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TaxationWeb by Laura Hutchinson ATT ATII

Did the Budget 2002 do anything to harm capital taxes planning? Laura Hutchinson, an associate at Forbes Dawson, discusses the implications of Budget changes to capital taxes planning for individuals.You may recall our press release late last year entitled ‘Gift Tax Free – A Window of Opportunity’. This explained the tax implications of a court case entitled ‘Melville v CIR’.

Many of our clients took advantage of the tax planning opportunities arising as a result of this case, and successfully gifted assets of high value without incurring any tax liabilities.

Unfortunately the government have now closed this window of opportunity, by amending the law in the budget, to render any future ‘Melville planning’ as ineffective for tax purposes.

Good News

The good news is that the Budget did not make any other changes affecting conventional inheritance tax or capital gains tax planning, or indeed any of the other planning ideas currently being implemented by Forbes Dawson.

It was mooted by various tax advisers, that the capital gains tax hold over relief on gifts of non-business assets, was expected to be amended/removed in the budget. This would have seriously affected the use of discretionary trusts. Discretionary trusts are widely used, flexible way of passing assets down generations.

Fortunately, no changes were made to the hold over relief, which means that it is possible to gift assets of up to the nil rate band (£250,000 for 2002/03) into a discretionary trust without incurring inheritance tax or capital gains tax.

Family Homes

Whilst the nil rate band has increased in the budget from £242,000 to £250,000 this is not sufficient to provide planning opportunities for those individuals who own valuable residential properties. It was thought that Gordon Brown may increase the nil rate band to take account of the substantial increase in the housing market.

As this has not occurred, there will be a need to rely on bespoke tax planning arrangements that allow the value of the home to fall outside the inheritance tax net whilst continuing to live in the property.

Forbes Dawson are involved in many of these arrangements and examples of the tax planning opportunities are included in the article entitled ‘Family Home Planning’ which can be found on the website.

Further Information

Many other articles on capital taxes planning are being added to the existing selection on our website over the coming weeks. For further information on conventional or bespoke inheritance tax and capital gains tax planning please contact Laura Hutchinson on 0161 245 1098 or by email at laura@forbesdawson.co.uk.