- Only 7% of advisers know when to correctly apply the transferable NRB after the death of a partner/spouse – are some advisers at risk financially?
- Confusion over regulations extends to lifetime gifting threshold with 12% of advisers unsure how it works
Confusion about Government rules surrounding the transferable nil rate band (NRB) is putting advisers and clients at financial risk, according to research from Canada Life’s Hot Topics research*.
According to the research, two-thirds of advisers believe that the transferable NRB can be used for lifetime gifting, with a further quarter (27%) unsure. Only 7% of advisers understand when to correctly apply the NRB after the death of a spouse or civil partner.
Under the inheritance tax rules a client using the transferable NRB for lifetime gifting could incur an immediate inheritance tax charge of up to £65,000**, opening up advisers to a serious liability issue.
Neil Jones, Market Development Manager, Canada Life, said:
“The inheritance tax rules can be complicated and there are some common misconceptions which, if advisers aren’t careful, could get them in hot water. The reality is that the unused part of the NRB can only be transferred to the estate of the surviving spouse or civil partner when the survivor passes away - it cannot be used by the survivor for their lifetime gifting.
“It’s little wonder that this is a difficult area for advisers - the NRB and the residence nil rate band (RNRB) rules are, at times, deeply confusing. The Government needs to demystify the NRB and especially the RNRB.”
The results of the research also showed that when it comes to re-using the lifetime gifting NRB threshold of £325,000 every seven years, more than one in ten (12%) were either unsure or not aware how cumulative gifting operates. With more estates being subject to inheritance tax each year it is important that people seek advice in how to reduce the amount payable and advisers have a range of solutions available to them.
Neil Jones said:
“Maximising the use of any available nil rate band is one of the key ways to move money to future generations and away from the taxman. It forms the central pillar for many successful financial plans. By its very nature, it encourages advisers to be there for their clients over a period of years, even decades and be ready to help subsequent generations. It fosters the kind of relationship that advisers should want to have with their clients.”
* Source: The Canada Life Hot Topics survey was conducted in August 2018 with responses from 227 professional advisers.
** Calculation – £325,000 [the nil rate band threshold for lifetime gifting] * 20% [the IHT lifetime charge if a client goes over the accumulated allowance]= £65,000.