DARLING DELIVERS NO NEWS PACKAGED AS GOOD NEWS!

- Nochange to IHT rates or allowances
- But Darling makes IHT Nil Rate Band transferable between couples
- Second to die can automatically enjoy double relief

THE CHANCELLOR’s announcement of an immediate raising of the inheritance tax threshold for couples to £600,000 in his pre-Budget report has masked the real facts, claims inheritance tax planning specialist the WAY Group.

Up until the announcement, under the law a spouse could put in place a discretionary Will Trust, which meant that on the death of the first spouse, £300,000 would be moved to their beneficiaries without being subjected to IHT.

With the death of the second spouse, an additional £300,000 could also be passed free of the unpopular tax.

So what has changed? "Not a lot," argues WAY Group chairman Paul Wilcox.

"Tax advisers have regularly been warning couples that they should include a discretionary trust within their Wills to make sure that the first to die utilises their Nil Rate Band for IHT purposes. This is because there is a full spousal exemption on assets gifted between spouses and consequently the personal IHT tax break (Nil Rate Band) of the first to die often remains unused," explains Wilcox.

"As a means of spiking the Tory guns and making it appear that he has doubled the Nil Rate Band, Darling has now made the allowance transferable. To make a one-off difference to widows and widowers, whose late spouses failed to use their own allowances, he has in other words retrospectively reinstated their late spouse’s allowance in transferable form, so that they now have a 'double allowance' to use when they die."

"All good news? Yes, until you examine the case of single people whose allowance remains unchanged, and those who have already done their conscientious planning to utilise both allowances - for instance using Will trusts - whose circumstances also will not change."

"So for the purposes of spin, no news is sold as good news," says Wilcox.

"What has always been possible through thoughtful planning and a minor alteration to one's Will is now automatic - but without any real financial benefit of extra tax saving," adds Wilcox.

But spin or no spin, Wilcox has welcomed the move because it will mean that couples can still make gifts within their Nil Rate Bands.

"So long as they survive seven years, the second to die will still benefit from a double allowance, following the new transferability rule. This means they can remove at least £1.2 million from their joint estate IHT-free over seven years without having to bother about changes to their Wills."

"It is actually very convenient because for many couples the final double allowance will neatly take care of passing the family home, leaving them to concentrate on mitigating tax on their other financial assets. It is here that the use of a lifetime flexible mitigation trust remains key."

"The message to IFAs and to clients is that careful planning well in advance - at least seven years before death and longer for larger estates - remains the cornerstone of inheritance planning."

Press Release Date: 10th October 2007.

Note: This commentary has been prepared for Financial Intermediary Clients and Professional Associates of WAY Investment Services Ltd and is not intended for and must not be distributed to Private Investors. This information is supplied to you in confidence and you may not pass it on to any other party without prior written consent. Past performance is not necessarily a guide to future returns and changes in rates of exchange between currencies may cause the value of investments to rise or fall. No representation or warranty is given (express or implied) as to the accuracy, completeness or correctness of the information nor the opinions, interpretations and conclusions contained in this commentary. The commentary does not constitute investment advice or a recommendation to purchase or sell any security. Neither the author nor WAY Investment Services Ltd accept any liability whatsoever for any loss or damage arising in any way from any use of or reliance placed on the commentary. WAY Investment Services Ltd is an Appointed Representative of WAY Fund Managers Ltd which is authorised and regulated by the Financial Services Authority.

Press Release Date: 10th October 2007.