IHT threshold
Once again despite the usual Press predictions for changes to IHT the Chancellor has decided to leave this tax in its present, favourable format, which should enable those taxpayers who are properly advised to avoid the impact of this tax on their estates.

The "nil rate band" or IHT exemption is increased to £250,000 with effect from 6 April 2002. This increase of £8,000 is slightly more than the usual index-linked increase to this exemption.

With a total IHT exemption available to husband and wife of now £500,000 (twice £250,000) the need to have IHT-efficient wills is vital. By drawing up wills designed to use both exemptions, as opposed to the very common mistake of only using the exemption on the last to die, then savings of IHT totalling £100,000 can now be easily achieved. This is a must for all those whose total estates now exceed £500,000.

Powers over trusts - the "Melville" case
 Although this case focused on a CGT scheme the ability of certain taxpayers to obtain a tax advantage resulted from the definition of "property" for IHT purposes.

Not surprisingly, because the Inland Revenue recently lost the case in the Court of Appeal they have now sought to redefine "property", which from Budget Day will now disregard "powers over trust property", thus ensuring that valuable CGT "hold-over" relief will be denied in certain circumstances. Powers that have been acquired for money or money's worth will not be disregarded for IHT purposes.

Whilst the taxpayers in the Melville case sought significant CGT savings on the transfer of assets into a discretionary trust, the ability to reduce such liabilities is still available on assets with a current market value of up to the IHT "nil rate band", now £250,000, provided the taxpayer (and spouse) are able to gift such assets into trust without, necessarily, retaining an interest in the assets gifted. In some cases a liability to CGT can be reduced significantly below that which would have been payable if the asset were transferred direct to the beneficiary concerned.

Deeds of family arrangement (variations)
 The ability for the beneficiaries under a will to redirect their interests, usually to the next generation, is fraught with complications, one of which concerns the need to make an election for IHT purposes (and also CGT purposes, if appropriate) within six months of the deed or instrument, requesting the Inland Revenue to accept the validity of the document.

With effect from 1 August 2002 it will no longer be necessary to submit separate elections provided the deed itself already states that the appropriate provisions are to apply and is also valid in all other respects. Basically, the elections will apply automatically, provided they are included in a valid deed of family arrangement.

For at least the last seven years or so, the ability to "re-write" the will of a deceased taxpayer has been subject to concerns about possible Inland Revenue attacks, on the basis that some of the "family arrangements" are artificial and have the main aim of reducing liabilities to IHT.

Whilst the Capital Taxes Office will always look closely at such "arrangements" that do not appear genuine, provided the family is properly advised and the various options regarding tax elections are considered fully, there should be no reason why a deceased's will cannot be revised after death to mitigate IHT liabilities, provided this is done within the two-year requisite period and all other conditions are met.

The relaxation of the election procedure mentioned above suggests that the Inland Revenue may be looking more closely at the deeds or instruments themselves, so specialist tax advice is needed.

Personal losses and attributed trust gains
 Where a taxpayer transfers assets to a trust and retains an "interest" (or his spouse does), then any capital gains subsequently realised on the assets transferred will be assessed on the taxpayer under the "settlor/beneficiary" provisions. As a consequence, the taxpayer (settlor) may have a larger CGT liability than he would otherwise.

Currently, gains that have already been tapered for CGT purposes will be "attributed" to the settlor. However, with effect from 2003-04 amounts to be attributed will normally be "untapered" gains (of the trustees), against which the settlor can only set personal losses provided these have first been set against personal gains. After that, the taper relief applicable to the trustees can be applied.

If this results in the settlor being able to claim a greater reimbursement for the years 2000-01 to 2002-03 inclusive (there is a statutory right for a settlor to claim from the trustees that proportion of CGT paid by him due to the attribution of trust gains) then an appropriate election needs to be made by both parties by 31 January 2005.