Budget 2021: What do the professionals have to say

Budget 2021: What do the professionals have to say

The Wills and Probate sector waited in anticipation for the Chancellor’s Budget yesterday to see what impact it will have on the industry as a whole.

Addressing Parliament, Chancellor Rishi Sunak, focused on the roadmap and the UK’s road to recovery on the back of the pandemic. Rishi announced that in fighting the pandemic, the UK government forecasts show an eye-watering borrowing at a record £355bn this year.

The Chancellor continued with the Budget and announced changes to the inheritance tax threshold, which will be frozen from next year until 2026, and the Pensions Lifetime Allowance will be maintained at £1,073,100 up to and including 2025-26. Pension rules will be changed, giving pension funds the flexibility to unlock billions of pounds to invest in innovative ventures.

Today’s Wills and probate asked professionals in the industry their viewpoints on the Budget and how it will impact on the sector.

Sarah Williams LLB TEP F.IPW, CEO and Founder Accord Legal Services Ltd and Council member of the Institute of Professional Willwriters said:

“In Rishi Sunaks Budget speech last year, he promised to do ‘whatever it takes to support the economy’, which led to much debate throughout the private client industry as to what changes lay ahead and the impact this would have on estate planning options available to clients. After a year of the government spending in an unprecedented manner, it goes without saying that the coffers will need to be replaced in some way and Inheritance Tax (IHT) seemed a likely target.

“The current IHT system is already unfair and complex, and the introduction of the residential nil rate band in 2018 only served to increase the complexities. It is clear that a review of the current system is necessary, as recommended by the Office of Tax Simplification (OTS) and the All-Party Parliamentary Group on Inheritance & Intergenerational Fairness, both recommending various forms of overhauling the IHT system.

“It is fair to say that many, the IPW included, expected the spring budget 2021 to bring about those changes with ideas being mooted within the industry that the availability of exemptions may be narrowed or abolished, predictions that the rate of IHT could increase towards post world war 2 levels of 80% as well as questions if gifting into trust or intergenerational gifting would survive or indeed whether a lifetime gift cap could be introduced?

“It appeared a forgone conclusion that the government already desperate to re-coup funds spent on the pandemic would look at these two reports and see an opportunity to increase revenue. With many budget predictions concurring that tax hikes were on the cards, especially for IHT and Capital Gains Tax (CGT) it came as a pleasant surprise that the Chancellor was quiet on this subject. Indeed, the allowances for CGT and Inheritance Tax remain the same, as does the pensions lifetime allowance until 2026! This provides an opportune window for individuals to maximise longer-term estate planning.

“It is therefore good news in one respect for the private client industry, as nothing announced by the Chancellor will restrict IHT planning and mitigation, as, lifetime gifting, PETs, trust planning and utilising pension contributions all remain an option, as well as the rate of IHT being frozen at 40%. Whilst the IPW welcome these announcements, especially in the current climate, we feel it will only serve to postpone an inevitable overhaul in the future.

“For the industry we hope the publicity surrounding the anticipated changes to IHT and CGT regimes will serve as a stark reminder to the public that current opportunities for estate planning will not always be guaranteed, the surprising announcement by the Chancellor has given a window of opportunity and we encourage individuals to act now to ensure they have the right planning in place before any likely overhaul in the future. Anyone concerned about their IHT position, should speak with a qualified advisor, and take appropriate action while current options are still available.”

Elaine Roche, Director of SFE, the membership organisation for specialist lawyers who support older and vulnerable people, shares her reflections after the Chancellor’s March budget announcement yesterday. She said:

“The budget will affect our private clients a lot less than we were expecting. Rishi Sunak has managed to balance starting to pay back the debt accumulated since the start of the Covid-19 crisis, whilst not stifling the economy. Inheritance tax allowances have been frozen for over 10 years, but the Residence Nil Rate Band has been introduced in that time which gives an additional £175,000 allowance for those leaving their home to their descendants. However, it does mean that as house prices increase, more people in the UK will have to pay IHT.

“For capital gains taxes, frozen allowances are a much better alternative than the rates increasing to match income tax. This is what we had suspected might happen, doubling the rates from 20% to 40%. The frozen pension lifetime allowances will affect very few people planning for later life and you can still have up to £1 million in your pension.

