Leading County Durham law firm Latimer Hinks is urging families to consider what can seem unthinkable when a terminal illness is diagnosed.
While it may seem too late at that point to carry out tax planning, Latimer Hinks Director Elizabeth Armstrong says there is still much that can be done to reduce tax liabilities.
She said: “For very obvious reasons, many couples put off discussing the inevitable until it is too late. The spouse of a person who is terminally ill may feel it is hugely insensitive to discuss finance at such a time.
“But we usually find that the person who is ill wants to do everything possible to help their family before they go. They want to make sure that their family is provided for, and that includes ensuring their loved ones aren’t hit with huge tax bills.”
Elizabeth advises that in some cases doing what seems illogical and transferring assets to someone who has been diagnosed with a terminal illness can help to mitigate Inheritance and Capital Gains Tax (CGT).
When many people think about death and taxes, they are usually considering how much Inheritance Tax will be payable, but death can often provide the means to save when it comes to CGT. With planning there can also be the opportunity to mitigate Inheritance Tax.
Elizabeth said: “Usually the aim is to get assets out of an estate to shrink it for tax purposes, so it may seem that you’re doing exactly the opposite of what comes naturally to transfer assets to a terminally ill spouse. But this can actually be the most effective way to reduce CGT.
“The interesting thing about this sort of planning is that whilst it may seem counter-intuitive as we’re all used to the idea of divesting ourselves of assets as we get older, it can make financial sense to do exactly the opposite.
“The action required can come at a very stressful and emotional period, but if a family can cope with undertaking some financial planning, they can actually make a difference and save tax for those who are left behind.
“It is important when considering any IHT or CGT planning to appreciate the interaction between those two taxes – what might be sensible planning for one tax may impact on the other which highlights the need for proper advice. It is crucial to understand all the implications of implementing any tax planning.”
Elizabeth’s advice comes at a time when new IHT rules have just been announced. From April 2017, changes are being phased in which will enable some people to benefit from an additional Residence Nil Rate Band (NRB) so that from 2020/21 tax year, an additional allowance will be available of up to £175K (£350K for married couples) where a property is inherited by direct descendants such as children or grandchildren.
Latimer Hinks has launched an e petition to call for Inheritance Tax rules to be the same for those without children.
https://petition.parliament.
