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Inheritance Tax planning still very much alive!


There are reports that Inheritance Tax planning for married couples and civil partners is dead after the pre-budget report effectively provided that both Nil Rate Bands would be available for couples. Whilst this may be the case for simple estates worth less than £125,000, it is not true for many other couples.

“Why?” I hear you ask.

Well first of all to take advantage of the new rules, the spouse that dies first would need to ensure that they don’t use their Nil Rate Band on their death. They can do this by either leaving all of their estate to the surviving spouse directly, or by using what is called an Immediate Post Death Interest Trust. In order to ensure either of these occur then the couple would need a Will in place. Otherwise, for estates over £125,000, some of the estate may pass to children, parents, brothers and sisters (or even their children) under what are known as Laws of Intestacy.

The Will is only part of the story, as some assets may not follow the terms of the Will, such as jointly owned property (held as joint tenants) or an interest in assets held in Trust. Depending upon circumstances, action may be possible and desirable.

Thirdly making certain gifts or investments during your lifetime may well use some or all of the Nil Rate Band available, reducing the amount available for transfer on second death.

And finally to ensure the two Nil Rate Bands are available, a claim needs to be made by those dealing with probate after the second death.

Taking advantage of the new rules is not as simple as many may think. However as future increases in Nil Rate Bands are reportedly to take account of increasing property prices then the new rules are very attractive for many married couples and civil partners.   

Just to confuse things further. There are a number of circumstances where you may not actually wish to take advantage of the new rules. Our “Inheritance Tax Health Check” is designed to assess your circumstances, identify what Inheritance Tax is at stake, and what further action can be considered. If you are interested please do not hesitate to contact us.    


Save tax on entertaining!

Many may be aware that entertaining potential or existing clients and suppliers is not normally allowed against business profits for tax purposes (nor can VAT be reclaimed).

What is not widely known are that related incidental costs will also not be allowed, such as paying an event management company. Where entertainment costs are disallowed for tax, then so will the costs relating to the employees in attendance.

Where are the tax savings? Well first of all, providing the employee who incurred the expense for such entertaining is reimbursed the same amount by the business, they will not suffer a tax or national insurance liability, despite the matter needing to be reported on annual forms P11D to HM Revenue & Customs. It is possible to reduce this reporting requirement by use of a dispensation. 

Entertaining supplied as part of a contractual obligation will be allowed for tax purposes, for example if you provide all day courses or conferences with food, then ensure that the price charged to customers for the event is inclusive of meals and drinks.

Where entertaining includes some element of advertising, the matter may well depend upon the focus of the event and related levels of expense. Promotional events, where the focus is on publicising the business services or products, are not in themselves entertaining. Hence the costs relating to the event itself are allowed for tax against business profits.

Where the hospitality provided is minimal then the full cost of the promotional event is allowed against business profits for tax. Irrespective of the direct tax treatment, VAT can be reclaimed on the proportion relating to advertising.

Where the main purpose of the event is to entertain staff, then it may be possible to apportion the cost against business profits and reclaim a proportion of the related VAT.

Annual parties for employees, such as the Christmas party, are normally allowed for tax as an expense against business profits. What is interesting is that, (in practice) HM Revenue & Customs define “employees” as retired members of staff and the partners of existing and past employees. And providing the total annual cost per head of the parties does not exceed £150 there will be no tax on the employees.