“It will be interesting to see how the increase in corporation tax from 2023 will affect businesses, however overall, the budget will not significantly impact our industry”.

Jonathan Upton, Director at Estatesearch said:

“The budget represents an attempt to perform a difficult balancing act. Trying to signal to bond markets that the UK is serious about living within its means, whilst also avoiding immediate tax rises or withdrawal of economic support for COVID-affected industries before they can get back on their feet. While providing additional funding to speed up vaccinations, the question of long term improvements to social care was left largely unanswered and perhaps delayed until the Spending Review in July. Whether you think the Chancellor has succeeded largely depends upon your view of the future interest rates on bonds, and whether Corporation Tax rises disincentivise investment in the UK.”

Emily Deane, TEP Technical Counsel commented. She said:

“STEP is pleased that the government has recognised the pressure that the impending stamp duty holiday deadline was having on the probate and conveyancing process and hope that the extension to the deadline will ease disruption as well as the mounting pressure on families and professionals to beat the deadline and significant penalties. The government has also announced a separate day to the Budget this year called “Tax Day” on 23 March when it will consult on the various ways that tax reform could support the financial deficit caused by Covid-19 and we would urge the government to explore simplification of the existing inheritance tax regime. In the meantime, the maintenance of the IHT threshold means that qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an Inheritance Tax liability.”

Nick Cousins, CEO of digital probate platform Exizent said:

“As a result of the pandemic, the probate process – which was already slow and full of delays – has got even longer, meaning many of those who have been left an inheritance are waiting months before they receive any money. If there is an IHT liability, that needs to be paid before the money can be released, which, if families are having to pay up front and then face huge delays in receiving the inheritance itself, can cause significant financial issues.

“We therefore welcome to the chancellor’s announcement today that the IHT threshold will remain as it is until 2026, as changing it now, when the system is struggling, could have exacerbated things. Bereavement is already a hugely stressful time, without the admin surrounding the process adding to that. We also believe that during a time of financial strain for the economy we should be doing everything that we can to get estates settled and assets released to circulate back in the economy. That is why we are so keen to improve the process by harnessing the data and technology available to connect all the parties involved to make it quicker and less stressful, enabling grant of probate to happen much more quickly than it currently does.”

Ian Bond, head of wills and estates at Thursfields Solicitors further commented. He said:

“For private client practitioners the main take away from the 2021 Budget was that inheritance tax thresholds, the pensions lifetime allowance and the annual exempt amount for capital gains tax are all to be maintained at their existing levels until April 2026.

“For inheritance tax especially a lot more was expected from the Chancellor. For many years there has been a growing argument for simplification of the inheritance tax regime, which is both overly complex and unfair. An All-Party Parliamentary Group for Inheritance & Intergenerational Fairness (established in February 2019 by John Stevenson MP) has championed reform of inheritance tax with support from The Law Society, STEP and others looking to facilitate discussion on methods of reform.

“Although it may be seen by some (including me) as a missed opportunity, for others they may be breathing a sigh of relief that the nil-rate band will continue at £325,000 and the residence nil-rate band will continue at £175,000, meaning that qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1 million without an inheritance tax liability. George Osborne’s 2015 policy may be popular with clients, many of whom don’t appreciate the complexity involved, but is less popular with practitioners.

“I remember back to the 2007 Budget when then chancellor, Gordon Brown, announced that the nil-rate band, then at £285,000, would increase incrementally to £350,000 by April 2010, but that increase was cancelled and we got stuck at a nil-rate band of £325,000 in April 2009. This brought to an end annual increases in the nil-rate band which (save for three years in the early 1990’s) had taken place every year since inheritance tax was introduced in 1986 with a nil-rate band of £71,000.

“It shows my age that for many of my colleagues the only nil-rate band they have known has been the figure of £325,000. If the nil-rate band had increased from 2009 in line with inflation it would be over £445,000 now. A failure to increase with inflation is one reason why more estates now pay inheritance tax and why the governments tax take from inheritance tax has increased year on year.”

