Mailings

Monday 17 May 2010

Coalition Government creates opportunities

Now that the Conservative and Liberal Democrat parties have agreed to form a coalition government the future of higher rate tax relief on pension contributions may become an issue.

From April 2011 tax relief on pension contributions is set to be restricted for those individuals with gross income of £150,000 or more (inclusive of any employer contributions). The Conservatives have stated that they would wish to reverse some of the previous Labour government’s tax changes when it is economically feasible to do so and this would appear to be one that a Conservative Government would want to remove.

However, we understand that as part of the coalition deal it has been agreed that personal tax allowances will be increased over time to £10,000. In their manifesto the Liberal Democrats stated that the cost of this would be met by removing higher rate tax relief on pension contributions.

On the face of it this would appear to be an area where the two parties disagree and it will be interesting to see how it pans out.

In the meantime this is definitely something for advisers to monitor and clients who are in a position to obtain higher rate tax relief on contributions paid in the current tax year (despite the anti-forestalling rules) may wish to do so rather than holding off.

Another interesting outcome is the Conservatives agreeing to shelve their plans to introduce a £1 million pound nil rate Inheritance Tax band.  With the current nil rate band frozen by Labour at £325,000 until April 2015 the issue of inheritance tax planning for high net worth individuals will create opportunities for advisers. One aspect of inheritance tax planning that is often overlooked is the effect of the receipt of a deceased member’s lump sum death benefits on the recipient’s estate when they die.

The use of a by pass trust arrangement can ensure that the recipient has full access to the deceased members lump sum death benefits,  but the value is not part of the recipient’s estate for inheritance tax on his or her death. Our Technical Insight Pack on the by pass trust contains further information on this subject.  Copies can be obtained from you Relationship Manager or by contacting the James Hay Technical Support Unit on 0845 600 8651.

If you have any queries on these issues, please speak to your usual contact:

The IPS Partnership