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Inheritance Tax & ISAs : An Unwelcome Surprise?





A recent survey has highlighted a widespread lack of understanding regarding Inheritance Tax regulations  particularly in relation to ISAs.  Only a quarter of those surveyed realised that the investments could form part of a persons taxable estate and were therefore liable for IHT.  The survey illustrated that only 28% of those aged 55 and over knew that ISAs were not exempt from inheritance tax compared with 18% of 18-34 year olds.


This misapprehension is causing concerns that some families will end up with an unexpected tax bill because they do not know the rules.  Over half (54%) of respondents said they didn’t know whether ISAs were exempt from IHT and a fifth (21%) incorrectly thought they were. The exception to the rule is when ISAs are passed onto a spouse on death, thanks to rules established in 2014.  Of course when the 2nd spouse dies they will form part of that persons estate for IHT purposes.


Since pension freedoms, it has become more tax efficient to pass on a pension than an ISA because defined contribution (DC) pensions are free of IHT.  Therefore, for those in the position of being able to draw on assets like ISAs, the pension pot should be the last thing to touch.


However, in the case of final salary or defined benefit (DB) schemes the benefit stops when your spouse dies.  If you both die early, all benefits immediately cease. Equally, if you are widowed or divorced the DB pension will end on your death, and no benefits will be paid to children or grandchildren.


Researchers explained that this is not just a problem for the super wealthy.  Many more families on modest incomes will have their loved ones’ Estates subject to Inheritance Tax because of property prices, particularly in London where the average property price stands at £484,000.   With more people likely to be liable for inheritance tax each year it is clear more should be done to raise awareness.


It is important to recognise that it’s not your estate value now that applies, but the value of the estate on the 2nd death of a married couple that will be liable to IHT.  If you are in your 60s now it could potentially double by the time you both pass away.


Do call us if you require our help or any advice.


Inheritance Tax Rules Baffle Older Generations

Inheritance Tax


Inheritance Tax is often described as incomprehensible.   Executors often complain to Probate lawyers that the deceased could have done more to save inheritance tax.   Of course by that stage it is too late to do anything about it.   One solution is to take full advantage of the rules on gifts, which is something older generations seem perhaps reluctant to do.


Anyone who can afford to give away sums of money should consider doing so.  Provided the benefactor lives 7 years after the gift is given the Assets gifted are not included in the estate so there is no inheritance tax liability.  The 7 year condition does not apply to the annual exemption.  Anyone can give away £3,000 per year with a carry over for any allowance not used in the previous year, therefore allowing a couple to give away £6,000 every year.  It is also possible to give gifts of up to £5,000 for a wedding, smaller sums of £250 can be given to as many people as you want and gifts from surplus income are also considered to be outside an estate for inheritance tax purposes.


According to recent research however, the average amount people believe they can gift each year without incurring inheritance tax is £1,575.  This is almost half the allowance.  Interestingly, only one in 10 (12%) of survey respondents actually answered with the correct figure.   The confusing nature of tax rules appears to be stopping either generation from benefitting from significant pools of wealth built up over years.


Nearly half of parents surveyed (44%) said they would give more money to their children if they were allowed to do so without tax implications, while more than one in three (35%) grandparents would do the same.  Two in 5 (40%) just don’t feel confident enough to make financial gifts.


Perhaps the recent Government directed inheritance Tax review will make a difference, as the review will be carried out by the Office of Tax Simplification.


It is worth mentioning that the current annual gifting allowance has remained at £3,000 since the early 1980s.  Industry professionals believe that if this was increased we would see more families pass wealth down through the generations.   This will give younger people the financial leg up in life that they may need, particularly with soaring property prices and home ownership merely a dream for some.  The additional benefit of course would be to help older generations from an inheritance tax perspective.


Contact us now to discuss the significant benefits of Inheritance Tax Planning for your family.


Inheritance Tax Review Ordered by the Government




The Chancellor of the Exchequer, Philip Hammond, has recently written to the Office of Tax Simplification (OTS) requesting a review of the regime surrounding UK Inheritance Tax (IHT).  He asked the review to focus on the technical and administrative issues with IHT as well as practical issues around routine estate planning and disclosure.


The instruction for a review appears to reflect Mr Hammonds’ preferred considered and researched approach to policy decisions and his letter stated that he would be most interested in any proposals the OTS may have to make the experience of those who have Inheritance Tax issues as smooth as possible.


Inheritance Tax was instigated well over 30 years ago and since then has evolved into a fragmented, complex and poorly targeted legislation.  There have been calls for a reform of the system for most of its existence.  In the last year alone HMRC received £4.84 billion in inheritance tax.  Rising property prices and a static IHT threshold (which has remained at £325,000 since 2009) are the biggest drivers of this.   The introduction of the Residence Nil Rate Band has caused a significant increase in legislation, increased complexity and caused more uncertainly to those looking to plan the distribution of their estate during their lifetime or on their death.


Over the next couple of week the latitude of the review will be agreed.  There are inextricable links between Inheritance Tax and Trusts, which themselves were referred to in the Autumn Budge last year.  It is likely that there will be a review of the taxation of trusts at some stage in the near future.  It seems probable that there won’t be any decision made before this years’ Autumn Budget.  Experts suggest that substantial changes to the basis of the tax are likely to be forwarded looking and that existing structures may be offered some form of protection.


Once the details of the review are available, industry professionals will be able gauge if this is merely an administrative review or whether it will extend to consider the valuable reliefs from tax, including Charitable exemptions, Agricultural and Business property reliefs and the treatment of Lifetime Gifts.


If you’d like some professional advice regarding our own circumstances, please don’t hesitate to get in touch.





The Passing Of Business Shares On Death

Passing business shares

How To Arrange The Passing Of Business Shares On Death

The passing of business shares on the death of a business partner who is not a spouse requires careful planning.   If you are considering selling business shares to a non spousal partner this area requires experienced advice.

To avoid business shares falling into a person’s estate and the surviving owners losing control of a business, many business owners set up share purchase agreements.  The usual objective of agreements for the sale and purchase of a share in business between the owners in the event of the death one of them is that the beneficiaries of the deceased sell their share to the surviving partner.  Unfortunately, using the wrong type of share purchase agreement can result in the surviving business partner being denied business property relief.  However, the terms of this should not be obligatory.

Historically HRMC has regarded this kind of agreement as binding, as and such made the transfer of shares on death ineligible for business relief, for IHT purposes.   Equally, for IHT purposes, the transfer of the share could be passed into a trust.

It is worth noting that HMRC will accept that in the passing of business shares a double option agreement is not a binding contract for sale (Statement of Practice SP12/80) and this will not prejudice business property relief.

Interestingly, this is despite the fact that the double option agreement states that if one party decides to exercise their right to buy or sell, the other party is bound to comply.  If both parties decide not to exercise their options, the practical effect of the agreement is the same as a buy and sell agreement.  In this instance, eligibility for business relief is retained.

The wording of these agreements is obviously crucial.  HMRC gives specific reference to a double option agreement entered into under which the surviving partners have an option to buy (call option) and the beneficiary has an option to sell (a put option), such options to be exercised within a stated period after a partners death.

If the option periods for the purchase and the sale are not identical (e.g. the option to buy for three months and the option to sell for six months from the date of death) this does not affect how HMRC views the agreement.

In Spiro v Glencrown (1991) the decision provided authority for an option to be a contract for sale, which resulted in no business relief being available.   Early in 1996 HRMC (then the Capital Taxes Office) confirmed there had been no change in its opinion regarding Statement of Practice SP12/80 and the case wouldn’t be cited as authority for an option constituting a binding contract for sale.

More recently the 2000 case Griffin v Citibank Investments provides a much stronger argument that an identical terms buy and sell option together do not constitute a single bilateral contract.  This did not concern an arrangement for a share purchase between partners but it did involve 2 identical options and is of particular relevance for this reason.

In December 1994 Citibank Investments Ltd sought an investment that would generate funds in the form of capital gains rather than as income liable to corporation tax.  It purchased 2 FTSE linked options on terms that all transactions entered into on reliance of the purchase agreement formed a single transaction.  Corporation tax was then assessed for 1994, 1995 and 1996 on the gains arising from the two option contracts.

On appeal to the Special Commissioners, Citibank Investments Ltd contended successfully that the gains arising from the options fell to be treated as capital gains rather than as profits or gains chargeable to tax under Schedule D.  HRMC appealed the decision but conceded that each of the two options, if taken separately would be a qualifying option within the meaning of section 128 ICTA 1988 and accordingly any gains would have been exempted from a charge to tax.

However, if the two options fell to be treated as one composite transaction by the operation of the Ramsay principle (in essence the court should not confine itself to the method of assessing the tax consequences of each individual transaction in a composite transaction but instead should look at the composite result and consequences) as was the Revenues contention, that would fail to satisfy the statutory definition of a qualifying option within the meaning of section 128.

As all the above indicates, setting up these agreements is best done using advice from an experienced IHT and business adviser.

Please call us if you own a business with a person who is not your spouse for help in the passing of business shares.

Inheritance Tax Planning for Cohabiting Couples

Cohabiting Couples

Inheritance Tax Planning for Cohabiting Couples

In a recent YouGov survey about cohabitees legal rights, 35% of cohabitees either did not know what legal rights they had or believed that once they had lived together for a year they automatically had the same rights as married couple.  In fact, if a relationship breaks down, the court cannot reallocate resources between them on the grounds of fairness and neither party is able to claim maintenance from the other for their own benefit.

In the survey, only 33% of the couples said that they had taken advice about their different options.  Consequently 40% of the couples had bought their home in the name of one partner, 13% were tenants in common and 41% bought as joint tenants.  It may be a surprise to learn that joint tenants are presumed to be equal owners regardless of the actual contribution they made to the purchase.  Only around 50% of the cohabitees in our survey contributed equally to the deposit and a mere 42% paid equally towards the monthly mortgage repayments.  It would be wise for the remaining couples to buy as tenants in common and make a declaration of trust stating clearly each party’s share.


Property Ownership

If a property is purchased in one name a court is unlikely to recognise another individuals claim upon it. Likewise, if the ‘Bank of Mum and Dad’ are involved in the purchase of a property it should be made absolutely clear whether they are buying a share of the property, offering a loan or making a gift.  A formal loan agreement is a practical option; the purchase should be in joint names, as tenants in common supported by a declaration of trust.   It is recommended that parents involved take advice on the tax and practical implications of purchasing a property.



Property owned by joint tenants passes automatically to the survivor regardless of any of the deceased’s bequests.  If either party wishes to leave their share in the property to a third party, the property should be held as tenants in common and a specific will made.

