IHT – HMRC proposes just one Nil Rate Band for lifetime transfers

HM Revenue & Customs has recently released proposals which could significantly increase the IHT levy on trusts. The proposals will, if introduced, apply from April 2015 but anti-forestalling measures will back-date their application to any transfers into trust from June 6, 2014.

Presently the nil rate band (£325,000) is available for lifetime transfers into trust, and effectively “refreshes” or “re-sets” every seven years. As such, wealthy individuals can set up a succession of transfers into trust each seven years and legally avoid significant sums of IHT on eventual death, since they have moved that value out of their taxable estates.  In an example, HMRC state “(currently) a couple aged 40 could transfer property into a separate discretionary trust every seven years (£3.25 million by age 75 assuming the nil-rate band remains at £325,000) saving £1.3 million in IHT. In this scenario the next generation avoids any IHT charges altogether because of the previous generation’s use of multiple nil-rate bands.” This is considered undesirable by HMRC.

The proposals would give each individual one special ‘settlement nil-rate band’ that would apply during their lifetime, which would be divided between any trusts they establish (as specified by them as settlor). There would be no “refresh” of the nil-rate band every seven years, thus in a stroke the proposals would significantly reduce the IHT savings that are available currently.

The industry was expecting HMRC’s further  consultation document on the simplification of taxation of trusts, but this extra innovation was not anticipated. HMRC stress that these proposals are only in the consultation stage, but it is a worrying development for high net worth people who are concerned about inheritance tax.

The full HMRC consultation document can be found on HMRC’s site here.

Regulator issues warning on dodgy pension transfers

There have been some scandals recently about people losing their pension fund because they were persuaded to invest in ‘off plan’ foreign property schemes.

The Financial Conduct Authority (FCA) has now issued an ‘alert’ about transferring your pension fund to a self-invested pension plan (SIPP), saying make sure the underlying investments are suitable. They already had concerns that some firms advising people about pension transfers were not properly assessing the advantages and disadvantages of the underlying investments held within the new pension arrangement.

The FCA has now said that it is worried about investing pension monies in unregulated products, through SIPPs. In its investigations, the FCA found that there were cases where people with traditional pension plans or final salary schemes were persuaded to transfer them to SIPPs and invest them in ‘non-mainstream propositions’. These new arrangements were typically unregulated, high risk and highly illiquid investments. Some examples of these investments are overseas property developments, self-storage pods and forestry.

It went on to indicate that such transfers or switches are unlikely to be suitable for the vast majority of retail customers.

This seems to be on the increase. Please make sure that you do take care and get independent advice before making any transfer of your pension funds or entitlements.