Welcome to the Wansbroughs Private Client - Wills, Tax, Trusts and Probate update for March 2011. Inheritance Tax
The ‘nil rate band’ – that first part of an individual’s estate which does not attract inheritance tax – remains frozen at £325,000 (until 2014/2015). For couples, this gives a maximum inheritance tax free sum of £650,000 above which estates will be taxed at 40%. The continued freezing of the nil rate band means that more people are likely to be caught in the inheritance tax net and therefore would be wise to consider lifetime planning and possible exemptions. The Chancellor also announced that for deaths on or after 6 April 2012, if a person dies having left 10% of their net estate (after deducting inheritance tax exemptions, reliefs and the nil rate band) to charity, then inheritance tax will be charged at 36% rather than the usual 40%. The details of exactly how this change will work practically have not yet been published, but the following provides an illustration of how, on first sight, it might operate. For example, on an estate of £1 million, inheritance tax is currently charged at 40% of £675,000 (£270,000), and the beneficiaries receive £730,000. Under this new proposal, if £100,000 (10% of the net estate) is left to charity, the inheritance tax on the £900,000 balance will be 36% of £575,000 (£207,000) and the beneficiaries will receive £693,000. As a result £63,000 of inheritance tax has been avoided and it has been possible to make a gift of £100,000 to charity at a cost of £37,000 to the residuary beneficiaries. Capital Gains TaxCGT remains at 18% for basic rate tax payers and 28% for higher rate tax payers (as announced in the Emergency Budget in June 2010) with the annual exempt amount for individuals for 2011/2012 increasing to £10,600. Entrepreneurs ReliefFrom 6 April 2011 the maximum lifetime allowance under the Entrepreneurs' Relief scheme is to double from £5 million to £10 million. Income TaxThe personal tax allowance for under 65s will increase above the rate of inflation to £7,475 for 2011/12 (£8,105 in 2012/13). This benefit will be offset for higher tax payers by reducing the threshold to £35,000 for 2011/12 (£34,320 in 2012/13). Higher rate tax will therefore be payable above £42,475 in 2011/12 and 2012/13. The Chancellor also announced that the 50% income tax rate is a temporary measure that is being kept under review. SavingsThe ISA limit will increase from 6 April 2011 to £10,680 (previously £10,200). The Chancellor has also announced that from the autumn of 2011, Junior ISAs will be introduced for UK resident children who don't have a Child Trust Fund, so it appears that it is never too early to start saving.
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