The survey highlighted that a surprising 44% of the cohabiting couples had not made a will, so their assets will pass under intestacy rules which do not benefit unmarried partners at all.  Challenging this in a court is expensive and the outcome uncertain for a surviving partner, and making a Will is the only way to provide clarity and peace of mind.



Where surveyed cohabiting couples had children, 73% of them couldn’t determine what support their partner should give them on separation.   In fact, both parents are expected to pay to maintain their children until they complete their education.   The Child Maintenance Service assesses how much should be paid to the parent with the greatest caring responsibility and will enforce payment.

The court cannot make a child maintenance order unless the paying parents’ gross weekly income exceeds £3,000.  If necessary, applications can be made for a lump sum, eg for a car, and as a one-off for the transfer or purchase of a property.   The property will be reverted to the paying parent once the child has finished full time education.


Cohabitation Agreements

In the survey 76% of those cohabiting couples surveyed had never heard of cohabitation agreements, and only 10% had one in place.  These contracts cover the ownership of the finances and property and make financial provision for the children.



Despite many calls for a statutory framework for the fair distribution of cohabitees’ property in a relationship breakdown, in the short term law reform is unlikely.  Evidently numerous cohabitees are simply unaware of the potential circumstances that will arise if their relationship breaks down or one partner dies.  Anyone already cohabiting or contemplating it is strongly advised to take as much advice as possible in order to circumvent stressful disputes and avoid potentially distressing situations.  Let us help you.  Call now for a free 30 minute consultation 01582 447069.

7 steps to reduce your inheritance tax bill

reduce your inheritance tax bill

7 steps to reduce your inheritance tax bill

Inheritance tax is the highest it has ever been with the tax man taking more than £5 billion in the last year. Even though from April 2020 married couples could potentially pass on £1 million IHT free, the amount of IHT being taken is still expected to rise.

The seven steps to reduce your inheritance tax bill are:

  1. Making a will

Making a will is the simplest way of planning your estate and furthermore reducing your IHT liabilities, even though nearly two thirds of British adults do not have one. If your will is not well written and follows all of the guidelines, then your estate would be processed according to the rules of intestacy upon death. This means the tax man may take a larger amount of your estates and your beneficiaries may not get what they deserve from your estate.

  1. Give tax-free gifts

Each person is able to give a maximum of £3,000 per year tax free, this is known as the annual exemption, meaning it would not be considered for IHT purposes as long as it has been well documented. If you did not use the annual exemption in the previous year, then you can combine it with your current years allowance to gift up to £6,000 IHT free.

As well as the £3,000 allowance, there are also other gifts in which you can make which would fall outside of your estate. You can give up to £250 per person once per year to as many people as you wish as well as a wedding or civil ceremony of a family member (£1,000 per person, rising to £2,500 for grandchildren and £5,000 for great grandchildren).

If you leave 10% of your estate to charity, then you may qualify for a reduced IHT bill of 36% instead of 40%.

  1. Make larger gifts

You can make gifts to a value as high as you wish although you must live seven years after that gift has been made for it to fall outside of your estate. Gifts in excess of £325,000 are subject to a reduced rate of tax after 3 years – It is advised that you seek professional advice with this topic which we would be happy to help with.

  1. Set up a trust

When cash, property or investments are put into a trust, they essentially fall outside of the estate as they are no longer yours, they belong to the trust. Someone of your choosing will then look after that trust (a trustee); an example could be your children.

Trusts have the ability to significantly reduce your inheritance tax bill although there are tax and general laws which are very complex. Whatever decision you may make could actually be irreversible and you could shoot yourself in the foot if you do not get professional advice when setting it up and making any decisions. Assets placed in trust will only fall outside of your estate if you survive for 7 years after the trust is set up.

  1. Make sure your ISA is IHT free

When the ISA is yours and you are living, there is no tax to be paid but when you die and the ISA is passed on, your beneficiaries could be faced with a 40% IHT bill. To avoid this happening, ensure you are investing in certain AIM listed companies via your ISA. You will have to hold these shares for two years which you can then pass on to beneficiaries IHT free.

  1. Review your pension provisions

If you die before the age of 75, then you can pass on your pension IHT free. However, if you die after 75, then your beneficiaries will have to pay income tax on whatever amount they take out of the pension at their highest rate of income tax.

  1. Consider an IHT portfolio to retain full control of your assets

An IHT portfolio is a portfolio of companies which qualify for business property relief (BPR). It was initially introduced to allow entrepreneurs to pass their business down generations without the worry of IHT liabilities. The scope has now widened so it is possible for you to qualify for BPR even if you are not a business owner, but just an investor in a BPR qualifying company.

Here at Bluebond, we can help you plan your estate to mitigate any possibilities of an IHT bill. We can help you plan any of the above points to help you reduce your inheritance tax bill. Call us now for a free 30 minute consultation! 

HMRC Challenges Tax Avoidance

Tax Avoidance

HMRC Challenges Tax Avoidance

In the year of 2016/17, there were 26 cases of tax avoidance and HMRC won 24 cases out of 26 and had one case of a mixed result. These figures are slightly down compared to the year 2015/16 where HMRC won 23 out of 26 cases.

One of the cases that HMRC won was against Ingenious Film Partners 2 LLP and Ingenious Games LLP. The case involved the 2 LLPs arguing that as they were involved in the production of a large number of films and video games that in the early years, it lead onto trading losses which their investors could set against their other taxable income. HMRC denied that it was not a legitimate investment but a way of avoiding tax.

The three cases that HMRC lost were against Investec Asset Finance PLC over corporation tax, Project Blue Limited over stamp duty land tax and children of a man who used tax planning to mitigate his IHT bill.

Donald Salinger was the man who used tax planning and he had entered into an arrangement involving the transfer of a reversionary interest in an Isle of Man trust to his family with 2 of his children being trustees. After his death the children argued the reversionary interest was in face excluded property as no consideration was given for its acquisition. HMRC argued that consideration had actually been given and that Mr Salinger had made a transfer of the value of £820,000. The judge ruled in favour of the children as although consideration was given, there wasn’t a loss to the value of Mr Salinger’s estate immediately following the transfer of that interest.

HMRC have been given confidence by other governments in recent years to properly sort out tax avoidance as well as being given extra funding and staff to clawback lost revenue.

More than 75,000 accelerated payment notices have been issued so far to people who are under enquiry for tax avoidance since rules were introduced back in 2014. However this regime has been criticised for causing groups of investors in tax avoidance schemes to have to pay large amounts of tax with barely any time to come up with the finds to settle the liabilities.

The moral of these stories are to not enter into tax planning arrangement without advice from an experienced practitioner.  To help avoid inheritance tax call us today to check how we can help you.


3 things to consider when thinking of selling your business


3 things to consider when thinking of selling your business

One of the main issues for business owners when planning to sell their business/retiring is the lack of planning of the possible tax liabilities. In order to achieve the best outcome, you should plan well ahead of that time. You are never too young to consider financial planning, either you or your business. Planning at an early stage can be structured to help with current tax liabilities as well as any liabilities on retirement or sale of the business.

Capital gains tax

During the planning of finances, capital gains tax (CGT) as well as inheritance tax (IHT) needs to be considered very carefully as if they aren’t, you may have to hand over a hefty cheque to the tax man.

CGT would be payable when selling any assets (EG – a property or business) where there has been an increase in the value of the asset. The CGT rates are currently 10% for basic rate tax payers and 20% for higher rate tax payers (of April 2016). Although there are exemptions, the gains from a sale of a property that would not qualify for full principal private residence will continue to be taxed at 18% for lower tax payers and 28% for higher tax payers (as of before April 2016). The sale of a private business which qualified for entrepreneur’s relief allows the owners who own more than 5% to enjoy a tax rate of 10% in capital gains tax up to a lifetime amount of £10 million. You need to ensure you qualify for this relief.

Do not leave it too late to start planning and considering your CGT liabilities as investments made many years go can have quite shocking CGT liabilities which you would not want to face.

You can reduce your CGT liabilities by using the tax allowances which you are entitled to by very carefully planning of your CGT positions throughout your life.

You can ensure that you offset capital gains on successful investments with losses from investments that haven’t worked out as well. Loses can be carried forward to offset gains in future tax years. As it stands, if your capital gains is less that £11,300 in a financial year then you will be exempt from CGT.

The biggest priority of any business owner should be having a well written and planned out will, not only to ensure that your assets go where you want them to go but also to reduce the likelihood of any taxation it may have. If you do not have a will then effectively the law will decide what happens to all of your assets, which will cause extensive financial anxiety for your family due to the potential of a large IHT bill.

Inheritance tax

If you don’t want to directly give a gift, you could put the assets in a trust. With planning, you can transfer your assets into a trust with little capital gains tax or inheritance tax consequences and it could then reduce your taxable estate after death. However, there are additional tax charges and costs relating to trusts which could be applicable. Experienced advice is essential.

The current nil rate band is £325,000 which will not change until the year 2020/21. In April 2017 the residential nil rate band was introduced, which is currently at £100,000 rising by £25,000 every year until 2020/21. This will give a total inheritance tax exemption of £1million, if married or in a civil partnership or £500,000 per person.

Business property relief

Business property relief can, with very careful planning, remove the total value of your business from being subject to an inheritance tax bill either by a lifetime gift or on death. You are able to gift as much money as you like throughout your lifetime and this is referred to as a potentially exempt transfer.

Gifting income producing assets to your children, such as shares, is a good way of reducing the total family income bill as well as, at the same time, conducting succession planning. However, you have to be careful that there are no capital gains taxes or inheritance tax liabilities which can arise from the gift. Your children could also get divorced so a trust would potentially be suitable – experienced advice is essential.

If you gift a part of your estate to a charity, it can reduce the amount of inheritance tax payable on your estate due to the act of benevolence. It can reduce the inheritance tax rate payable from 40% to 36% if you leave at least 10% of your net estate to charity.

These areas of taxation can be very daunting, but with careful planning it is possible to reduce your CGT and IHT liabilities. Contact us with any queries or estate planning you may need and we will be happy to help with a free 30 minute consultation. Call us now on 01582 447069.

Unsuspecting consumers being hit by IHT bills


Unsuspecting consumers being hit by IHT bills

In the tax year of 2016/17, IHT drew £4.7 billion from UK consumers and is estimated to be a third higher (£6.2 billion) in the upcoming 5 years – the inheritance tax amount being at 40% on anything over £325,000. The unwarranted reluctance of people to use financial advice plays a big part in the rise. As the inheritance tax rules are so complicated, it is definitely worth getting financial advice as it may cost some money in fees at the time, but will save significant money in the long run.

A lot of people put financial planning to the back of their mind when they may be 20 years off the retirement age, as they think that they will live 20 or 30 years past retirement. But you may die earlier than the retirement age all together, which is why you need to consider it much earlier. You don’t want your family to have the burden of IHT after your death.

