The prospect of looming recession, with asset values including property and investments diminishing…few months ago this would have been unthinkable but now..? Now it is completely premature to speculate about the after-effects of the pandemic on the economy as not all asset classes will follow the same trajectory. The speed and level of recovery is impossible to predict, as it is dependent on too many variables but one thing is certain, the need for solid Inheritance Tax Plan is urgent and more important than ever.
There are many facets to estate planning and its needs are as varied as the estates it espouses but there are commonalities, too. Take residential property, for instance. A significant denominator of many estates, property values are, even now, in many cases above the Nil Rate Band threshold of £325,000 and create an immediate need for IHT planning.
To gift or not to gift?
From estate planning point of view, the current reduction in asset values presents a good opportunity to give those assets away. The beneficiary can enjoy the asset growth post-recovery and in the meantime the original gift will have left your estate during times of depressed values.
The famous 7-year survival rule still applies but with the benefit of the gift’s value being assessed at the date of gifting (now), rather than at point of death, the Inheritance Tax calculation looks more reasonable.
Conversely, any gain in value at the time of acquisition will potentially be subject to Capital Gains Tax.
What does it all mean for me?
Simply put, with lower asset values compared to pre-pandemic levels, the possible Inheritance Tax liability will be smaller. Added bonus: with reduced gain the potential Capital Gains Tax will also decrease.
The cherry on top is that, if you are the donor, any future economic recovery will not impact your own tax position.
What we have to bear in mind however, is the fact that the current financial support from the government will have to end at some point. This raises the question of how to ‘pay for
it all’ in the near future. Tax rates, reliefs and allowances will no doubt be the focus once more and may mean the reduction, removal or restriction of some allowances. With a proper financial planning strategy now, you can be ready and reap the benefits that will follow eventual recovery in terms of taxation and investments.
If in doubt, give us a shout
The arrival of coronavirus forced us to face up to our own mortality and the way we view and relate to the world at large. This should be your wake-up call to prepare a watertight estate plan or revise and update your existing one. Don’t underestimate the fiscal and emotional benefits of a bulletproof financial plan – contact us today to arrange yours.
Silvia Johnson BSc(Hons) DipPFS EFA CertCII (MP) is a Director & Independent Financial Adviser at Royale Thames Wealth Ltd.
020 8720 7249 / 07908 109 741
Royale Thames Wealth Ltd is an Appointed Representative of New Leaf Distribution Ltd which is authorised and regulated by Financial Conduct Authority number 460421. The value of your investment may go up as well as down and the value is not guaranteed. Past performance is not a guarantee of future performance. Wills and Estate Planning are not regulated by the FCA.