Budget  

Advisers bracing for big tax changes

  • Identify key tax targets vulnerable to budget changes
  • Identify the key benefits of BPR, VCTs and EISs
  • Explain how annual allowance and lifetime allowance have changed
CPD
Approx.30min
Advisers bracing for big tax changes

Changes to pension death benefits could be in the government's sights on Budget day, delegates were told at the recent FTAdviser Tax-Efficient Investing event.

Speaking to a room of financial advisers on the same day that Sajid Javid resigned as chancellor, John Bunker, head of private client knowledge management at Irwin Mitchell, said the pension death benefit was one of the rules most vulnerable to change on March 11.

This is because the Conservative party has committed to not changing rates on income tax, VAT or national insurance. 

In September 2014, the tax on pension pots at death was abolished, allowing elderly people to leave more money to their loved ones after they die.

But Mr Bunker said: “Taking away the 55 per cent charge and enabling people to pass on the benefits of their pension to families at a marginal rate looked at the time and even now perhaps a little too generous.

“George Osborne changed the whole purpose of pensions with that reform and we have to expect something may well change there.

“If they cannot change the big three in terms of rates, unless they [freeze] allowances to raise tax, they will need to increase other taxes.”

According to Mr Bunker, other areas that could be looked at include the residence nil rate band, stamp duty land tax and reforms to the Isa.

Citing the second of two reports published last year by the Office of Tax Simplification, the government might also look at normal expenditure out of income.

It is an exemption that helps mitigate inheritance tax and can be used to fund life policy premiums, make regular pensions contributions for family or make regular gifts into trust.

Parents and grandparents can use this to gift excess income to their beneficiaries without any IHT concerns.

Mr Bunker said: “HM Revenue & Customs doesn’t like the fact that you could have a higher earner who lives off their monthly income, gets a million pound bonus and because he/she commits that as a regular thing, they can get that entirely tax-free because it is paid into a trust.

“If you have clients doing normal expenditure, make the most of it while you have got it, because some kind of cap or limitation [is] coming.”

Adding tangible value

Advisers were also encouraged to make the most of agricultural and business property relief.

BPR has become an increasingly important estate planning tool as it can be a useful way to pass money through the generations.

It provides relief from IHT on the transfer of relevant business assets at a rate of 50 per cent or 100 per cent. 

Nick Bird, business development manager at Octopus Investments, said: “BPR is a great way of adding tangible value to your clients in estate planning.”

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. Why has BPR become an increasingly important estate planning too?

  2. What is normal expenditure out of income?

  3. According to Fiona Tait, why is the current tax relief system not incentivising people to save?

  4. True or false, VCTs are eligible for 30 per cent income tax relief, whereas for EISs the figure is 35 per cent.

  5. Pick the odd one out. Investments in the following kinds of businesses that carry on a trade rather than investment activities could qualify for BPR:

  6. True or false, VCTS are regarded as less liquid than EISs

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Identify key tax targets vulnerable to budget changes
  • Identify the key benefits of BPR, VCTs and EISs
  • Explain how annual allowance and lifetime allowance have changed

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