The first Budget by a majority Conservative Government for nearly twenty years contained a few surprises, not least the introduction of a National Living Wage for over 25s. Traditionally the first Budget of a Parliament provides the bad news with tax reductions saved until the last Budget before a General Election.
So, which of our clients might not be entirely happy this morning?
Let’s look first at Rose who is a single woman in her 70s. Rose lives in Laburnum Cottage valued at £450,000. Rose has no children but she has always been very close to her sister’s children, often having them to stay with her. Rose’s Will leaves her entire estate to her nephew and niece who she feels are very much in need of the additional financial help. Rose’s estate was not liable to Inheritance tax (IHT) ten years ago, but the freeze in the IHT nil rate band, and the rapid increase in value of Laburnum Cottage, has brought her within the IHT net. Rose will be disappointed this morning as the new IHT allowance for property is apparently only applicable to property left to direct descendants. In addition, the IHT nil rate band is to remain frozen at £325,000 until the end of 2020/21. Rose’s estate will suffer IHT of £50,000 while it would be IHT free if her estate was entitled to the new allowance and she died after April 2018 when the new allowance, which is being phased in, will stand at £125,000.
Rose’s friend, Katherine, is no happier. She and her husband, David, own a former farmhouse in the same village valued at £2 million and have investments and savings of £400,000. The new IHT property allowance is tapered away by £1 for every £2 that the net value of an estate exceeds £2 million meaning that, on the face of it, it will not be available to them. Given the freezing of the nil rate band, and the substantial IHT payable on their estates, the couple are not happy with the proposals as they stand.
David owns a small company and the majority of his income is currently paid via dividends. He was therefore dismayed at the announcement of the abolition of the dividend tax credit and the increase in the rate of income tax on dividends, especially as the Corporation tax decrease is unlikely to offset his additional personal Income tax liability.
David’s brother, Andrew, has lived in Australia for many years and has acquired a domicile of choice there. He had been considering returning to the UK for a few years but is alarmed at the prospect that, under new rules announced in the Budget, if he becomes resident here again his worldwide income may become liable to UK Income tax. As a result he feels that he may have to reconsider his plans.
Our advice to Rose, Katherine, David and Andrew is that we will be examining the detail of all these proposals very carefully and will be able to advise them on the best ways to ensure that their liabilities are minimised as much as good planning will allow.