HMRC think that the rise in the bill of IHT is because of the continuous rise of asset values, property being the main one. Because of the rise in estates and assets, it means that your assets would then be over the residential nil rate band of £325,000.

You cannot underestimate how tough IHT rules are. HMRC are taking a large percentage of your estate which could be avoided if the correct and legal measures are put in place before it becomes an issue. You could pay an adviser £2,000 to implement financial advice but if you do not take action, then you could be paying HMRC more than 100 times that price.

Since April 2017, there has been a £100,000 nil-rate band allowance when a residence is passed on to a direct descendant after death. This will increase by £25,000 per year until it reaches £175,000 in the financial year of 2020/21.

With the inheritance tax nil-rate band and the ability to transfer unused RNRB to a surviving spouse or civil partner, it means that there is a total tax threshold of £1 million in 2020/21. The full use of this is complex and once again advice is essential.

Don’t be the person who buries their head in the sand, make sure that you face potential IHT bills as early as possible, to save your direct descendants from huge IHT bills. Contact us for any help making your first steps to having a pain free financial future.

Call to change tax rules


Call to change tax rules

If you are acting as an executor for your friends and family then you may face having inheritance tax bills yourself which you’ll have to pay with your own money if settling the estate takes more than a few months. You may have taken on being an executor without knowing about the financial burden you may have brought upon yourself if selling the home owned by the deceased takes too long. It is said by the law that you as the executor would liquidate the estate and settle any debts or bills and then distribute what is left to the beneficiaries within the will itself. Any inheritance tax must be paid within 6 months after the death to HMRC.

Most estates include a mixture of property, cash, shares and other possessions, which could potentially take months or years to sell. If these assets haven’t been sold by the time the IHT bills are due, then IHT will have to be paid on those assets, which could potentially mean that the executor will have to pay that bill with their own money. Families can also plan to pay the bill by either saving money or borrowing money from the bank. Firms are calling to the government to change these tax rules so that the executor is not stuck with the potentially massive IHT bill which they are unable to pay in the short term.

Financial stress

It is said by a financial specialist that many executors have no idea that they may be faced with a massive IHT bill and although the money can be reclaimed after the assets have actually been sold it is an issue that many people may not be able to handle and causes unnecessary financial stress.  HMRC need to re think these tax rules to give executors more time to settle the estate before they start demanding tax as they are only acting in good faith of friends and/or family.

Do not hesitate to contact us for any help planning your future finances and minimising IHT before this issue may arise. We will be happy to answer any queries or questions you may have.

Five good reasons to use a trust

reasons to use a trust

Five good reasons to use a trust

Trusts take an important role when estate planning. Trusts ensure assets can be easily managed by trustees and that the assets can be ring-fenced.

Five good reasons to use a trust are as follows:

  1. Managing assets

Trusts are very flexible meaning you can tailor the trust to your needs and situations.

Do you have a beneficiary who isn’t capable for any reason (EG-a minor or disabled) to personally manage the assets?

Do you have a level of mistrust with another beneficiary to own the assets themselves? (EG-Gambling addiction)

Could there be potential conflict between beneficiaries when the estate is settled? (EG-between children from different marriages?)

If a trust were in place, the trustees can distribute the assets to the beneficiaries over time.

  1. Protecting assets

There are different types of trusts which can protect you from creditors, marriage breakdown or from anyone who may influence beneficiaries.

An example would be a discretionary trust. A discretionary trust would offer protection as the beneficiary cannot access any of the assets until the trustee appoints it to them.

When considering a bare trust, the beneficiary can access the assets at any time meaning there is no protection.

  1. Flexibility

Some particular trusts allow you to make a gift of money into a trust, for specific beneficiaries as long as you still continue to receive a benefit from it. Discounted gift trusts and flexible reversion trusts allow you this kind of flexibility.

Some trusts give the trustees full control of the trust in case there is a worry by the settlor about the beneficiary not being mature enough. This way the trustee can be in control of the trust beyond the age of 18, without the worry of it becoming a discretionary trust.

These types of trust are offered from many different providers allowing the funds to either be kept back until a certain age or distributed in smaller regular amounts instead of all in one lump sum.

  1. Minimising tax

A lot of people believe that the main reason for using trusts is to reduce the inheritance tax on the estate after the settlor’s death. In other words, assets which are put into trusts are given to beneficiaries and will fall outside of the settlor’s estate, but only if the settlor lives longer than 7 years after the trust was set up.

If the settlor dies within the 7 years, then any growth of the trust will not be included within the IHT bill, only the amount originally put into trust.

  1. Avoid probate

Assets within a trust no longer belong to the settlor, but to the beneficiary meaning on the death of the settlor, the value of the asset is not included within the estate for probate reasons. This saves you time, legal fees and a lot of paperwork.

When dealing with life policies, the insurance provider will be able to pay the death benefit quicker as they can simply just pay the legal owners and doesn’t require the grant of representation, meaning it could be paid in a matter of weeks.

Trusts are a very useful estate planning tool, but choosing the right one for you is crucial which is where you will need to seek professional advice.  If you are interested in starting a trust or have any other questions, please call us and we will be happy to help.

Deed of variation

Deed of variation

Deed of variation

If your estate is worth more than £325,000 then your beneficiaries will be faced with an inheritance tax bill of up to 40% of any amount over that sum on your death. For married couples, you can add together your £325,000 threshold and have a £650,000 threshold for IHT reasons, reducing IHT for your beneficiaries.

There is a loophole which is being used more and more called a deed of variation to reduce IHT bills. It involves a law which involves changing wills to redirect a deceased person’s estate and assets. A deed of variation can be used where a descendant can give some of what they received from the will to someone else – often a discretionary trust or a charity. For the deed of variation to work, they just need everyone who was included within the will to agree with the changes within 2 years of the death of the person whose will is being varied.

A deed of variation is generally used by those who may not need all of the inheritance that they received from the will, so they redirect their inheritance to their children to use later on in life.  Either this or if a will wasn’t kept up to date and there were children or grandchildren who were not included within the will.  You can use a deed of variation to change the distribution of the deceased assets to make most of the IHT rules which exempt particular assets and beneficiaries.

When a person’s assets are passed onto their spouse/civil partner, their assets are exempt from any IHT.

So if someone is receiving assets which would be exempt from IHT, you can re arrange things so that these exempt assets can be passed to someone who would otherwise be liable for IHT. An example of this is that if the estate includes a business, it could get 50% or 100% IHT relief, so a deed of variation could be used to pass that onto children rather than a spouse/civil partner.

You need to remember that the deed of variation must be in writing, created within 2 years of the deceased death and signed by all beneficiaries of the estate. To do this properly and easily, contact us and we will be happy to help and save you money from IHT.

Complex rules on inheritance tax


Complex rules on inheritance tax

If you own your own home and your estate is worth less than £2 million, then after your death, your beneficiaries will benefit from the new inheritance tax exemptions which were introduced in April 2017. The new residential nil rate band (RNRB) offers £100,000 worth of inheritance tax exemptions per person to your children or grandchildren. The £100,000 will increase by £25,000 each year until the total reaches £175,000 in 2020/21.

The new RNRB added to the nil rate band of £325,000 means that there is a total of £1 million worth of exemptions of inheritance tax for a couples descendants. However, the new exemptions have drawn criticism as it favours the traditional family as those who are not married or in a civil partnership will miss out on the transferable element.

For every £2 over £2 million that your estate is worth, the RNRB is reduced by £1. This means that if your estate is worth exactly £2.2 million in the tax year 2017/18, then the RNRB is reduced to nil. In the tax year 2020/21, if your estate is worth £2.35million then you will not qualify for the benefit of the RNRB.

If you are looking to benefit from the RNRB then it is advised that you give pension planning higher priority over any other investment assets if you want to stay in the £2million limit. This is because a pension is not necessarily subject to inheritance tax. It the works in favour if you leave more money in your pension as it could keep you within the £2million bracket. However, as you are aware the rules around pension planning and death benefits are also complicated once a person is over 75 years old. As always, you are better off getting experienced advice.

If you are interested in financial planning and reduce inheritance tax for your children please call us today.

You will need to review your will

You will need to review your will

You will need to review your will

The use of nil rate band discretionary trusts in wills were very common for those who exceeded the nil rate band limit in 2007. This means that if you left your estate in a discretionary trust on the second death, you need to review your will as soon as possible. The discretionary trust would have been used to protect your assets for your children against divorce or bankruptcy. But now, if your estate is all passed to a discretionary trust, the new residential nil rate band (RNRB) cannot be used. This potentially means a couple not using two allowances of £125,000 each which could mean an additional IHT bill of £100,000.

There are complex and confusing rules around using the RNRB. If you have sold your main home after the 8th July 2015, downsized or moved to a nursing home, you may be caught by these rules. Therefore, you will need to review your will as soon as possible. Hundreds of thousands of wills will be affected by these rules, and so it is best if you review your will as soon as possible.

The new IHT RNRB allowances means that any IHT planning measures which you may have previously done, which includes discretionary trust planning, will need to be reviewed and possibly changed.

While these new allowances will benefit a lot of people, you will still need to be advised as to the best way to protect your assets. The best and most efficient way to do so is by contacting us so we can help you protect your beneficiaries’ money on IHT.

In summary, if you have an IHT problem now or are likely to have one due to the growth in the value of your house before you die, please call us to see how we can help you.

New inheritance tax allowance for homes: six things you didn’t know

New inheritance tax allowance for homes

New inheritance tax allowance for homes: six things you didn’t know

The new Residential Nil Rate Band (RNRB) which was introduced in April 2017 means that over the next 3 years, couples with a home worth up to £1million will be able to pass it on to their direct descendants IHT free. However, a recent survey found that 70% of people had no idea about the new inheritance tax allowance for homes.

At the moment, the first £325,000 of a person’s estate is free of IHT which is known as the nil rate band (NRB), the introduction of the RNRB means you get an extra chunk free of IHT if you own a home. For estates worth over £2million, the new RNRB will be progressively tapered away by £1 for every £2 that the total estate exceeds the taper threshold.

There have been lots of misunderstandings about the new RNRB which could lead people to structure their finances in the wrong way, which is where an experienced financial adviser would be recommended.

The five areas with the highest misunderstanding are:

  1. You can select which property the allowance is set against

The new RNRB can be used against any property within or outside of the UK which was used as your own home and lived in by you. However, the value of the property must be included within the person’s estate for IHT reasons.

  1. The allowance can still apply even if the property has already been sold

This means that if you have downsized you will not be penalised because the allowance can then be used within your estate against the value which the property was sold for.

  1. Any outstanding mortgage is deducted before the allowance is added

The value of the home is calculated by subtracting the liabilities secured on the home from the market value of the property, all for RNRB reasons.

