Gifts out of Surplus Income and Saving Inheritance Tax (IHT)

Inheritance tax (IHT) is usually troubling to those that are affected by it. I know many who had hoped that the new administration in government would increase the current thresholds (£325,000 or £650,000 for a couple/ 2010) fixed by the last administration for a 5 year period.

The trouble with inheritance issues is that if you are thinking of gifting capital away, what will happen to you if your needs grow as you get older and need care as an example. Also, any significant gift of capital over £3,000 (the annual gift allowance) may well become subject to the 7 year survival requirements. You can still go back one year if you have not used the annual gift allowance and gift away £6,000 in total in the first year. It will be interesting to see if any of the above regulations change in the forthcoming budget on the 22^nd June 2010.

One allowance which is usually overlooked and can offer significant potential to provide inheritance savings is the gift out of surplus income rule. This is effectively a regulation that allows an individual to gift away surplus income without effecting their standard of living or using capital to subsidise their income after the gift is made. The HMRC website suggests that this is: ‘that after allowing for all gifts forming part of their normal expenditure the transferor must have been left with enough income to maintain their usual standard of living.’ Further details are available at their website, www.hmrc.gov.uk and add the further note that ‘The usual standard of living will generally be the standard prevailing at the time of the transfer. You may still apply the exemption if the transferor has had to lower their standard of living for some extraneous reason, such as the loss of employment or drop in income on retirement.’

In using this allowance, past test cases suggest that if the gift was made on a regular basis, almost a commitment to pay, that this will help demonstrate the objectives of the regular gifting.

This can be a complex allowance and each case needs to be calculated carefully, however, in some cases, this option can be highly valuable in allowing the value of an estate to be capped by giving away surplus income that might have otherwise been accrued and eventually subject to inheritance tax.

Contact Churchouse Financial Planning Limited for further information on 01483 578800 or at www.churchouse.com.

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority.

Economic Update Spring 2010

Now the election race is over and the new coalition is in place, it is clear looking back over the manifestos from all political parties that the UK economy is in need of a firm hand to guide it through the next years by reducing the national debt, whilst maintaining reasonable services. This is likely to mean higher taxation for most, cost cutting, and other change that I am sure will be announced in the new budget now set for 22 June. As we have also now entered a new financial year (2010/2011), now may be a timely reminder of some of the examples of the new tax allowances available to you and an opportunity to take advantage of these. This may include ISAs (now £10,200 for all eligible), the annual capital gains tax allowance (remaining at £10,100 thus far) and the gift allowance of £3,000 per person for inheritance tax purposes, to name a few.

Personal and business financial planning has always been affected by the political landscape that surrounds it and I am sure that we will begin to see the outline of change being introduced over the next few months, falling in line with the anticipated measures to vigorously control the economy. This may mean that areas such as pensions tax relief, inheritance tax thresholds, capital gains tax charge rates could be affected by the new administration.

It is clear that as we enter this new era, taking stock of your current financial position and reviewing where and if changes need to be made to your financial planning is going to be ever more important. The planning opportunities will change and change usually brings the need to review to secure any new opportunity. The team at Churchouse Financial Planning looks forward to continuing to help you with these changes over the course of the next years.

This newsletter is not intended as personalised investment advice. You should contact us for advice on your personal circumstances and if you would like to review your pension, investment or overall financial planning over the forthcoming summer, then please let me know and we can arrange a suitable time to meet and look at your individual circumstances, aspirations and requirements.

We look forward to speaking to you.

Keith Churchouse, Director of Churchouse Financial Planning Limited in Guildford, Surrey

Churchouse is a Trademark of Churchouse Financial Planning Limited

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority.

Whose hanging who? The hung parliament we feared!

It has been a long night for us all. I was in a radio station in Guildford at 12.30 this morning chatting through the beginings of a historic night, with the exit polls now apperaing to be reasonably correct, although it was hard to believe at their release at 10.00 pm.

The slide on the American stock markets almost went un-noticed and this seems to have been a part reaction to the euro-zone situation as it deepens (and a possible error on a placed deal of Billions rather than the correct millions!/ OPPS!), with other markets, such as Asia following. Unusually, the UK Bond markets opened at 1.00 am this morning (07/05/2010) and this was designed to cope with this anticipated election situation. However, early readings show that sterling has weakened slightly, with the FTSE 100 slightly down on early trading. The rest of the day will see where this takes us.

Although most of the UK results (over 600 are now in), it appears that a long day and possibly weekend of negotiations will follow to form a coallition government. Watch this space.

Keith Churchouse/ www.churchouse.com

Churchouse Financial Planning Limited is authorised and regulated by the Financial Services Authority.