The Budget : How it affects your clients

Feature

posted 1 Mar 1999 in Volume 4 Issue 3

The Budget - How it affects your clients

Nick Hussey reviews changes in the Budget (9/3/1999) that could affect you and your elderly clients.

On the face of it this budget was very good news for the majority of the UK's elderly population. The chancellor announced 3 major changes which will cost an estimated £3bn:

1. An increased tax threshold for older people;

2. A minimum weekly income of £75 per week for the poorest pensioners;

3. An increased "winter fuel" payment of £100 for all elderly households.

The Chancellor estimated that these changes will make the average pensioner £240 per year better off. There was disappointment, however, that the chancellor choose to increase these benefits rather than simply increase the basic state pension.

The extent and implications of much of the Chancellor's proposed changes are at this stage (March 10th) very difficult to fully quantify however some of the broad intentions are listed below.

Inheritance Tax

The chancellor wants to improve voluntary contributions and to do so he intends to strengthen the provisions on administration and collection of inheritance tax. The changes proposed include:

Personal Representatives
Existing obligations to provide information on lifetime gifts will be extended.

Persons liable to deliver accounts
The Revenue will be given the power to seek information without referral to a Special Commissioner

Unpaid Tax
Rules relating to Revenue charges on unpaid tax will be tightened.

Protective Charges
At present it is not possible for the Revenue to impose a protective charge over personal property (inc leaseholds) transferred on death to the PR's. However the chancellor intend to extend this protective charge to cover such assets.

Non Compliance, fraud or delay
These will generally attract stricter penalties as follows

Failure to deliver an Inheritance tax account

Maximum now £100 (previously £50) if accounts are outstanding at the end of the statutory period, plus £60 per day (£10) once the failure has been declared.

Failure to deliver a return by a UK domiciled person with non-resident trustees
Maximum £300 (£50), plus a daily penalty of £60 (£10) once the failure has been declared.

Failure to comply with an information notice
Maximum £50, plus a daily penalty of up to £30 from date of declaration where notice is given under new information rules and;

Maximum £300 (£50), plus a daily penalty of up to £60 (£10) from date of declaration where notice is given under existing rules.

Incorrect Information
Maximum £1,500 plus the extra tax (£50 max plus twice the extra tax) in cases of fraud

Maximum £3,000 plus the extra tax (£50 max plus the extra tax) in cases of negligence.

Ingram - A loophole closed?

Within the budget the chancellor announced proposals that are intended to restore the tax position in relation to gifts with reservation as it was prior to the recent decision in the House of Lords on the Ingram case (Ingram and another v IRC 1999 STC 37). The new provisions apply to gifts of land where;

the gift is made on or after 9th March 1999;

the donor retains an interest, right or arrangement to occupy the land (to a significant degree) without paying full consideration;

the gift is made within 7 years after the interest, right or arrangement.

The House of Lords decision effectively negated the intended effect of the Finance Act 1986 - in preventing the avoidance of the inheritance tax charge on death through a lifetime gift. The new proposals will extend the existing provisions of Section 102 and Schedule 20 of the Act so that from now on gifts made where:

the gifted asset is an interest in land;

the donor or spouse has a significant right or interest in the land that entitles occupation or some other benefit in it.

The proposals would appear to include no changes to the existing exemptions:

the gift is between spouses;

the retained right or interest is negligible;

where full consideration is paid;

an unforeseen downturn in fortune which effectively forces the donor to occupy the land;

the gift is made 7 years after the right is created. (Readers may also like to refer to Christopher Sokol's article, page 18).