  1. The allowance can only be used when the property is left to direct descendants

The home/value of the home must be inherited by your child or grandchild for the RNRB to be eligible; this does not include siblings, any other members of the family, other people or trusts.

  1. This allowance will rise by £25,000 every year for the next 4 years

The current RNRB is at £100,000 and by 2020/2021 the RNRB will have reached £175,000 per person.

  1. The allowance of a previously deceased spouse is available on the second death of the surviving spouse irrelevant of when the first spouse died

This is only available provided all of the previous five points are adhered to.

Given these confusions and misunderstandings of  the new inheritance tax allowance for homes , it is more important than ever to seek expert financial advice. Do not hesitate to call us, we would be more than happy to help you reduce your IHT bill as much as possible by taking advantage of the new RNRB correctly.


Who should you leave your home to on death?

Who should you leave your home to on death?

Who should you leave your home to on death?

LV Legal Services says that over 1.7 million people who are 55 plus have the potential to miss out on the newly increased nil-rate band as they have left the family home to a sibling rather than a direct descendant. One in 10 over 55s have decided to leave their estate to a sibling, meaning the new residential nil-rate band will not apply and will disqualify them from being able to use it.

The new residential nil-rate band came into effect on the 6th April 2017 and it means that an initial allowance of £100,000 per person per family home will be inheritance tax free, increasing the total maximum individual allowance for IHT to £425,000 or £850,000 for married couples. Anything above £850,000 or £425,000 will be taxable at 40%.

The allowance for tax free inheritance on the family home will then increase by £25,000 per person per tax year until 2020, when the tax free allowance combined with a spouse or a civil partner is at £1million. Meaning you could leave your property to either your children or direct descendants of a value of up to £1million IHT free.

However, if you were to leave the family home to a sibling then the IHT bill will be 40% of the difference between £1million and £650,000, leaving a potential IHT bill of up to £140,000.

This means getting the correct advice on reducing the risk of IHT is worthwhile and could save your children or direct descendants up to £140,000. Do  not hesitate to contact us, we’d be happy to help.

When is a gift not a gift?

When is a gift not a gift?

When is a gift not a gift?

A gift of property made by a person on or after the 18th March 1986 is called a gift of reservation (GWR) as long as the person is still benefitting from the property, ie they are still living in it. If this benefit is reserved, then it will be included as a part of the gift givers estate for inheritance tax purposes, even if they no longer own the property, they are still using it for their own benefit.

When talking about a GWR, a gift can mean a sale which was made deliberately below the market value of the property. For example, if a property was worth £1million and a person sells it for £750,000. The transfer is part sale and part gift meaning the £250,000 loss to the estate would be treated as a potentially exempt transfer and would be included in the deceased’s estate if they pass within 7 years of the sale, even if they didn’t receive any benefit from the transfer.

The GWR rules have only been around for 30 years meaning if someone placed an investment in a trust before the 18th March 1986, they will not get caught unless further gifts are made on or after that date.

The use of these GWR rules by HMRC means it is very important to ensure that any gifts or loans made to adult children or anyone else are properly recorded as failure to do so  could have them fail for IHT purposes.

As always, experienced advice is essential, please call us for help.

The tax advantages of getting married

The tax advantages of getting married

The tax advantages of getting married

Marriage or civil partnerships, in the eyes of the law makes a large difference to a couple’s financial status. If you just live together, you could lose out on inheritance tax mitigation strategies, even if you have been partners for a long period of time. The only advantage that you could get if you are not married or in a civil partnership is you can claim one property each as your main residence. This means that on the sale of a second property there would be no capital gains tax applied as the second property could be classified as a main residence. Some of the tax advantages of getting married are as follows.

Marriage or civil partnerships become important in the probable event that one of you passes first. If all of the assets pass on to your spouse or civil partner it will be free of IHT. In addition, they will take any unused portion of the nil rate band for future use. This wouldn’t apply if you aren’t married or in a civil partnership. In an example, radio one presenter Steve Hewlett married his partner Rachael as he was terminally ill so that all of his assets would pass on to her free of any inheritance tax charges.

If you do not have a will and are married or in a civil partnership, then your partner would automatically receive some of your estate, but if you aren’t then they would not automatically receive any assets. It will skip your unmarried partner and will follow the rules of intestacy, which will pass the assets to your family according to certain rules.

Other benefits of being married or being in a civil partnership include being able to make lifetime gifts to your partner without IHT or capital gains tax, making it the easiest way for assets to be arranged in the most tax effective way. On the occasion of a wedding cash gifts can be given up to £1,000 per person as well as being able to give gifts of up to £5,000 to your children and £2,500 to your grandchildren without the worry of IHT.

You also have the ability to easily claim against your married partners will if they haven’t made reasonable financial provision for you in the will, as you won’t have to prove your relationship has lasted for more than 2 years or financial dependence from your partner. If you aren’t married then you will be struck by the disadvantages of inheritance taxation.

Although there are many ways around getting around inheritance tax if you are not married, it is easier and more cost efficient if you are and your family would benefit more after death from it. These are just some of the tax advantages of getting married.

For any advice regarding this matter, do not hesitate to contact our experienced financial advisers.



Why do you need both a will and a trust?

Why do you need both a will and a trust?

Why do you need both a will and a trust?

The reason you would make a will is so you have clear knowledge and clarity of whom and where your money and assets are going to go after your death with minimum delay and charges. Although these are good intentions, you may not have considered all of the ‘what ifs’ which would affect those receiving the inheritance by a will. Not addressing any inheritance tax charges or delays places a big burden on the beneficiaries prior to receiving the inheritance.

Potential questions or ‘what ifs’ of the question ‘why do you need both a will and a trust? that you should consider are:

  • What if your spouse remarries after being widowed?

Legally, the new spouse is likely to benefit from their death, which could lead onto your grandchildren’s inheritance to be taken away/disinherited.

  • What if your beneficiaries were to become divorced or separated?

Then your estate could end up being left to people who you may have never met before.

  • What if your beneficiaries were to suffer financial hardship?

Creditors have the right to seize the inheritance that they could have benefited from.

  • What if a beneficiary is reliant on state benefits?

If you leave them money through a trust, then that money wouldn’t fall under your estate and then wouldn’t be considered for IHT reasons.

  • What if a beneficiary isn’t sensible enough with money to receive their inheritance?

It is possible for them to receive the inheritance in stages as long as the money is being supervised by someone who is trusted. You may choose to do this if the beneficiary struggles to handle money or has gambling or drug addictions, to reduce the likelihood of more addictions.

  • What if your will is challenged?

Under the ‘Provision for family and dependants act 1975’ the only people which would be able to challenge your will are those who have been disinherited fully or left only ‘unreasonable provision’. However, if you form a trust then it makes it much more difficult for anyone to be able to make a challenge. The trust would only be given to those named before your death and there is no need to change ownership as all of the assets would go to the beneficiaries named.

  • What if the beneficiaries cannot pay inheritance tax straight away?

Even if your assets are given to a trust before death, it doesn’t necessarily mean you will avoid inheritance tax but it does mean you can avoid probate and the trusts beneficiaries can access the assets immediately.

  • What if, after receiving a large estate minus death duties the beneficiary dies prematurely?

Leaving assets to someone by a trust means those assets will never be accounted in the beneficiaries personal assets, meaning you can pass it on through generations for as long as the trust goes on for (usually 120 years), reducing IHT for them in the future.

Those are some answers to the questions regarding ‘why do you need both a will and a trust?’.

If you have any more questions regarding ‘why do you need both a will and a trust?’, do not hesitate to contact us and we will be more than happy to give you the best experienced advice.



Gifts from your income

gifts from your income

Making gifts from your income to avoid inheritance tax

One question which always gets asked: How can I reduce inheritance tax on my estate when all my capital is tied up?

One answer to that question is that if you can afford it then you can make lifetime gifts of capital. This is one of the most effective IHT planning strategies. But what can be done when a chargeable estate cannot be transferred because of other taxation or practical reasons?

If you are in this situation and have already made use of the annual and small gift exemptions then you might be limited to only being able to make a gift of capital, which is gifts from your income and then hope to survive the dates of making the gifts by at least 7 years so that the gifts will fall out of the estate at death for IHT reasons. This gift can be made directly and so is classified as a potentially exempt transfer (PET) or a gift into trust which is classified as a chargeable lifetime transfer. The two types of gifts are taxed in different ways so experienced advice is required.

To be able to improve this position, you can arrange affairs so that the exemption for ‘normal expenditure out of income’ can be claimed on death. This is done by making gifts from your income that you consider you do not need to maintain your standard of living.

For you to be able to qualify then your expenditure must be normal or habitual, it must be made out of income and after all outgoing costs, including the transfers, you must be able to demonstrate that there is no change in your standard of living.

Should you decide to use these gifts out of income method, it is essential the intention to make the gift regular and habitual is recorded. This could mean using standing order arrangements or a letter of intention for gifts that are made annually. In addition, the gifts should be of the same value as the regular payments that are made and should there be any changes to the amount gifted the reason for the change must be recorded.

To determine whether the second and third conditions have been met, HMRC expect your trustees or executors to give a lot of detail of your income and expenditure in the years before your death which would be entered on the IHT form 403. Income includes all forms of income whether it is taxable or not.

The expenses will include amounts which can be easily determined for example, mortgage or utility bills but will also include items which cannot be easily determined such as holidays or travel. The surplus of income over expenditure is then compared to the value of gifts which the exemption is being claimed to determine whether the gifts were made out of income rather than capital.

If you hope for the estate to benefit from the exemption then you must keep everything well documented to ensure the personal representatives have the best chance of success and don’t submit an incorrect claim.

Like all IHT planning it is essential to get experienced advice before starting any inheritance tax mitigation planning. Please call us for help and advice in this area.

Gifts to grandchildren

gifts to grandchildren

Gifts to grandchildren

It is rare for most people to make direct gifts to grandchildren in their wills as they would normally just pass it down to their children with the option of them passing it on to their children; however this is not the most tax effective way of doing it. Forward thinking can reduce the eventual overall tax.

You may worry about leaving large sums of money to your grandchildren due to the fear of it affecting their motivation to work as well as the appreciation for the value of money.

14 million grandparents spend an average of £74 on each grandchild for Christmas. But those grandparents that are generous can give up to £250 to each grandchild without the worry of inheritance tax on that money.

Help with education fees

Those grandparents who are helping their grandchildren pay for school fees will be making gifts which could potentially be liable to Inheritance tax. As long as the amount given is under £3,000 per year per person making the gift then the recipient will be exempt from having to pay inheritance tax. However, it will diminish the taxable value of their grandparent’s estate a little bit at a time.

Education of the child over the course of their education can result in significant fees which if deducted from the value from your estate will generate significant IHT savings.

