COUNTDOWN TO TROUBLE: CELEBRITIES, INHERITANCE AND THE TAXMAN

Inheritance Tax is routinely described as one of the most unpopular taxes of all. The television presenter Anne Robinson has reportedly already given away her multi-million pound fortune to family to avoid a substantial chunk going to HMRC. However, Michelle Tonge explains that individuals looking to follow her lead will find doing so is not necessarily straightforward.

We live in an age of intense fascination with the lives of the rich and famous.

Celebrities not only rack up many millions of followers on social media but are key to sales of newspapers and the enormous breadth of products which they’re paid handsomely to endorse.

That, of course, is also without taking whatever they do for a day job into account.

One result of that so much scrutiny is that, intentionally or not, they have the power to influence those who aspire to lead similar lifestyles.

Although that can be innocuous, it can occasionally lead to costly confusion.

Take, for instance, one of the stories which has generated many column inches in the last few weeks; namely, the admission by the television presenter Anne Robinson that she had given away a fortune estimated to be worth £50 million because “I don’t want the taxman to have it”.

In an interview with Saga magazine, extracts of which have been used by numerous other publications, including The Times, she described how she had distributed her riches.

“I’ve spread it about quite a lot, to the children”, she said. “They may as well enjoy it now.”

Most of us will amass considerably less wealth than Ms Robinson – the former host of ‘Countdown’, ‘Points of View’ and ‘The Weakest Link’ – over the course of our lifetimes.

Yet I wouldn’t be surprised if at least some individuals glancing over accounts of her largesse decide to follow her lead and give what they have away before they die.

After all, Inheritance Tax (IHT) is almost universally disliked. Last December, in fact, the Institute for Fiscal Studies (IFS) reported how only one-fifth of individuals surveyed believed it to be fair.

As one of my colleagues, Nicola Walker, commented on this blog back in January, IHT has been a regular source of debate about whether it should be reformed or even scrapped altogether.

It is, however, a source of growing income for the Treasury at a time when politicians of all persuasions appreciate the need for economic stability.

Figures released by HMRC show that it generated just under £7.5 billion in the last financial year – an increase of 120 per cent in the last decade.

As with every other type of taxation, there are fairly strict rules about how IHT is calculated and how individuals can mitigate their potential liability.

In short, we can’t just give away our assets in the hope of reducing the value of our estates below the £325,000 threshold – known as the ‘NIl Rate Band’ – at which IHT is applied.

What the recent headlines about Anne Robinson have certainly not necessarily illustrated is the degree to which her actions will have followed fairly detailed financial planning.

People sharing her eagerness to avoid filling the Revenue’s coffers who do not take similar advice risk incurring tax bills for themselves and others.

It would be reasonable to assume that Ms Robinson’s wealth includes more than simply cash but is also made up of property – either at home or abroad or both – and pensions.

Whilst it’s possible to gift a house to a child during someone’s lifetime, there may well be a Capital Gains Tax (CGT) consideration to bear in mind. Generally speaking, HMRC will want to determine the difference between the price which someone paid for that property and its value at the time that it was gifted.

I should point out that there is no CGT liability on a property owned by a person who has died.

Gifts are known legally as ‘Potentially Exempt Transfers’ (or PETs, for short).

Anyone can make them but, if they die within seven years of doing so, the gift’s value is factored into the value of the deceased’s overall estate.

If the total estate is worth more than the £325,000 Nil Rate Band limit for individuals, then IHT is due on whatever sum exceeds that figure.

There are, of course, other things to take into account, such as the additional £175,000 per estate – the Residence Nil Rate Band – when a deceased’s main residence passes to direct descendants.

As Anne Robinson will no doubt be aware, though, that leeway only applies to estates which are not worth more than £2 million in total.

Furthermore, one technique which is increasingly common in tax planning is the use of discretionary trusts to place assets outside an estate for IHT purposes.

It is true that, as the Institute for Fiscal Studies has noted, there is data to suggest that the vast majority of estates pay no IHT at all.

That position continues to shift, though, because the IHT threshold has remained unchanged since 2009, even as property prices continue to climb.

No two estates are ever identical. What might be appropriate for someone like Anne Robinson is not necessarily suitable for the rest of us.

Whilst media coverage about how they manage their lives can provide useful food for thought, it rarely offers comprehensive guidance – especially when it comes to our personal affairs.

Failing to take informed advice based on individual circumstances can actually leave successive generations of people in a more complicated situation than the celebrities whose financial savvy they might wish to emulate.