There are few positives that can be drawn from the current situation. Spending time with our loved ones is one - if you are lucky enough to be able to do that, and not having to commute is another - as we don’t think anyone misses being stuck in traffic or crushed on the tube.
Oddly, there may also be an opportunity to use the current situation to your advantage and carry out some estate planning around how you own your assets. Martina Fitzgerald, Private Client partner and Chris Clayton, Director of CBW Financial Planning, have outlined some of their thoughts on estate planning below. If they are of interest or have sparked a thought about something else, please get in touch.
Usually when thinking about making a gift of an asset, the potential Capital Gains Tax (CGT) arising makes the gift not tax efficient. With the current economic impact that the coronavirus is having, now may be the time to consider making gifts of assets that do not qualify for any Inheritance tax (IHT) reliefs. You could consider gifting assets such as property and investment portfolios, and assets currently standing at a loss could be gifted without incurring a large CGT charge.
Making use of a Trust
You may wish to consider transferring assets to a trust where the CGT arising can be held over. If the asset has reduced in value, you could make a gift to the trust up to the nil rate band which is currently £325,000. The gifting of the asset may now be more achievable than it was previously. The gift should not incur an immediate charge to IHT provide you survive 7 years from the date of the gift. You will have removed the asset from your estate for IHT purposes.
Now would be a good time to think about succession planning for the business and passing on shares in the company to other family members. Due to the economic impact of the Coronavirus, the company shares may now not be as valuable as they have previously been, therefore now maybe the time to consider passing shares in the company to other family members.
For executors who are responsible for submitting inheritance tax returns and dealing with an estate, tax relief may be available where certain assets have been sold at a value less than their probate. Relief can be claimed on qualifying investments which are listed stocks and shares, unit trust and interest in land. For investments or assets currently standing at a loss, you may wish to be able crystallise the loss and mitigate the loss in value with a saving on the IHT.
Investment Based IHT solutions
There are a wide range of investment based solutions that offer IHT exemption, yet still allow control and access to the funds. Many of these investments also offer non-correlation and diversity from equity and bond markets.
Don’t forget good old fashioned insurance to protect against IHT liabilities. Often this is a lot more cost-effective than you might imagine.
Wills & Trusts
Now is a good time to ensure that your Will is up to date and effective. Also consider incorporating trusts structures to prevent inter-generational IHT and provide asset protection.
Power Of Attorney (POA)
Everyone over the age of 18 should consider putting in place a registered POA. Without one, trying to deal with personal and financial matters in the case of temporary or permanent incapacity can be extremely problematic and very costly.
Before any planning is carried out, you should seek tax advice to ensure that all tax consequences have been considered in full.