If you have an annual income which is a lot more than your normal annual expenditure then you will be able to use some of that excess money to pay for school fees as long as you have enough money left over to keep your standard of living. These gifts will be tax free. It is important that any gifts made are well documented as they utilise a less well known “gifts out of normal income” rule.

Helping to buy property

A solution to the housing crisis is to encourage wealthy people to leave their properties or cash to buy one to their grandchildren. If you do make gifts when you are still alive then the value of the contribution will remain in your estate and then drop out of the potential IHT liability after 7 years from the date of the gift.

A way of avoiding this if that if you have younger grandchildren as well as a surplus income then it may be better for you to put the surplus income into a trust so you can build up a fund which can be used for deposits later on when required. This way provided the money gifted is from surplus income ( as opposed to from capital) there will not be a seven year run off when the funds are needed for housing purchases.

Help with getting married

Up to £2,500 can be given as a wedding gift to grandchildren either before or after the wedding which will be free from IHT, although it must be conditional on the marriage taking place.

Help with pensions

The changes to the tax system for pensions presented the chances to use these as tax-planning vehicles. You could pay into a child’s pension up to £3600 a year while they are young. This early start will have a massive impact on the final value in later years.

If you are under 75 then you are able to take 25% of your pension before you turn 75 totally tax free to make gifts to grandchildren.

If you die before the age of 75 then you can pass the pension onto the nominated beneficiary free of inheritance tax as well as being free of income tax when the money is withdrawn.  But if you die after the age of 75 then it can be passed on inheritance tax free but there will be tax if money is withdrawn at your highest marginal rate.

If a grandchild is nominated as a beneficiary they can withdraw significant funds tax free while they are in education up to the value of their personal allowance.

Using Wills

An option regarding wills is to leave your property to your grandchildren as it skips a generation. This probably won’t save tax upon your death but it will be beneficial to your grandchildren as it could eliminate another 40% tax charge on your estate as if they have already accumulated wealth which puts them into the inheritance tax charging zone.

To benefit the entire family, you could leave your estate to one or more discretionary trusts.

If you have any questions on how best to make gifts to grandchildren please, call us for advice from an experienced financial adviser.




Tax planning for HNW people

Tax planning for HNW people
Tax planning for HNW people

A third of the high net worth individuals (worth at least £20 million) of the UK are being looked at regarding tax affairs by HMRC. There is considered to be around 6,500 HNWs, which is 0.02% of all taxpayers.

However, the tax year of 2016/17, more and more taxpayers are being scrutinised by HMRC due to the HNW considerations for in depth scrutiny being halved to £10million.

In previous years HNWs have paid over £3.5billion in income tax and national insurance which added with all other taxes totals to over £4.3billion worth of tax in one year. This number totals 1.3% of total revenue for those specific taxes. Inheritance tax paid by HNWs between 2014 and 2016 totalled to £183million.

As so much tax is already being paid, it is likely that in depth scrutiny of these peoples tax affairs is worth investigating by HMRC. Therefore, tax planning for HNW people is essential.

It is estimated that the formal enquiries of tax is valued at £1.9billion and £1.1billion is related to marketed avoidance schemes, with it also being estimated that 15% of the wealthiest have used at least one scheme. Tax avoidance schemes are being used by more and more famous and wealthy every year. Such as, over 100 BBC staff are being investigated over potential tax avoidance.

HMRC are making moves to try and understand and engage with the behaviour of HNWs. Because of these behaviours, it is becoming more difficult for HMRC to ensure that the correct amount of tax is being paid; the specialist team of HMRC is fast gaining a better understanding of HNW people tax affairs and will ensure the correct amount of tax is being paid each year.

Everyone has got to pay the amount of tax that they owe, and HMRC is keen to ensure there is no way around that. An additional £416million was taken in tax from the wealthy last year, which would have gone unpaid if not investigated.

HMRC are clearly focusing on the wealthy taxpayers of the UK. This makes it clear that you need an experienced financial advisor to make sure that this doesn’t happen to you and so questions from them can be answered with no need to worry.

Tax planning for HNW people is an increasing area of our business so please call us if you need help in the area.

Making gifts to avoid inheritance tax

Making gifts to avoid inheritance tax

Making gifts to avoid inheritance tax

The making of lifetime outright gifts of assets is a straightforward tax planning device, if you can afford it. The value of the gift won’t be included in the IHT calculations if the transferor survives the date of the gift by at least 7 years.

If you still use or enjoy the benefit of a particular asset but plan to give it away, then the value will be included in the IHT, as it is probably a ‘gift with reservation’ (GWR). For instance, if you give away a second home and continued to use it as and when you want the HMRC would state that you hadn’t truly given it away as you were still enjoying the full benefits of ownership. However if you had paid rent to the beneficiaries of the gift for the weeks that you used the property that would not be a GWR and would fall outside of your estate after the normal 7 year period.

I said probably as tax planners have come up with many different methods to try and work their way around the GWR rules. This means it’s not restricted to schemes for giving away your family home but still living in it. However we are always very doubtful about schemes that fly in the face of the intention of the tax rules. Basically, if it sounds too good to be true it probably won’t work.

In the tax year of 2005-2006 ‘pre owned assets’ rules were introduced. These rules are intended to impose the income tax charge on the benefit of using an asset where it previously owned by the individual and was disposed of by means that are not considered to be an arm’s length transaction.

There are many complicated rules and regulations which you have to obey when dealing with making gifts to avoid inheritance tax and pre owned assets. HMRC can look back to previous owners as far back as March 1986. This means income charges can still take place, even on transactions which took place over 30 years ag.

Once the pre-owned asset rules come into the equation, it leaves you with a very short amount of time to dis apply those rules in return for agreeing to treat the asset as a part of the estate, all for IHT purposes.

All pre-owned transaction need to be included when tax planning as even ‘innocent’ transactions can be affected.

As experienced IHT advisers we can help you by guiding you though the processes to ensure that if you are making gifts to avoid inheritance tax you do not have to pay these taxes and charges.

Call us if you need any help on your IHT issues.

Inheritance tax on the elderly

IHT on the elderly

Inheritance tax on the elderly

Data shows that inheritance tax payments to HMRC are due to rise sharply as it has revealed that the number of older people set to leave over £150,000 after death has doubled over the past 10 years.

Research shows that the number of wealthy people over the age of 80 has increased by 45% over the last 10 years. In addition, the number of people set to leave £150,000 to family has risen to 44% from 24% and the rise is dragging more families into inheritance tax. The rise in wealth and inheritance seems to be the result of home ownership and rising house prises. For the first time ever inheritance tax for ‘death duties’ totalled up to over £4 billion in 2016, which is causing a strain on middle class families.

This April, an addition of a ‘Residential Nil Rate Band’ is going to be put in place to reduce the amount of middle class families having to pay inheritance tax bills although the total amount collected is set to continually rise over the next few years.

Inheritance tax on the elderly gets introduced on assets over £325,000 but from this year the threshold will begin to rise up to an extra £175,000 in residential property wealth over the next 3 years.

It is believed that more people are leaving large inheritances and are being pushed over the inheritance tax threshold but actual number of middle class families having to pay the inheritance tax is set to be reduced by the higher threshold.  However, if the government isn’t happy with the effect over time then a peg would have to be put in place to increase its value relative to house prices rather than a consumer prices

We believe that unless the peg is put on the rising house prices rather than consumer price, then there will still be an increase in the number of middle class families paying inheritance tax. It would be fairer to peg the increases to house prices instead of CPI, as CPI is rising a lot slower, especially in the south of the country.

The number of over 80’s who are expecting to leave an inheritance has increased to 72% up from 60% in a decade which means that the number of individuals expecting to receive inheritance has increased across generations. The number of people born between 1930 and 1970 who are being left an inheritance has also doubled compared to 10 years ago.

In conclusion, the amount of younger people who are set to be left inheritance is all dependent upon who their parents are compared to previous generations. The elderly today have a lot more money to leave their family now due to homeownership and the increase in house prises.

At the same time, it will be difficult for young adults to get wealthy with no aid due to the fall in homeownership for that age category as well as the decline in defined pensions within the private sector and the lack of growth in their incomes.

As a result of both of these issues older people and their children should seek expert advice from an experienced financial planner in order to avoid inheritance tax.

Call us to see how we can help you avoid inheritance tax.

Business relief products to avoid tax


Business relief products to avoid tax.

Enterprise investment schemes (EISs), venture capital trusts (VCTs) and other business relief products have been available for many years. Business relief – which until very recently was known as Business Property Relief or ‘BPR’ – was first introduced in the 1976 Finance Act.

Since inception, people have invested more than £14bn in EISs and VCTs with more than £5.6bn into the UK small and medium-sized enterprise (SME) sector using business relief products

Despite these structures having an established market with a 20-year-plus track record – and despite recent changes in legislation and pension rules having made the investment case even more compelling – many financial advisers still do not include them in their tax-planning arsenal simply because they have little experience in dealing with and advising on them.

Why does HMRC allow tax advantaged products?

EISs, VCTs and business relief each offer a number of distinct tax incentives  which allows them to fulfil different investor needs.

The government’s tax incentives which come with these products are designed to offset the investment risk of investing in smaller, unquoted or AIM-listed companies. In addition the investments must meet qualifying criteria – both at the investor level (such as minimum holding periods to qualify) and the underlying investee company level (such as a maximum revenue size or number of staff).

The increased risk nature of these strategies and their charges means they are not suitable for everybody. For the right investor with high income tax liabilities or large potential inheritance tax liabilities they can form an important part of their overall portfolio. However experienced advice is essential.

The drivers behind this growing market.

Apart from the changes in legislation outlined above, there are a number of other factors driving the growth in this particular market.

Firstly, the huge recent changes in pension rules – in  particular, reducing annual contributions for additional-rate taxpayers and reducing overall lifetime contributions to £1m ( down from £1.25 million) – have restricted the tax-planning options for high earners, thus moving advisers towards alternative and complimentary pension planning investments, and EISs in particular.

With the usual sources of funding difficult to secure, demand for funding via EIS and VCTs currently outstrips supply. This has created a positive environment for EIS and VCT managers with a number of potential deals in which to deploy new investments.

Finally, inheritance tax (IHT) continues to be an ever-growing problem for many people, which is further exacerbated by the rising property prices. The result is that an ever increasing number of people’s estates will fall outside the current nil-rate of £325,000.

Even with the addition of the new main residence nil-rate band that is due to start  next April, the forecasts for IHT revenues are expected to rise by around 11% a year for the next four years. Last year, HMRC received a record £4.6bn from IHT receipts alone and this is forecast to rise to almost £5bn for this current tax year.

