Q. I have established a number of trusts so that, in the event of my death in service, my life assurance and pension savings are paid into those trusts for the benefit of my children and grandchildren (so as to enable those beneficiaries to avoid a significant inheritance tax liability in respect of those benefits). However, I have heard a rumour that such trusts are set to be banned. Is this correct?
A. No, not exactly.
During his recent autumn statement, the Chancellor of the Exchequer, George Osborne, announced that the government is set to overhaul the inheritance tax (“IHT”) regime to close a loophole that permits an individual to utilise multiple trusts in order to avoid IHT.
Under the proposals, just one nil-rate band will be applied to multiple trusts established by the same settlor as it applies to the 10-yearly IHT periodic charge.
At present, a person can establish an unlimited number of trusts and, provided certain criteria are met, each one is granted the £325,000 nil-rate allowance before the 10 yearly IHT periodic charge is levied..
The Chancellor stated that he will launch a consultation to examine best how to apply the nil-rate band across multiple trusts. It is the government’s stated intention to implement the changes to coincide with the simplification of IHT calculations due to be introduced in 2015. It is not yet certain whether the changes will be retrospective (and thus apply to existing trusts), although many industry commentators have expressed concern that the change is likely to be applied retrospectively on the basis that to do so would be consistent with the government’s simplification agenda.
I recommend therefore that you seek advice form a chartered financial planner and/or a solicitor who specialises in tax and trusts, to consider how the proposed change to the relevant legislation might affect you and your tax planning.
Q. I read with interest your answer to a recent question regarding the introduction of the flat-rate state pension in April 2016. However, unlike that reader, I expect to retire shortly before the introduction of the new single-tier state pension and I do not expect that I will have made sufficient National Insurance Contributions in order to qualify for a full pension. Is there anything I can do to improve my position?
A. Yes. The government have announced that they will introduce a scheme which will enable people to top up their National Insurance Contributions (“NICs”) in order to ensure that they qualify for the full amount of the state pension.
This will apply to people who reach state pension age before the introduction of the new state pension (and will apply to those people who have retired already). The scheme is designed to ensure that those who retire before the introduction of the new single-tier pension are not disadvantaged.
It is already possible to make additional NICs before retirement, but this scheme, which will be time-limited, will introduce a new class of voluntary NICs. The finer details of the scheme are yet to be announced, but the government have stated that the price of the new NICs will be “broadly actuarially fair”.
Of course, there are other ways of providing for your retirement, that may be appropriate for you (such as increasing contributions to an occupational or private pension or even making regular contributions to an ISA). If you wish to consider the most cost-effective means of providing for your retirement, I recommend that you speak to a chartered financial planner who specialises in retirement planning.
Q. I am married with two small children. My wife does not work and we are finding it difficult to make ends meet. Was there any good news for me in the recent autumn statement?
A. Yes. The Chancellor of the Exchequer, George Osborne, announced a number of measures in his recent autumn statement that were designed to help working families and ought to be good news to you.
First, the Chancellor proclaimed that the income tax personal allowance will rise to £10,500 with effect from April 2015. Currently £9,440, the personal allowance is already set to rise to £10,000 in April 2014. The Chancellor’s latest announcement means that the coalition government will have surpassed their target of raising the income tax threshold to £10,000 by the end of the current parliament.
In addition, the Chancellor announced that, with effect from April 2015 also, married couples and civil partners will be allowed to transfer up to £1,000 of their personal allowance between one another.
The move is expected to be worth up to £200 in the pockets of many basic rate taxpayers. The Chancellor confirmed that the £1,000 limit will increase in line with future increases to the personal allowance.
Q. I caught the end of a radio segment recently that seemed to be stating that the rise in the state pension age was being brought forward. Is the correct and, if so, can you elaborate please?
A. Certainly. It has been known for some time that the state pension age will rise to 66 in 2020 and 67 in 2028. The Chancellor announced recently that the rise in the state pension age to 68 will be brought forward from 2046 to the mid-2030s. It will then rise to 69 by the late 2040s.
Furthermore, the Pensions Bill provides for a statutory review of the state pension age every five years, in order to assess whether further increases are justified.
The measures are designed to take account of improving life expectancy and to ensure that “the basic state pension is affordable in the future”. The Chancellor stated that British citizens’ should not expect to spend more than one-third of their adult lives in retirement.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
0191 217 3340
