Private client partner Rebecca Fisher reflects on her time at the STEP Cayman Conference which she attended alongside Joint Managing Partner Alison Regan from 18-19 January, exploring topical issues in the trusts industry.
What have stingrays and inheritance tax (IHT) got in common? - An odd question you might think but nonetheless one I have been reflecting on since my return from the STEP Cayman conference last week.
The conference provided an excellent platform for sharing knowledge and experiences across jurisdictions. In particular I attended a thought provoking session considering the differing probate, succession planning and tax rules around the world. A factor that loomed large in that discussion was the impact that UK IHT has on the structuring of wills and planning generally.
Stingrays and tax speculation
As well as attending the conference I was fortunate enough to visit the world famous stingrays. According to Caymanian folklore (or that of the tourist boats taking you on the day trips) you are promised seven years’ good luck if you kiss a stingray. Don’t get me wrong, I wasn’t spending my time whilst holding these beautiful creatures thinking about IHT and Jeremy Hunt. Nonetheless it is a possibility; in the very near future (Budget Day is set for 6 March) the UK could find itself in the same position as the Cayman Islands and not have any IHT whatsoever.
Currently, if you make a gift in the UK and do not retain a benefit, this is known as a potentially exempt transfer (PET). It is one of the last bastions of ‘simple’ tax planning. If you then survive seven years from the date of that PET, your estate will not pay any inheritance tax (IHT) on the assets given away. That applies whether you’ve gifted £100,000 or £10million so long as you’ve not reserved a benefit. Whether you pay IHT on a gift is really a game of luck.
Complexities in IHT planning
However, over time that ‘simple’ planning has become more complex. It is it fraught with potential risk for executors, beneficiaries and trustees if the tax becomes payable. Previously funds could just be retained (or insurance obtained) to cover any possible IHT risk but now there is the added complication of having to register this with the Trust Registration Service. This means that even the simplest of options could now be a complex one.
For those of you who have read my previous blog on IHT statistics, you will see that this is certainly a tax on the few not the many. Nonetheless, it is very unpopular with the general public. A June 2023 Ipsos poll surveyed 1,078 people of which 43% stated that IHT was unfair. Kieran Pedley, Ipsos Director of Politics stated, “These findings show the complexity of public opinion on inheritance tax. On the one hand, it is seen to be one of the most unfair taxes, along with council tax and fuel duty. On the other, when it comes to prioritising tax cuts, the public tend to prefer cuts to council tax and fuel duty than inheritance tax; and cutting taxes on lower earners most of all.”
In terms of global politics, this is a big year. It is possible that there will be a general election in the UK and a presidential election in the US within a matter of weeks of each other. The general election is likely to frame the forthcoming Budget. There has been much talk of tax cuts. My own view: I think it is highly unlikely that IHT will be scrapped. I do, however, think that the IHT threshold may increase significantly given it has been frozen for 15 years. The overriding effect of that freeze is that coupled with inflation and property price increases many more pay IHT than would have done so before 2009. If there is a change of government then we may see even further radical reforms to IHT and I suspect the tax treatment of non-doms will be high on the agenda.
So there you have it. The connecting factors: seven years and luck. As for me, I intend to bank seven years of good luck following my close encounter with a stingray.
Rebecca Fisher is in the private client team, working with both UK and international clients, including families, family businesses and entrepreneurs, trust companies and family offices. She regularly advises international clients on the inheritance tax and capital gains tax of property ownership in the UK, as well as advising individuals and family lawyers on the tax implications of separation and divorce.