Lawyers who are members of the Society of Trust and Estate Practitioners (Step) might be a good place to start if people are looking for someone to talk though the legislation.
Understanding how the £2m threshold works:
What’s included in the estate for the £2m threshold? The total “estate” includes the value of any trust which is aggregable with (added to) the personal estate of the deceased in working out the IHT payable on death.
Generally this means trusts in which the deceased had an entitlement to income, such as the immediate post-death Interest (IPDI) in an estate since the last major reform of IHT in March 2006.
What’s the effect of business and agricultural reliefs (BPR/APR) and spouse exemptions? The £2m does not take any account of exemptions and reliefs. So it makes no difference how much APR or BPR there may be.
Many clients who hold most of their assets in their farm or business may assume that this £2m limit does not apply to them but, like so many elements of RNRB, this would be a false assumption.
Likewise it doesn’t matter if there is a spouse exemption for all or part of the estate.
Lifetime gifts are not taken into account, so long as gifts have been completed. Lifetime gifts made within seven years before death would normally be caught for IHT, increasing any tax payable on death.
However, strangely they are not currently taken into account in assessing the £2m threshold. They simply need to be complete gifts, for example, if cheques, they need to be presented and cleared.
What’s not included?
Life cover written in trust, so that the proceeds are outside the life assured’s estate, and pension death benefits due from a pension scheme are both excluded.
Life assurance designed to pay out on death (or the death of surviving spouse), to help meet the IHT bill payable, is less common that it was in the previous decades. But for many it still produces a significant sum.
A negligence case in 2016, Herrings v. Shorts Financial Services, involved a claim against a financial planner for not advising a client on the effect of an old life policy written in such a trust, knowledge of which would have changed the way the personal estate was left.
On the facts the financial planner was not liable, but it reminds us that clients often forget they have taken out forms of life cover and investment over the years, which may affect what they should do with their other assets on their death.
