Happy A-Day

Latest Articles

Happy A-Day
Page Previous 1, 2

Downsizer Forum Index -> Finance and Property

Author

Message

Treacodactyl
Downsizer Moderator

Joined: 28 Oct 2004
Posts: 25795
Location: Jumping on the bandwagon of opportunism

Posted: Thu Apr 06, 06 11:58 am Post subject:

Penny wrote:

There seems little incentive at present for poorer people to save, as part of the state pension is means tested, so if you've been saving all your life, you could potentially end up with the same net amount as someone who has done nothing.

Lets hope the government, well Mr Brown, starts to take note of all the reports it's commissioned. There seems to be overwhelming support for providing non-means-tested flat-rate pensions. Of course raising the state pension age will be necessary but as long as you can take private pensions sooner then that would make a much fairer system. If you wish to save you can retire earlier, if not then you have to work until you're older.

dougal

Joined: 15 Jan 2005
Posts: 7184
Location: South Kent

Posted: Thu Apr 06, 06 12:09 pm Post subject:

A little-noted (outside the Financial Services industry) Budget provision for the taxation of Trusts looks as though it could have major ramifications for the common practice of writing Life Insurance policies "in Trust".
This has in the past meant that life insurance payouts did not go into the estate of a deceased person and so escaped Inheritance Tax.
The cat is currently among those pidgeons.
It would be worthwhile checking whether or not any Life policies that could affect you (as insured or potential trust beneficiary) are done in this form.

This one came out of the blue, with effectively immediate impact, and could be a real surprise biggie...

Penny Outskirts

Joined: 18 Sep 2005
Posts: 23385
Location: Planet, not on the....

Posted: Thu Apr 06, 06 12:18 pm Post subject:

dougal wrote:

Blimey - missed that one

That is a real biggy - will it be applied retrospectively do you know? In other words, if you already have a life policy in trust for that very reason, does that now mean it will form part of the estate???? If so, this will move tons more people into inheritance tax, probably without knwoing, unless they have a good IFA. I can't see Lloyds (who ours is with) running to tell us!!

I might shock them and ring to ask!

Behemoth

Joined: 01 Dec 2004
Posts: 19023
Location: Leeds

Posted: Thu Apr 06, 06 12:29 pm Post subject:
It will apply from now on when the claim is paid, so get amending if necesary.

Treacodactyl
Downsizer Moderator

Joined: 28 Oct 2004
Posts: 25795
Location: Jumping on the bandwagon of opportunism

Posted: Fri Apr 07, 06 6:05 am Post subject:

dougal wrote:

Do you have a link for that? I know a fair bit has changed around IHT and trusts but can't find anything about life insurance. I know full details will be in the finance bill published today.

Penny Outskirts

Joined: 18 Sep 2005
Posts: 23385
Location: Planet, not on the....

Posted: Fri Apr 07, 06 8:57 am Post subject:

Treacodactyl wrote:

dougal wrote:

Do you have a link for that? I know a fair bit has changed around IHT and trusts but can't find anything about life insurance. I know full details will be in the finance bill published today.

They were talking about it on Radio 5 yesterday - a finance bill is coming out today - if I understood correctly, that will clarify things.

dougal

Joined: 15 Jan 2005
Posts: 7184
Location: South Kent

Posted: Fri Apr 07, 06 9:58 am Post subject:

Treacodactyl wrote:

dougal wrote:

Do you have a link for that? I know a fair bit has changed around IHT and trusts but can't find anything about life insurance. I know full details will be in the finance bill published today.

Well there was this from the FT:

The Financial Times wrote:

Tax on trusts set to affect �millions of wills�
By Lucy Warwick-Ching
Published: April 4 2006 22:22 | Last updated: April 4 2006 22:22

Lawyers have stopped writing wills and leading insurers have frozen sales of many life policies as a powerful alliance of professional bodies fights to overturn Gordon Brown�s Budget proposals to alter the tax treatment of some trusts.

Professional bodies claim the proposed changes will affect millions of wills and insurance policies.

Mr Brown�s surprise decision to levy tax on commonly-used trusts has prompted emergency meetings between professional bodies and the government in a last-ditch attempt to prevent the rules being introduced in this Friday�s Finance Bill.

Prudential is one of a number of insurers to have stopped writing new trust business, while Standard Life and Scottish Widows have both said they were considering their position amid fears that thousands of their customers could fall foul of the new tax rules.

The Society of Trusts and Estate Practitioners has urged its professional members to stop writing wills in the light of the tax changes and has told them to contact more than 1m people to review their existing wills.

