The Budget on 8th July and second Finance Bill may well include some of the measures announced by the previous coalition government, or elements of it, but not included in the Finance Act 2015.
What should advisers and their clients be looking out for ?
There are three main possibilities:
Firstly, the government pledged to increase the inheritance tax threshold on main residences to £1 million, in the form of a £175,000 ‘family home allowance’ per person (£350,000 per couple).
If enacted, this measure would effectively allow parents who have assets worth up to £1 million to pass these to the next generation free of inheritance tax. This potentially complex measure will certainly have a major impact on planning as well as having knock on effects on how wills are drafted in the future and especially the nil rate band clauses.
Secondly, the budget may also remove the so-called ‘Frankland trap’ for executors/trustees.
This comes into play when appointments are made out of a discretionary will trust within 3 months of death, because affected appointments are not written back into the will for inheritance tax purposes. At present this potentially leads to an inadvertent inheritance tax charge. If such a measure is enacted executors/trustees will no longer have to wait for 3 months to expire to make appointments.
Finally, details of a potential review of deeds of variation may be announced. Altering or even abolishing this long standing and practical arrangement received much comment in the press prior to the election.
Any or all of these possibilities will have a major impact on how clients and their advisers think about inheritance tax and their presence, or absence, from the announcements on 8th July will be worthy of particular attention.