IT'S TIME TO BATTEN DOWN THE HATCHES!

It's time to batten down the hatches ...

After the great General Election retreat, Alistair Darling's first pre-budget report as Chancellor of the Exchequer was bound to be a damp squib.

Attention so far has focused mainly on Mr Darling's proposal to raise the inheritance tax (IHT) threshold for couples, widows and widowers from £300,000 to £600,000, and then to £700,000 by 2010, to take the steam out of Conservative proposals for a £1m threshold.

However Paul Wilcox at WAY Group, which specialises in IHT planning, says the Chancellor's decision to let the allowance for the first death be switched to the second death of a couple to reach a limit of £600,000 helps only those who previously opted to ignore it.

Those who had arranged a discretionary trust - at considerable expense in my experience - already enjoyed this £600,000 tax-free entitlement on their combined estates long before Mr Darling got his new job.

"If a comfortably-off couple use the seven-year gift rule to put £300,000 each into a flexible trust, and both live the seven years, the increased IHT allowance means the first £1.2m of their estate can now be passed on tax-free," says Paul Wilcox.

Mr Darling's backdating of the IHT allowance applies to couples where the first death was before October 2007 and the second was on and after October 9 this year. That has raised concerns,too.

"If the first death took place years ago it might be near impossible to find out how much of the IHT allowance was used then," says Wilcox. "The Inland Revenue might simply have to grant a £300, 000 allowance on each death, because it will be near impossible to prove otherwise."

With Government finances creaking in a supposedly strong economy, the unspoken message from Mr Darling is that Government will scrabble for new sources of revenue.

Despite cheers for IHT changes, the overall tax burden is likely to go on rising. Prudent savers should be planning defences for tougher times, quite possibly in 2008/9.

Press Release Date: 29th October 2007.

Please Note: The above excerpts are taken from an article which was first published by the Belfast Telegraph on 22nd October 2007. Author: Jeremy Gates. Reproduced with kind permission.

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: 29th October 2007.