Experts have described the chancellor�s proposals as the most sweeping changes to trust law in a generation. Kevin Martin, president of the Law Society, said: �This measure will affect millions of ordinary people and not just the very wealthy that the government claims to be targeting.� He urged the government to rethink the �rushed� measures and engage in proper consultation.

The Law Society, Society of Trust and Estate Practitioners, Chartered Institute of Taxation, Institute of Chartered Accountants in England and Wales, Association of Chartered Certified Accountants and the Association of Private Client Investment Managers have joined forces to urge that the budget changes be postponed until there has been wider consultation.

The moves follow Mr Brown�s revelation in the Budget that from 2008 many trusts will be hit with a 6 per cent charge every 10 years. The clampdown is aimed at �accumulation and maintenance� trusts, often used for school fees planning, as well as �interest in possession� trusts, which are used to pass wealth between generations.

The government claims the measures will affect only a �tiny fraction of the wealthiest top 1 per cent of the population.� But lawyers and trust planners argue the measures will be far broader than anticipated. The Association of British Insurers has written to the HM Revenue & Customs to protest that �millions� of people will be caught out.

The Treasury sought to play down the impact of the new tax measures. A spokesman said: �We do not think the measures will affect a large number of the population. But we understand that the industry wants clarification of the measure so we will have technical experts at all the meetings this week.�

It said the Finance Bill would set out exactly how the new rules will work on Friday.

https://news.ft.com/cms/s/6934a1f6-c410-11da-bc52-0000779e2340.html

No way to run a railroad?

Treacodactyl
Downsizer Moderator

Joined: 28 Oct 2004
Posts: 25795
Location: Jumping on the bandwagon of opportunism

Posted: Fri Apr 07, 06 11:36 am Post subject:
Thanks Dougal, it's the same legislation as I thought but I think it's only applied to money that someone tries to pass onto others via a trust and not the money actually paid out of life insurance specifically designed to cover IHT. Hopefully it will become clearer today and in the following weeks, until the next budget anyway.

dougal

Joined: 15 Jan 2005
Posts: 7184
Location: South Kent

Posted: Fri Apr 07, 06 11:53 am Post subject:

dougal wrote:

Treacodactyl wrote:

... I think it's only applied to money that someone tries to pass onto others via a trust and not the money actually paid out of life insurance specifically designed to cover IHT.

This is just one area of trouble with the new tax proposals.
The payout from an ordinary life insurance policy would just be added to the estate, and itself be subject to IHT.
Regardless of whether the amount of life cover had been calculated to correspond to the anticipated IHT liability, it has been common practice to write such policies "in Trust" and so escape probable IHT at 40%.

It also affects the very common practice of spouses bequeathing their half of the house to their children, but that it be on lifetime trust for the benefit of their spouse (who can continue to live there). This is probably the single most common way in which the zero-rated band is used efficiently.
And it even seems to affect the taxation of legacies left to under-age beneficiaries. Such bequests have to be held in trust until the beneficiary comes of age.

Is it a cock-up (the Treasury didn't know what they were interfering with), or a conspiracy (they knew perfectly well, and sneaked it through in the small print)?
It has to be one or the other...

Treacodactyl
Downsizer Moderator

Joined: 28 Oct 2004
Posts: 25795
Location: Jumping on the bandwagon of opportunism

Posted: Fri Apr 07, 06 12:01 pm Post subject:
It's hard to know if it's the story or the government or both that are wrong. The line "The government claims the measures will affect only a �tiny fraction of the wealthiest top 1 per cent of the population.� " suggests it's not the life assurance that will be caught but it wouldn't be the first time Brown denies it when he's been caught with his hand in the till...

Behemoth

Joined: 01 Dec 2004
Posts: 19023
Location: Leeds

Posted: Fri Apr 07, 06 1:37 pm Post subject:

Friday 7 April 2006 11:49
HM Treasury (National)

PUBLICATION OF THE FINANCE BILL-CORRECTED VERSION

CORRECTED VERSION

In his Budget statement, the Chancellor set out decisions to build a strong and strengthening economy to invest in Britain's future.

Finance Bill 2006 is published today, to enact many of the Budget measures. Paymaster General Dawn Primarolo said:

"The Government is committed to creating a modern and fair tax system which encourages work and saving provides the foundation for building world-class public services. The Finance Bill introduces important measures to modernise taxes to keep pace with a changing world, and to tackle tax avoidance and fraud."