With the nil-rate band is frozen at its current level until 2020/21, business relief strategies offer a simple way for investors to reduce their IHT liabilities after just two years. In addition, such strategies offer a range of flexibility, control and timescale that estate planning options, such as gifting or trusts, often cannot.

In practice a tailor made plan using both methods offers clients excellent results in both current and future tax mitigation.


There are a  huge and diverse range of EIS, VCT and business relief products available. The markets of these tax-efficient structures is long-established and provides billions of pounds in vital investment each year into the UK SME sector and so is likely to say.

Each of the different structures provide a different range of tax-planning benefits, which can be tailored  made to fit your investment objective. These structures can form a valuable part of our advisory strategy and we believe for the right clients – demand is only set to grow.

Business relief is definitely and area where experienced advice is essential to get the most suitable range of products and tax planning into place.

Please call us if you have a high income tax, capital gains tax or Inheritance tax liability as we will almost certainly be able to help.

Reviewable Whole of Life Insurance Policies – Pros and cons

Reviewable Whole of Life Insurance Policies – Pros and cons

Many people take out reviewable whole of life insurance policies to cover the cost of Inheritance Tax on their estates on death.

These policies are generally inexpensive at the start and therefore appear as an affordable solution, to the problem of how to pay the Inheritance Tax charge on an estate. However this often changes 10 years into the plan, as the cost of these policies generally get reviewed after the first 10 years, and then every five years after that. It is very common for the premium figures to increase dramatically during these reviews with a consequent cut in cover or a combination of increased premium costs and decreased levels of cover.

An example of this was reported in the press earlier this year when Sun Life of Canada conducted its reviews and as a result some policyholders had their sum assureds cut by 75%.

Pros and Cons

Some voices in the industry have argued that the public find these policies confusing because, being whole of life policies, customers think that they are covered for life without realizing the potential for steep hikes in the premiums of decreases in the amount of cover. Often these policies contain an investment element and are therefore trying to offer the client both protection cover and investment opportunity. However most people take out the maximum amount of cover and therefore very little of the premium goes to build the investment. This leads to the benefit from the investment being minimal when the policy is reviewed and as a result the premium rates escalate dramatically.


Mitigating Inheritance Tax is a complex area of financial planning and often involves the use of trusts and gifting rules. Within the context of an overall Inheritance Tax financial plan, whole of life insurance policies can certainly play a useful role however, their limitations need to be clearly understood and carefully managed and it is strongly recommended that you seek the advice of a qualified professional before entering into any such arrangement.


Reducing Inheritance Tax on Parental Residential Properties

Reducing Inheritance Tax on Parental Residential Properties

For many families, the bulk of their family wealth will be tied up in their residential property.  From an Inheritance Tax perspective this means that any amounts in excess of the Inheritance Tax threshold of £325,000 per person (£650,000 per couple) will be liable to Inheritance Tax at a rate of 40%. This in turn means that for each £100,000 of estate over these thresholds, the children would only be able to benefit by £60,000.

Therefore it can be seen that finding ways to reduce Inheritance Tax on parental residential properties can benefit the children significantly.

Strategy one
One way round the problem would be for the parents to take out a mortgage on their home and then gift the sum received to their children. This would reduce the value of the property by the size of the mortgage provided the parents were to survive for 7 years after making the gift.

Historically there have been two main issues with this course of action. Firstly parents may not be able to afford the monthly mortgage payments, especially if they are living off their retirement income. Secondly the mortgages that used to be available to older people had high interest rates which generally made this type of financial planning ineffective.

Considering the first issue, one way round this for parents with grown up children who are earning a comfortable living themselves, would be for the children to pay the monthly mortgage costs as they are the ones that would be benefitting by this type of planning.

Moving to the second issue; in the past the interest rates for “equity release” or “lifetime mortgages” tended to be around 5.5%. The interest was not paid monthly but instead rolled up over the life of the loan and then repaid on death. The problem with the interest compounding in this way was that it became very expensive. For example a £200,000 loan at an interest rate of 5.5% where the interest rolled up over 20 years would lead to an eventual loan repayment of £599,000.

Strategy Two
However, recently there has be a range of new mortgage products, targeting older borrowers, released onto the market with lower interest rates and which allow the borrower to pay off the interest on a monthly basis.

If therefore the borrower has older children, for example in their 40s or 50s, they could take out a loan and gift the money to these children. The children in turn would be responsible for the monthly mortgage payments. Provided their parents survive 7 years, the gift will be outside of their estate and not liable to Inheritance Tax. The Interest on the loan will have been paid off as it was incurred rather than escalating via roll up. This strategy would therefore enable families to reduce inheritance tax on parental residential properties and at the same time to free up money for their children when it is perhaps most needed.

It must be noted, however that this type of planning requires careful consideration and it is recommended that expert advice is sought before any action is taken. Contact us for professional financial advice today.

Taxation Treatment for Gifted Properties

Taxation treatment for gifted properties

If you are considering gifting a property it is important to understand exactly what the taxation implications of this decision would be. The relevant taxes to consider would be Stamp Duty, Capital Gains Tax, Inheritance Tax and Income Tax.

Stamp Duty

The first question to ask here is whether there is a mortgage on the gifted property. If the answer to this is “yes” then stamp duty will be payable on the outstanding mortgage value. In addition if the recipient of the gift already owns a property, the additional stamp duty on second properties rates will apply which are 3% above the standard rates. If there is no mortgage on the property, then no stamp duty will be payable. It is also important to inform the mortgage provider of this type of transaction.

Capital Gains Tax

Capital Gains Tax if payable on properties which are disposed of which have not been a person’s main residence for the full time that the property was owned by that person. If the property was a main residence for part of the time it was owned then CGT will only be payable for the proportion of time it wasn’t being used as the main residence.

Gifted properties incur CGT on gains above the capital gains tax allowance (currently £11,100) of 18% for basic rate tax payers and 28% for higher rate tax payers. This tax can be paid in 10 equal annual instalments however interest of 3% per annum would be payable in addition to the tax charge.

If the property has been sold to a “connected person” (e.g. child, parent or grandparent) at below market value (including zero value for gifted properties), the tax is calculated based on the market value not the actual value.

Inheritance Tax

Inheritance Tax is payable at a rate of 40% on the value of a person’s estate over the IHT allowance which is currently £325,000. Over the next 4 years the family home allowance will also be phased in and will increase the IHT allowance by an additional £175,000 by 2020-21 for estates where a property that was the main or “family home” is being passed to children, foster children, stepchildren or grandchildren.

Gifted properties are classified as “potentially exempt transfers” for Inheritance Tax purposes.  This means that if the gift was made between 3 and 7 years before the death of the donor, the tax charge reduces by 8% for each additional year from the initial rate of 40%. After 7 years there is no Inheritance Tax payable on the gift.

Income Tax

Income tax is payable on rental income.

If a property has been gifted to a person who is less than 18 years of age, the tax charge will be levied on the donor regardless of who receives the rental income.  If however the person receiving the gift is an adult then they will be liable for income tax on any rental income arising

The above information demonstrates the complexities involved in understanding gifted property tax treatment and it is recommended that you seek the advice of a professionally qualified adviser before entering into any transactions of this type.

Interest in Possession Trusts

Interest in Possession Trusts

Interest in Possession Trusts – An Explanation

Trusts are legal structures set up to manage assets for people. They enable individuals to control and protect family assets and different trusts are useful for different sets of circumstances.

One very commonly used trust is called an interest in possession trust. Although there is no statutory definition of what exactly an “interest in possession” is under English Law it is nevertheless possible to draw clear rules. Firstly under this type of trust the beneficiary must have a vested interest at the present time; he or she must have the right to the use of the trust property or the net income as it arises.

Interest in possession trusts are commonly used to provide a beneficiary with an income. Another very common use is to provide accommodation; under this type of interest in possession the beneficiary has the right to occupy a property until they die at which point the property passes to other beneficiaries and the life tenant has no control over who these other beneficiaries are.

This type of trust contrasts with discretionary trusts, which are very commonly used trusts, and under which the trustees are given the authority to decide how to deploy the trust income and, in certain circumstances, the capital. This is a fundamental difference between the two different types of trust and explains why discretionary trusts will often be used in circumstances where the beneficiary may not yet be responsible enough to make good use of the trust assets by using their own judgement.

In contrast, trustees have no such controls with interest in possession trusts. Indeed, if trustees have the right to withhold income arising from the trust from the beneficiary or the right to accumulate income regardless of the beneficiary’s preferences, then this is extremely likely to indicate that the beneficiary has no interest in possession. This does not, of course, prevent an income in possession trust from accumulating income as it may very well be the case that the beneficiary does not require the income arising from the trust; it is the beneficiaries entitlement to the income arising from the trust that determines whether the beneficiary has an interest in possession, not the actual receipt of that income.

Understanding Tax Avoidance

understanding tax avoidance

There is no question that some transactions which result in the lowering of a person’s tax bill are perfectly legitimate whilst others are not.  However separating out those transactions which should be banned is not always straightforward.

For example, when a person makes pension contributions they are at the same time reducing their tax bill as a result of a wealth of government legislation designed to encourage the “good behaviour” of saving towards a comfortable retirement.  This therefore can be seen to be a perfectly legitimate way to behave.

However consider the situation, which has been much reported in the press recently, of David Cameron following the death of his father.  His father left him £300,000 and left the remainder of his estate to his wife.  She then made a gift of £200,000 to David.  Provided she survives 7 years there will be no Inheritance tax to pay on this gift of £200,000.  However, had David been left £500,000 by his father instead of £300,000, there would have been an Inheritance Tax bill of £70,000.

Also consider the following example; Oxfam, like other charities, receives a government bonus for cash gifts made by the taxpayer.  Importantly, this government bonus does not apply to gifts of clothes as these are not cash.  However if the taxpayer appoints Oxfam as its agent to sell goods for him or her and then make a gift of the proceeds, then the gift becomes cash which will therefore be eligible for the government bonus.

These two examples show how difficult it can be to decide which tax avoidance behaviours should be banned.  One way of approaching such a decision would be to consider what real transaction has taken place and what tax charge this real transaction would have attracted.

Considering the Oxfam example, therefore, it can be argued that the real transaction was in fact a donation of clothing which is not eligible for the government bonus.  By this reasoning this would seem to be non-legitimate tax avoidance.

The example involving David Cameron however, is much less clear simply because we cannot know the intentions of the principle characters.  Whether this was a deliberate act on the part of David Cameron’s father to avoid Inheritance Tax or whether David Cameron’s mother made a separate decision to gift some money to David after her husband’s death is something we shall probably never know.  However, this knowledge is key to determining whether tax avoidance took place; whether the real transaction was in fact a gift of £500,000, which would have attracted an inheritance tax charge, or whether there were in fact two separate real transactions.

One thing, however, is clear; the area of Estate Planning is a complex one and we recommend that you seek the help of an Independent Financial Adviser before you act.

