The budget announced at the end of last month faced some criticism from individuals who believe they will lose out with the new changes. Townsend Family Law explores the recent changes from a family law perspective.
Limits to thresholds
The freeze on the £325,000 threshold has been extended until 2030, meaning inheritance tax will only apply to estate values over this figure (or assets up to £325,000 can be inherited tax-free). While only a small proportion of estates fall outside of these thresholds, property prices greatly differ from region to region, so inheritance tax planning will vary depending on the location. For example, the average property value in London stands at £691,565, compared to £189,443 in the North East of England.
Distributing Family Wealth
Potentially exempt transfers (PETs) will not face IHT if the donor survives for 7 years from the date of the git. There were discussions about extending the period, but this didn’t happen in the budget. It could mean some wealth is passed to others via a PET to save or reduce incurring a potentially larger IHT payment.
The implication is that some parents may decide to pass on wealth to adult children sooner, gifting a sum of money or transferring property to avoid IHT. A nuptial agreement could be used as an effective wealth management tool to add a protective layer to this asset.
Family money or inherited wealth is often a sensitive discussion point, and how courts determine inherited wealth in a divorce will depend on the individual circumstances, including the party’s requirements and whether it is associated with other assets. Once inherited wealth integrates with other assets, such as the family home, it can be much more challenging to claim this as separate from other assets or to be ring fenced.
This is why nuptial agreements can be a valuable wealth management tool. Another consideration is that if parents who gift wealth to their adult children separate or divorce in the future, the available assets and resources could decline significantly. Any gifts made to adult children would no longer be regarded as part of the gifting parent’s assets.
A driver for family wealth planning
The recent changes to IHT have had significant impacts on some groups, and while not everyone has experienced any immediate changes, the Budget could be a driver for some families to rethink wealth strategies, particularly while the subject of inherited wealth in divorce remains a challenging subject.
If you are concerned about the impact of the budget on your separation, come and see one of our specialist family law solicitors who have a wealth of family law experience between them.