Sarah Walker, Principal Associate at Weightmans LLP added:

“Whilst the Chancellor has extended the Stamp Duty Land Tax holiday and left Capital Gains Tax alone for now, the ‘freezes’ imposed on allowances for Income Tax and Inheritance Tax amount to a stealth tax increase over the coming years. We should not of course forget that the current freeze on the nil rate band allowance until 2026 comes off a 12 year freeze on the allowance from 6th April 2009 until 6th April 2021. Individuals without children/ descendants are particularly disadvantaged as the residence nil rate band is not available to them. I anticipate that people will increasingly look to undertake lifetime planning to mitigate the impact of inheritance tax on death. We are also likely to see more after death planning by way of deed of variation to discretionary trusts to prevent the same wealth being subject to 40% taxation on each respective generational death.”

Ruth Heap, Partner from Hillyer McKeown Solicitors further added:

“There was some expectation that the capital gains tax and inheritance tax allowances would increase in line with inflation, however the Chancellor has frozen the allowances until 2026. The freeze on inheritance tax and capital gains tax will bring some certainty, however with inflation and potential increase in property values, this may give rise to an inheritance tax or capital gains tax liability in the future.

“In terms of IHT we regularly hear from worried families who might be considering transferring assets to their children to mitigate inheritance tax, however extreme care needs to be taken when making lifetime gifts as not all gifts will be effective for inheritance tax relief. I would urge people to undertake estate planning with a legal professional.

“The freeze in CGT and IHT can also have an impact on estate administration. If a greater sale value is achieved over a probate value, this could give rise to a capital gains tax bill. I would again urge people to seek legal advice to discuss the mitigation of any potential CGT liability, the timing of disposal of assets, and other claims and reliefs available.”

Commenting on how the Budget did not have the sharp teeth so many feared, Tim Snaith, Partner at Winckworth Sherwood, said:

“In a number of ways, the budget did not have the sharp teeth so many feared. There was no mention of a wealth tax, no wholesale reform to the inheritance tax regime, no sign of the increases in Capital Gains tax that were thought inevitable and an extension to the SDLT holiday. That is not to say that the door has now closed on these changes; in fact, we think it remains wide open and that the Chancellor will turn his attention to some of them in due course.

“It is also interesting to see the Government’s forecast for inheritance tax receipts for the coming year has, for the first time, reached £6 billion. With this news and the OTS’ most recent report on the subject in hand, it remains an area we believe that is due for significant reform in the coming couple of years.”

Nathan Long, senior analyst at Hargreaves Lansdown gives his viewpoint on the Pension Lifetime Allowance. He said:

“Freezing the Lifetime Allowance is an under the radar revenue raiser. With Treasury pennies stretched, it’s understandable all angles are being explored, but this won’t just hit very high earners, committed and consistent pension savers risk running into the limit too, and being punished for their efforts to save for the future.

“In the short term it looks like a tax raid on the public sector, where some higher paid employees will see their generous defined benefit pensions caught up. In the longer term, this will essentially end up being a tax on those are successful in growing their pension.

“A lifetime limit on the amount you can hold in pensions is of questionable value given we’re also limited as to what we can pay in each month. Rather than tinkering with the system to raise more cash, the government needs to look more holistically at tax on pensions and how to make it work better for everyone.”

Simon Harrington, Senior Public Policy Adviser at PIMFA, comments:

“We are dumbfounded that the Chancellor has frozen the Pension Lifetime Allowance until 2026. Doing so penalises pension savers looking to secure their future and in the most extreme cases sees people left with no choice but to give up work. Freezing the lifetime allowance could see a number of people inadvertently exceed their allowance and, as we have seen previously with NHS workers, incur a 55% tax hit which they otherwise would not have to pay.

“Freezing both the Inheritance Tax and Capital Gains Tax also discourages the public from investing in our economy at a time when the Chancellor himself admits we need an investment-led recovery.

“Whilst we strongly believe that there should be focus on repairing public finances, freezing the thresholds for Inheritance Tax, Capital Gains Tax and the Lifetime Allowance attacks individual personal finances and aspiration. Covid has shown how fragile the UK’s consumption driven economy can be. We need to become a more resilient and investment driven country. This cannot be achieved without the savers and investors that would be most hit by these changes.”

Read more stories

Join over 6,000 wills and probate practitioners – Check back daily for all the latest news, views, insights and best practice and sign up to our e-newsletter to receive our weekly round up every Friday morning. 

You’ll receive the latest updates, analysis, and best practice straight to your inbox.

Features

Privacy Overview

This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.