No one who listened to the UK Chancellor’s 2015 Budget speech could be in any doubt that the General Election is approaching fast – the most eye-catching measures had a distinctly party-political feel.
The clearest example was perhaps the announcement of a review of the use of deeds of variation. The law currently allows a sensible and simple rearrangement of some legacies to help succession planning and this can have an impact on the inheritance tax due. Regularly reviewing client’s wills to ensure that they continue to achieve efficient division of family assets will become even more important if this safety-net is removed.
The announcements aimed at savers carried on the political theme. Although more flexible ISA rules — the Help-to-buy ISA and the proposed personal savings allowance are all welcome — it is perhaps the reduction in the pension lifetime allowance to GPB1million from 6 April 2016 that will have the most impact on our clients. The proposals on allowing pensioners to sell on their existing annuities also sound attractive in financial planning terms but will be fraught with potential risks for advisors who are not working in conjunction with expert IFAs.
Away from politics, the government has confirmed that it is not going ahead with its controversial ‘nil-rate band splitting’ proposals. Instead, it will introduce new rules to target avoidance through the use of multiple trusts and will also make the calculation of trust tax charges somewhat simpler. For example, the new rules will ignore same-day additions to relevant property trusts of GBP5,000 or less. It is also helpful that the grace period for applying the new rules for will trusts existing at 10 December 2014 has been extended by 12 months and that non-relevant property will be excluded from computations.
There will be some minor changes to interest on overdue IHT to support the introduction of the new IHT digital service. From 3 December 2014, the existing IHT exemption for medals and decorations that are awarded for valour or gallantry will apply to all decorations and medals awarded to armed or emergency services personnel, and to Crown awards for achievements and service in public life. For deaths on or after 19 March 2014, the existing IHT exemption for members of the armed forces whose death is caused or hastened by injury while on active service is extended to members of the emergency services and humanitarian aid workers.
Technical changes to the entrepreneurs’ relief rules will be unwelcome for private equity firms as they could cause many management teams to lose tax relief on their existing shareholdings.
With only small increases (less than 2 per cent) in the income tax personal allowance on offer for 2016/17 and 2017/18 we may yet see the now-traditional rise in the tax take in the early years of the next Parliament. Whatever the financial weather, at least farmers will be able to average their profits over five years from April 2016 onwards, although one wonders how the new online tax accounts will cope with farm averaging.