Smart Money Secrets - inheritance tax planning

INHERENTLY Unfair

Michael Duale, Principal of MD Wealth Management, looks at how forward planning can minimise the effects of Inheritance Tax

Inheritance Tax (IHT) is widely viewed as unfair, and even the experts agree it’s complex. But with effective and early planning you can minimise its impact on your estate. Currently, if your net estate is worth more than the standard nil-rate band of £325,000, 40p in tax is charged for every pound that exceeds the threshold; except that, broadly, if you leave your main residence to a lineal descendant, £175,000 is added to that nil-rate band. Unused elements of both allowances are transferrable on death to a surviving spouse or civil partner. This system has also been criticised for discriminating against those who do not own their own home, do not have children, are not married, or not in a civil partnership. Even if there is potential to simplify IHT exemptions, it’s probably too much to hope that the tax will be scrapped. After all, a cash-strapped Exchequer seems increasingly reliant on taxing people’s estates posthumously. In 2023/24, the UK’s Exchequer is expected to raise £6.3 billion from IHT (Office for Budget Responsibility, April 2019)

In your gift

Gifts are normally included in the net estate for IHT purposes, if they were made less than seven years before death. However, these gifts are ignored if they total less than £3,000 in any one tax year. This means that you can make gifts of up to £3,000 in total in any tax year without incurring IHT. The £3,000 can be given to one person, or it can be split between several people. If the exemption is not used in one tax year, it can be carried forward to the next year, potentially enabling a couple to remove £12,000 from their joint estate in just one tax year. That money could be used to help with the financial challenges faced by younger family members; for example, topping up a child’s pension or Junior ISA could go a long way towards providing them with an invaluable head start in life. For 2020/21, the Junior ISA allowance is £9,000, up from £4,368.

Those with sufficient surplus income may also want to take account of the ‘normal gifts out of income’ rule – which states that if you make regular gifts out of income, and in doing so don’t affect your standard of living, the gifts are exempt from IHT. However, to reduce the possibility of a disagreement with HMRC, it is wise to seek professional help from a financial adviser or accountant.

Take advice

IHT often falls on the ill-prepared and unadvised. That’s why it’s important to seek financial advice, so that all your assets are properly protected. Shockingly, fewer than a fifth of over55s have taken action to reduce their potential IHT bill.

To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Michael Duale, principal of MD Wealth Management on 01379 415511, or go to www.md-wealthmanagement.co.uk

EASTER BONNETS

Local Historian Christopher Reeve steps back in time to explore Bungay’s history

In the Georgian and Victorian periods, it was fashionable for women to have a new hat or bonnet to wear for church on Easter Sunday. Before that time, the frowsty kill-joy Puritans frowned on any flamboyant or colourful apparel, but following the reign of Good Queen Anne women’s gowns became more decorative, partly due to the imports of brightly patterned fashions and fabrics via the East India shipping trade. Then, later in the 18th century, British manufacturers in the north began producing gaily printed cotton and muslin fabrics, and stylish flowery bonnets became desirable to enhance the ‘New Look’.

The two important occasions for wearing a smart hat were weddings and Sunday morning church. ‘Hat-spotting’ was a popular diversion during the long services of the period, when most women’s eyes were eagerly peering around to see who was wearing what, to be discussed later over Sunday lunch! “Well, dear, you should have seen what that young Mrs Shirley had on her head this morning! Folks were trying not to titter, ‘cos her face is sallow as a lemon, and you could see the vicar gettin’ right tetchy, cos no-one wuz attendin’ to his sermon!”

Even women in the poorest families contrived to have a new hat for Easter Sunday. Pigot’s Trade Directory of 1839 records no fewer than 19 shops making and selling hats in Bungay, so there was something to suit everybody’s purse. They could be made of a wide variety of fabrics, with straw hats popular in spring and summer, and of course decorating them was an art in itself. You will know from looking through your old Victorian family photo albums how elaborate the hats and bonnets could be, some like two-tier wedding cakes or Harvest Festival baskets. The more elaborate, the more expensive. But women often economised (prompted by their husbands) by taking an ‘old’ hat – worn on only one previous occasion – to their favoured milliner and having the ribbons, feathers and silk flowers replaced with stylish new ones in fashionable colours. So ‘Hat-spotting’ in church often drew caustic comments such as: “Well, I know for a fact that’s the third time she’s had that pertickler hat trimmed, ‘cos I recognise thet blue stitchin’ round the brim!”

In the 20th century, following WWII, the wearing of hats became A lady in fashionable bonnet less popular. My and gown, circa 1800 mother was born in 1908, so belonged to the generation of women who would never enter a church unless their heads were covered. She continued to wear a hat long after younger ones had discarded them. She, and others of her age, regularly attended Sunday morning service in Holy Trinity Church, sitting near each other in the south aisle. They were dubbed ‘The Hat Brigade’ – a title they were rather proud of. And you can bet that on Easter Sunday their headgear was particularly colourful and flowery!

A Reeve family wedding in Bungay, in 1882