After the last budget we had been expecting the inheritance tax nil rate band to increase from £325,000 to £329,000 in 2015. This has now been set back to 2018, by which time it will have been frozen for 10 years. This means the potential saving of £1,600 per estate (40% of £4,000) in each of those years is lost.
The extra tax revenue for the Government will go towards paying for the imminent capping of long term care costs at £75,000.
These two decisions together form an interesting blend from an advice point of view.
The introduction of the cap is designed to encourage individuals to begin saving towards the possibility of needing care in later life. Long term care costs are currently both unpredictable and uncapped, and as a result there’s been little focus on saving for it. When a target is both unknown and unlimited it is hard to turn it into a realistic goal.
The cap will allow planning with greater certainty and with a known funding target. In addition, if care isn’t needed, individuals would still have access to their savings or they could be passed on through their estate.
So, from a holistic advice point of view, it makes sense to mark this down as something to work towards.
In terms of the change in the planned IHT band, careful planning can more than offset the £1,600. The use of allowances and exemptions over time, for example regular income gifts or one off larger gifts can help wealthier clients stay on track to minimise or remove inheritance tax as a problem. Of course this is better started sooner rather than later, as these allowances do not accrue year by year.
If you have any questions about planning for later life, be it covering the costs of long term care or passing your estate on to the next generation, please get in touch and we will be happy to advise.