2017-11-06 

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Never Too Late for Terminal Tax Planning

It is said there are only two certainties in life – death and taxes. Facing a terminal illness is devastating for the whole family, but it doesn’t have to come hand-in-hand with additional concerns over your finances.

Indeed, there are some very simple measures farmers can put in place to alleviate some of the stress in those very difficult times.

Catherine Vickery

Catherine Vickery

“Death bed tax planning is a very sensitive issue to tackle,” says Catherine Vickery, rural tax specialist at Old Mill accountants. “While it is not easy for farmers finding themselves, or their family members in this position, the circumstances can present a potential opportunity from a tax perspective.”

And the opportunity could save hundreds of thousands of pounds through reduced Inheritance Tax (IHT) and Capital Gains Tax (CGT) bills. “In one particular instance, we had a client who owned a large commercial property which he wanted to gift to his children. He had owned the property for many years and its value had risen to over £1m, with a potential CGT liability on gifting the property of over £200,000,” says Mrs Vickery.

“Around the same time that we were having these conversations, the man’s wife was unfortunately diagnosed with terminal cancer. While it was a very sensitive issue, what the family could now do was put the property into the wife’s name, with the wife then leaving it to her husband in her will.”

No is CGT payable on transfers between spouses and when the wife very sadly died, the whole of the capital gain was ‘washed out’. The husband inherited the property at its probate value and was able to start gifting it to his children, tax free.

Recent changes to IHT reliefs also present opportunities for families. “A new relief was introduced in April – the Residence Nil Rate Band – which may protect an extra £100,000 of your home’s value from IHT (rising to £175,000 per taxpayer by 2020/21), so long as it is passed to a direct descendant.”

While wills written from now on should automatically take this relief into consideration, those who already have a will in place should reassess it. “Most farmers will put their will in a drawer somewhere and forgotten about it,” says Mrs Vickery. “However, the terms of the will can make the difference between getting the additional relief or not – well worth considering given that the additional £100,000 Residence Nil Rate Band could save up to £40,000 in tax.

“While it’s emotive to discuss, a tax saving on this scale can prevent further distress for families who might otherwise have to sell assets to fund tax bills – there are plenty of things that can be done.”

For those unfortunate enough to be diagnosed with a terminal illness, having a conversation early on with an accountant and a solicitor can help to put legal and financial matters in good order – leaving families to enjoy their remaining time together. “There is a fear that tax planning involves long, laborious meetings with accountants, but in fact this kind of planning can be very quick and easy – sometimes resolved in just one meeting,” explains Mrs Vickery. “For peace of mind at a difficult time it’s always worth investigating the possibilities.”

OLd Mill

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