The attached "lobby notes" briefly describe the clauses and schedules in the Bill. The Bill itself, and explanatory notes, are available from the Stationery Office and on the internet.

Further details on the Bill will be published on the HM Treasury and HM Revenue & Customs websites as the Bill progresses through Parliament. Also published today are a guidance note relating to the inheritance tax treatment for trusts (clause 157 and schedule 20) and two Regulatory Impact Assessments relating to the Bill:

* Gift aid relief for companies wholly owned by one or more charities (clause 57); and

* Company car tax rates (clause 59).

NOTES TO EDITORS

1. The second reading of the Finance Bill will be on 24 April 2006.

2. Explanatory Notes to the clauses of the Bill are also published today, to provide Parliament with a better understanding of the purpose and effect of the Government's proposals during the passage of the Finance Bill.

3. The Bill and Explanatory Notes are published by the Stationery Office price �26.50 (for the Bill) and �39.50 (for the Explanatory Notes). The Finance Bill will also be available on the the Parliamentary website (https://www.parliament.uk/), and the Explanatory Notes can be found on the HM Treasury website (https://www.hm-treasury.gov.uk).

4. Regulatory Impact Assessments and guidance notes are available from the HMRC website: https://www.hmrc.gov.uk/.

5. Non-media enquiries should be addressed to the Treasury Correspondence and Enquiry Unit on 020 7270 4558 or HM Revenue and Customs on 0845 010 9000 or by e-mail to [email protected].

6. This press release and other Treasury publications and information are available on the Treasury website at https://www.hm-treasury.gov.uk. If you would like Treasury press releases to be sent to you automatically by e-mail you can subscribe to this service from the press release site on the website.

Client ref 28/06

GNN ref 131634P

Penny Outskirts

Joined: 18 Sep 2005
Posts: 23385
Location: Planet, not on the....

Posted: Fri Apr 07, 06 2:37 pm Post subject:
From the HM customs website - "The finance bill makes it absolutely clear that there is NO retrospective tax charge. In particular, no one who wrote a life assurance policy into trust before budget day will, have to pay an inheritance tax charge" That's a bit of a relief then!

dougal

Joined: 15 Jan 2005
Posts: 7184
Location: South Kent

Posted: Fri Apr 07, 06 3:07 pm Post subject:

Penny wrote:

From the HM customs website -

"The finance bill makes it absolutely clear that there is NO retrospective tax charge. In particular, no one who wrote a life assurance policy into trust before budget day will, have to pay an inheritance tax charge"

That's a bit of a relief then!

Unfortunately, it looks like an erroneous oversimplification.
This is from the Bill's explanitory notes -

Quote:

The current rules will also run on for existing regular premium life insurance policies written into trust before 22 March 2006, where payments continue to be made under pre-Budget arrangements.

(Download the pdf from the treasury. Its clause 157, para 32. There are pages of explanations of the clause. Which don't seem to clarify very well.)

So it looks as though there *will* be a change with retrospective effect for single premium life insurance policies written in trust before Budget day, or where the "payment arrangements" change, or where payments are no longer being made...

And assets bequeathed to under-age recipients (and hence held in trust) are to be taxed differently depending on whether the testator was the parent of the child or not...

As tax simpifications go, this is damn complicated...

Treacodactyl
Downsizer Moderator

Joined: 28 Oct 2004
Posts: 25795
Location: Jumping on the bandwagon of opportunism

Posted: Sat Apr 08, 06 2:42 pm Post subject:

One of the things being touted a bit with the new pension regs is pension term assurance. I didn't think it was new but perhaps the simplification laws have made it easier and better value. Anyway, most people should be able to contribute and you get tax relief at 22% or 40% if you're a higher rate tax payer. I think it can be used for whatever you wish but I think you can only pay into the policy upto 75. I'm also not sure how it compares to normal life cover but it may be worth looing into.

Penny Outskirts

Joined: 18 Sep 2005
Posts: 23385
Location: Planet, not on the....

Posted: Sat Apr 08, 06 2:50 pm Post subject:

Treacodactyl wrote:

It may be being touted as, before the new rules, only those without a company pension scheme could contribute to one (just like private personal pension schemes). Now the rules have been relaxed, so that people can contribute to both a company and private pension scheme, consequently you can also have pension term assurance. It can be a good deal, but as with anything like this, check all the details with an IFA, (if you can afford one

) or research the net.

	Downsizer Forum Index -> Finance and Property	All times are GMT Page Previous 1, 2
Page 2 of 2

View Latest Posts