spouse (exempt from IHT) with the survivor being able to anticipate a total effective NRB of £650,000. That has saved a lot of worries and artificial planning.
However like so many tax issues, this admirable change brought with it some unfairness. One concerns a small number of elderly people whose spouses died many years ago. Despite the best efforts of the LITRG, they have been unable to persuade the Government to rectify the anomaly and cure the unfairness.
The situation concerns someone whose spouse died many years ago, while Estate Duty was in operation. (Estate Duty was the forerunner of Capital Transfer Tax, itself the forerunner of IHT.) Before March 1972, when a modest spouse exemption was brought in, someone who died and left their property entirely to their surviving spouse was always chargeable to Estate Duty. They used up all of what we today call the nil rate band, which means that, under today's rules, the surviving spouse has no additional Nil Rate Band available on their death. (The balance was that Estate Duty had a "surviving spouse exemption" but that is of little value nowadays.)
The LITRG has come across a small number of individuals affected by this: mainly long-widowed, now elderly, ladies, who feel very unfairly treated by the new rules. Had their husband survived until March 1972, in many cases they would not be looking at an IHT bill on their own estate.
Attempting a Cure
The LITRG took up the issue and drafted amendments to the Finance Bill 2008 (which put through the transferable NRB rules) to rectify the situation. Although sympathetically received by the Opposition, the Government rejected the change. The main reason seemed to be one of difficulty in sorting out the situation after all these years.
Subsequently they made common cause with Rob Marris MP, who has a constituent affected by the anomaly and who rapidly saw both the unfairness and the ease of fixing it. They had meetings and correspondence with HMRC and the responsible Minister. Their joint arguments were carefully considered, but no changes resulted.
Reasons for Leaving the Unfairness Alone
The HMRC/Ministerial argument against making a change seems to revolve around the difficulties of opening up old estates. This is true to a degree in that there will be a need to ascertain what happened when the first spouse died... but that is no different from any situation affected by the NRB transfer, only further back in time. Also, they argue that arrangements were made at the time under the rules then applying - but, the LITRG say, that's true of every estate now generating a NRB transfer. Changing things now, say the Government, would create inconsistencies with estates on which tax was paid at the time. The LITRG disagrees: they are not asking for the 1970 or whenever estate to be reopened: just that they be looked at from 2010 in the same way as other earlier deaths are, ie that leaving everything to the spouse at the time leaves a NRB available.
The (non) Result
It seems we are to be left with a handful of elderly widows and widowers, many of whom had to cope as single parents for 40 years, feeling very unfairly treated. Rob Marris's constituent is a typical example: she was left a few thousand pounds by her late husband, but that has served to mean she can't leave her house (effectively her only asset) IHT-free to her children. Of course asking for a tax change that costs the government money at this time is hardly going to be popular. Many would argue that the beneficiaries would be the children, who may or may not be well off now, although all are likely to have had a childhood blighted by the loss of father or mother, perhaps with little money around. The change needed here is simple, would cost a negligible amount and would remove a tarnish from an enlightened and sensible tax measure. Why can't that change be made?
Since 9th October 2007 spouses and civil partners have been able to transfer their Nil Rate Band allowances so that any part that was not used when the first spouse or civil partner died is transferred to the surviving spouse or civil partner for use on his or her death.
The transferable allowance is available to all survivors of a marriage or civil partnership who die on or after 9 October 2007, no matter when or where the first partner died.
The judge held that not declaring the value to be provisional was a minor
technical error of no consequence whatsoever and dismissed the Inland Revenue's
An LPA has to be registered with the Court of Protection before it may be used, but the drawback is the expense in Court fees, and the expense in extra work at the outset. The Court of Protection is also currently taking several months to register documents!