The Benefits of Estate Planning Awareness in Later Life

The Benefits of Estate Planning Awareness in Later Life

Estate Planning Awareness in Later Life Benefits You and Your Family

It is reasonable to suppose that most people would like their financial affairs to run smoothly when they become too old to manage such matters efficiently or easily themselves. It is also reasonable to suppose that most people want to pass as much of their wealth to their family as they can rather than to the tax man when they pass away. Both of these objectives can be achieved through timely estate and financial planning as you enter your later life years. The benefit such planning will bring you and your family is considerable.

People are living longer and the probability that at some point in the future it may not be possible to manage one’s financial affairs as physical and mental health declines deserves careful consideration. There is a very simple solution to this problem and that is to make sure that you have put a Lasting Power of Attorney (LPA) in place. This will give the person or persons that you nominate the legal authority to make financial transactions on your behalf. Without doing this there is a real risk that when you are unable to manage your finances yourself the Office of the Public Guardian could appoint someone to this role. Not only would this not be someone you have specifically chosen but it would also make the process significantly more complicated. There is also the possibility that your assets could be frozen and managed by the Court of Protection, again adding unnecessary complication.

Estate Planning awareness in later life can also be of huge financial benefit to your family. Currently the value of your estate in excess of £325,000 is liable to an Inheritance Tax Charge of 40%. However, year on year, you can reduce your estate by giving away £3,000. You are allowed to carry this allowance forward one year so if you failed to do this last year, you will actually be able to give away £6,000 this year. In addition you can make as many gifts as you like of £250 per person to people other than those to whom you have made a gift of £3,000.

Another thing to be aware of is the importance of making a Will. Not only can Estate Planning awareness in this area avoid family disputes and make the management of your estate more straight forward, it can also reduce the amount of Inheritance Tax payable on your estate. For example, if you die without a will in place, IHT would be payable on the value of your estate in excess of £325,000 that passes to your children. However by creating a Will which specifies that all of your estate should pass to your surviving spouse, all of this Inheritance Tax can be avoided. Furthermore, if you are living with someone but are not married or civil partnered and you do not have a Will, then on your death the laws of intestacy will apply. Under these laws only married and civil partners benefit from your estate so your partner will have no right to inherit anything from you.


Estate Planning to reduce the amount of Inheritance Tax payable on death can be complicated and it is therefore worth seeking independent professional advice before taking action.

The EU referendum – Should we stay or should we go now?


The EU referendum – Should we stay or should we go now?

One of my favorite all time songs is the 1981 rock classic by the Clash “Should I stay or should I go”  was unusual in the backing tracks were sung in Spanish, which is a loose link to the title of this analysis on the EU .

If you are hoping that this post will tell you the decision to make or even tell you who is right and wrong, please don’t bother reading any more. I do not write to tell you what to do but merely how I arrived at my conclusions and also bring some less discussed information to your attention in this important debate.

The issues around the debate are far reaching and very complex. In my opinion no matter which way you vote you will be both wrong and right in different areas and so in the end it comes down to a judgement call.  I cannot hope to cover all topics in any detail but will point people at more detailed articles that have helped me make the judgement call.

Most people do not have the time or even inclination to spend around 40 or so hours researching the topic and most certainly do not have the economic training to fully understand many of the more detailed economic arguments or misleading statistics. I understand this is a long post but it does contain relevant information not really being discussed on TV.

The main issues seem to arise out of the following:

  1. Safety and security
  2. The NHS
  3. The economy
  4. Impact of immigration
  5. Sovereignty

Safety and security

Certainly there are agreements in place after 40 years that will be affected – like Europol membership. However Britain does have a much stronger intelligence network than most countries in Europe and gives a lot more intelligence than it receives.

The free movement of people does cause serious security issues as does the inability to identify and deport EU criminals but at a higher level I cannot believe that we and the EU would be stupid enough not to share information for the security of both sides.

Yes, it will take time to sort out things but we have at least two years to put arrangements in place. As such for me this is not a deciding factor.


The leave camp say there would be more money for the NHS if we leave from the 10 Billion net differences in money paid to the EU. The remain camp say who would man our hospitals if we closed off immigration. In fact the current immigration policies probably restricts the numbers of nurses we can bring in.

To me both are silly points.

The money allocated to the NHS is decided upon as part of overall spend by the government which has the very difficult job of deciding where to allocate scare resources. If we vote to leave it will take a while to determine immigration policy. It is obvious that people with the skills to man our hospitals would be allowed in be it from the EU or outside. The point that our NHS will suffer because of a lack of qualified people is nonsense if we use a points system.

I just cannot see that the NHS has an issue either way to do with this vote as the funding is part of the overall allocation of funds from the taxes generated.

The economy

This I believe is the remain camp’s trump card and the issue they would like everyone to focus on. They have quoted numerous bodies like the treasury, most economists, the Bank of England, the European Bank, the IMF and many business owners.

David Cameron asks us to believe the “experts” as if economics is like engineering or science. Economist opinions are fine if they are highly limited to one thing like What is the short term impact of raising VAT by 1%?. However for a question like how will the UK economy be in 5 years time due to brexit – the  basic analogy is rubbish. Sorry, but economic predictions are not a science and are more like astrology than astronomy. Would you place your vote based on what most astrologists say? If so ask Russell Grant instead of the IMF. The answer will have the same percentage chance of success.

As someone whose job it is to follow predictions for the economy for the last 20 years I believe I am safe in saying that most experts cannot with any level of accuracy predict the state of the economy in 5 years time. Almost none predicted the crash in 2008 and the recent huge fall in the oil price. Most said we should join firstly the ERM and the Euro and both those pieces of advice turned out to be completely wrong.

The IMF in particular has an horrendous record of prediction and missed all of the above and the seriousness of the European economic crisis.

HM Treasury has difficulty getting our own growth and inflation figures correct for one year forward let alone over a long period of time. It is not that they are lying but the world economy but the impact of that on any one country has far too many permutations to predict with and degree of accuracy.

In addition so called experts wish to persuade often take an extreme view in making predictions

I know it seems stupid and arrogant to discount the predictions of most “experts” but longer term economic forecasts are simply nearly always wrong.

I personally prefer to take the view of Neil Woodford who for people in the financial world is as close to a genius as it is possible to get. His record of investing decisions is almost second to none. Unlike economists Mr Woodford has to put his money and his client’s money where his mouth is and buy and sell stocks largely based upon changes he sees happening in the economy. Unlike most economists he has a proven successful track record for over 20 years. He believes in the long term it will not make a big difference either way.

So if you cannot really predict the long term, then what about the short term.

Yes, one thing you can be certain of is that the markets do not like uncertainty but prefers the status quo. In the short term the pound will almost certainly drop against the dollar.( great news for our economy) This however will make our exports cheaper as we have a trading surplus with the rest of the world but a huge deficit with the EU. This will have a really helpful impact on our companies that export to the world.

However overall I believe there is likely to be a slight negative impact for couple of years after which our economy will become much stronger than if we stay in the EU.

What about the EU trade. Firstly, nothing happens for two years. I believe the uncertainty will then switch to the Euro as other countries will also be considering an exit. This will cause the Euro to fall – good news for them as they have been trying to do that for the last few years. Will the EU try and make it difficult for us? Yes they might but eventually after a few years to do the negotiations cooler heads will prevail.

These are the export figures from the main EU countries to the UK.

  1. Germany: $98.7 billion
  2. Netherlands: $50.9 billion
  3. France: $36 billion
  4. Belgium: $34.8 billion
  5. Ireland: $25.5 billion
  6. Spain: $20.8 billion
  7. Italy: $24.7 billion

As you can see these are significant amounts of money and profits for EU companies. German car manufacturers alone make profits on $32 billion of exports to us. They will simply not allow the government to drag its heels on an export deal to the UK.

If we vote to come out of the EU, the UK will be their biggest export market and money and eventually profits always talks loudest and so a deal will be struck. They cannot afford it not to be at a time when their economies are under severe pressure.

Will it have a serious long term negative impact on the UK – I doubt it. The world is moving ever faster and the less regulated, fast and flexible countries win business by taking advantages of new opportunities.

Eventually, by being able to make our own decisions the UK will be able to react much more quickly than is possible for the 28 countries of the EU thus creating a very healthy economy in the longer term. One thing we do know for certain is that centralised bureaucracies react far too slowly to be effective in the modern internet driven world. For instance because we were not in the Euro we boosted our economy by starting quantative easing in 2009 – a year after the crash – the EU did not start until 2015 which many people believe was far too late.

There are also serious risks by staying in the EU. Except for Germany and the UK many long term members of the EU are suffering serious problems with their economies. Most people know about long term financial and unemployment problems in Spain, Greece and Portugal but what about Italy.

Nobody is mentioning the huge problems in Italy which when it goes wrong, will make the Greek bailout look like chicken feed. Already the ECB is forcing Italy to take austerity measures as if that worked out well in Greece. The FT have said “This is not just an Italian headache. The country’s banking woes could easily become the rest of Europe’s”.

With most other EU countries struggling, Italy could well break the Euro and spell severe financial problems for all countries heavily associated with it.

In 2013, Italian government debt stood at 132.6% of GDP, which represented the second-largest public debt among Eurozone countries and the fifth largest worldwide. All the banks have around 360 Billion euros in non-performing loans which will at some point have an huge impact on the countries financial stability.

I know we are not part of the Euro but we already had to pay towards the Greek bailouts so surely it is inevitable we end up paying for Italy too.

The bottom line is that business and trade is now global and some of the key EU member states are inward looking and protectionist. For instance EU tariffs on imported agricultural products average 18%  to maintain uncompetitive farmers which hits the poor badly as food costs form a large proportion of their outgoings.

Is it a leap into the unknown and too big an economic risk to leave the EU. Possibly yes. However, the glowing economic future of the UK inside the EU is by no means as certain as the Remain campaign would suggest. In fact quite the opposite we already know it carries severe problems as the growth figures are among the worst in the world. Without the inclusion of the UK. as of 2015Q4, the Eurozone would still be lagging behind their pre-recession levels.

In summary because of the complexity of the world markets I don’t believe either side can really say with any real certainty how this will impact the UK. As such I agree with Neil Woodford and would suggest that the economy is a neutral decision. As such this is not an area that is swaying my decision.

Impact of immigration

This has become a huge issue in the debate. At present the numbers coming in are considered unsustainable in the long term and with this I agree but not because “they” take our jobs and are all here for benefits. I believe most immigrants are used to hard work and are striving to make a better life for themselves and their families – something we all want.

However this country is one of the most crowded of all countries in the EU. Along with Germany we are also seeing the highest level of net immigration in the EU. This is not surprising as it is ourselves and Germany who have among the lowest levels of unemployment in the EU and significantly better average standards of living than many newer joining countries in the EU.

I believe it is unsustainable because the long term net immigration trend is significantly increasing upwards. I would even suggest that the ONS (Office of National Statistics) figures stated and used by both sides is massively understating the actual immigration figures. Why? Just look at the method that is used to actually compile the ONS figures.

Basically, they simply ask a sample of people coming in on planes and boats- Are you planning to stay temporarily or longer term?  Call me a cynic but is an EU person coming in to look for work likely to tell the truth in most cases?

If you compare the figures for the number of people who applied for a National insurance number (not a woolly sample but actual applications) from the Department of Work and Pensions the difference is remarkable. In the year to March 2016 there were 826,000 NI applications of which 630,000 were EU nationals.

In summary the ONS say 330,000 and the DWP say 826,000. That 2.5X as many more people than the official figures. Which one is right or more correct – a sample question or actual applications? However it is the ONS figures which are used. No, this is not a conspiracy theory that we are deliberately being lied to – It’s just very little emphasis has been put on collecting accurate data as the increasing numbers did not start to become significant until 6 years ago.

However, to me it’s pretty obvious the figures used for immigration are far below the actual numbers coming in.

I am told that immigrants pay more into the system than they take out and I believe this. However, this does not account for all the invisible costs. Extra people automatically lead to extra costs for the NHS, schools, housing and infrastructure (simply more cars on the roads in towns and cities)

The problem this uncontrolled immigration creates is because we cannot really control our borders to EU immigrants, we cannot plan long term for our infrastructure, housing, and schooling. In addition how much more crowded do we want to be in the long term?

Planning rules are already being altered to make it much easier to build many more homes. What impact will this have on our lifestyles and those of our children when our cities and towns become ever more crowded and more and more of the country is swallowed up by new towns and the growth of existing ones.

I believe the danger comes with the likelihood that numbers coming in from the EU will continue to increase and increase faster. Why? – I believe it’s very difficult for a family to simply up sticks and move to a new country without friends and family for support. However, the people from EU that are here already will now offer both encouragement and support and make it much easier for friends and family to join them. After all who doesn’t want friends and family living close to them. I believe this will create a tide of ever increasing numbers arriving in the UK.

On this issue of long term unsustainability for an already overcrowded country I believe the vote falls firmly to the Leave side.


The argument that Britain has lost sovereignty, and even its democracy, by being in the European Union is I believe at the heart of the case for Brexit.

The UK government estimated that about 50 per cent of UK legislation with “significant economic impact” originates from EU legislation. Jeremy Paxman  disagrees and believes it is closer to 59%

The bulk of those laws – around 60 per cent – relate to the fields of agriculture, fisheries and trade with non-EU states, but abiding by EU law has a ripple-effect that impacts almost all aspects of British life, from small businesses, to immigration, welfare and the courts.

Other areas where European laws hold sway or influence include data protection, immigration law, asylum law, criminal justice, broadcasting, biotechnology, and some areas of family law.

The main point is that in the event that a UK law is in contradiction to an EU law the EU law will take precedence.

Before the Treaty of Lisbon was passed in 2007, each member state had a veto over the EU’s policy changes. Today, that can be decided by a majority vote. As a result of the Treaty of Lisbon, Britain lost its veto in over 40 policy areas.

David Cameron would have us believe we can lead in Europe by staying in. However in the past 20 years, there have been 72 occasions when Britain has strongly opposed a particular measure on the Council of the European Union. On all 72 occasions, we have been outvoted by the other member states. In fact in many disagreements, Germany is most likely to vote against us. As many laws are decided by the EU council of 28 members at which no minutes are taken and so no one can be held accountable it is possible (and I believe probable) that Germany’s increasing economic influence in the EU will sway other voting countries – to our detriment.

Since 1973, the UK has lost 101 cases in the European Court and won only 30. That’s a failure rate of 77%.

At present, 19 of the 28 member states are members of the Eurozone, with an additional seven due to join shortly. Only two countries have a legal veto out of joining the Euro in the longer term all countries in the EU will have to be in the Euro. That will leave just Britain and Denmark outside the Eurozone.

By surrendering our right to veto any further integration of this political bloc, we have given up our strongest bargaining chip in any disagreement with the other member states. We will have no choice but to swallow all new laws or regulations that the EU comes up with, however detrimental they are to Britain’s interests.

In 10 years time there will be at least 30 countries in the euro (with new joiners) and only 2 not. Which way is all EU legislation going to lean?  In our favour, or in favour of all the Eurozone countries? I think the answer is obvious. We will almost be forced to join the Euro by wave after wave of legislation that is not in our best interests. The longer we wait the harder it will be to leave.

Will we put up with ever increasing integration as is the declared intention of the EU? The 5 presidents report shows the direction are going as a matter of policy ( see section 2) by stating “more far-reaching actions will be launched to make the convergence process more binding” Very simply they want one tax system, one army and one central Bank and laws which make it impossible to disagree wit any central decision. In twenty years there will be no need to have a Parliament.

If we vote to Remain, particularly after Cameron has just surrendered one of our few remaining vetoes, Britain’s influence will ebb away to nothing. Any talk of leaving in future will be dismissed as an empty threat.

We will have demonstrated our willingness to accept membership of the EU on any terms.


Do we want to give up our rights to govern ourselves simply because we are afraid of losing a bit of money in the short term? (Even that is not certain).

The ever increasing unification of the EU may be a wonderful idea in principle. In practice the reality is that it has been an economic failure as shown by its trend downwards compared to most other countries.

Ask yourself – if it’s such a great idea why after almost 50 years has no other area in the world done anything similar?  I believe that is because it is not just an economic union but a political one. In 1975 we voted for an economic free trade zone not a political union.

Of course if you are happy to live in a nation state of Europe where most laws, taxes and decisions are made in Brussels rather than our own parliament – vote remain.

Men fight for liberty and win it with hard knocks. Their children, brought up easy, let it slip away again, poor fools. And their grandchildren are once more slaves.’ – DH Lawrence

I believe we are big enough and strong enough to move forward without fear. We have many strong links (the commonwealth) to other countries across the world. The idea of voting to leave is a vote for “little England” is ridiculous. There are 195 countries in the world and only the 28 in the EU and yet we cannot form trade agreement with any of them directlty.

I will vote to connect more with the whole world with “win win” agreements forged on a one to one flexible basis rather than be held into a slow and ponderous political union which is simply outdated in the digital world.

Yes, we will almost definitely see a short term downturn in our economy – but is it worth it? The power to control our own borders for sensible long term planning is essential. To even be classified as a country the power to set our own laws and our own legal system to prevail is paramount. This is fundamental to a free country which hopes to be able to react quickly to conditions in this fast changing world and prosper in the longer term.

This is why I will be voting to leave on June the 23rd.

Why Ongoing Advice On Trusts Is Essential


Why ongoing advice on trusts is essential

Inheritance tax planning today can be a little complicated and so advice on trusts is essential. The increased flexibility within schemes, the integration with pensions advice, the role of trustees and the need for regular investment reviews, are all important.

Most reasonably wealthy people these days prefer solutions which are more sophisticated than the simple selling of packaged products.

The combination of a bespoke, highly flexible discretionary or reversionary trust, containing a directly invested portfolio of collectives, run by an investment manager with strong risk controls to meet the requirements of the trustees, is now the minimum acceptable standard.

Loans or appointments to beneficiaries from the trust are very useful which are unlikely to ever be challenged by HMRC as long as everything is transparent and carefully documented.

Professionally drafted and managed trusts of this nature are complex in nature and not simply ‘stack it high, sell it cheap’ packaged products. There is always a real need to ensure that the detailed drafting of trust itself is as watertight as possible and flexible enough to cope with both the settlor’s and beneficiaries changing circumstances.

To help secure that uncertain future and to ensure that the advice on trusts and investments are both managed and administered properly, it is essential that the trustees have a strong ongoing support structure to keep up to date in any changes in legislation and market movements.

Dealing with the investments, the changing needs of beneficiaries, adding further beneficiaries to reflect changing family circumstances, keeping good records, including trust accounts, trustee considerations and decisions, and dealing with any tax returns, are some of the more important tasks. All of these require ongoing support.

It is not only the 40% IHT saving which is relevant but ensuring the needs of all parties to the trusts are met on an ongoing basis which is important.

The small relative cost of paying a professional fee for experienced help and advice on trusts to ensure you accrue these benefits is always money well spent.

If you have an Inheritance tax problem please call for a chat to discuss how we can help

EIS and BPR arrangements

EIS and BPR arrangements

EIS and BPR arrangements

EIS and BPR arrangements. Tasked with reducing the budget deficit, the UK government is targeting existing loopholes in the tax system, giving HM Revenue and Customers new powers to recover tax it deems to have been deliberately avoided.

Accelerated payment notices have been issued to thousands of tax scheme users demanding tax be paid within 90 days. These notices cannot be appealed and investors in disputed film partnerships and property schemes have already paid over £1bn to the exchequer, with the HMRC hoping to recover £5.5bn overall.

These types of schemes are becoming less attractive to prospective investors who do not wish to be faced with a nasty tax liability and they are now moving into the more comfortable area of “government sponsored” reliefs.

Smaller businesses that qualify under the Enterprise Investment Scheme (EIS) and assets benefiting from Business Property Relief (BPR) are popular with investors and they have also not come under HMRC’s spotlight.

The management charges for EIS and BPR investors do tend to be higher than those charged by actively managed equity funds. This is down to the intensive due diligence required in small company investment. The benefit of the investment however is the generous tax reliefs designed to offset the potential losses.

EIS annual management fees normally range from 1.5% to 2.5%, with a 5% charge on the value of the initial investment. There are usually also performance related fees of about 20% on realised returns. With a £5,000 minimum subscription for EIS and BPR investments it may preclude less wealthy tax-conscious investors whose first priorities are usually maximising pension and ISA savings.

Investing in small companies also brings with it a higher level of risk. For investors keen to minimise their inheritance tax this may restrict the appeal of many EIS and BPR arrangements.

As an alternative Lifetime gifts are a straightforward way to reduce IHT, however the benefactor must live for seven years after gifting the asset. IHT is payable on a sliding scale should the benefactor pass away within this period (provided the gift exceeds the Nil rate band).

For those wishing to retain control over their assets there is the option of transferring them into a trust. Inheritance tax is still payable to eligible assets above the nil-rate bad at 20%, and there is also a charge levied on trusts every 10 years.

As always, experienced advice in this complex area is essential so please call us if you require any help.



Laws of Intestacy

Laws of Intestacy

Laws of Intestacy

The rules of intestacy that say how an estate is divided up if the owner dies without leaving a will change in October 2014.

If you are living with your partner, and are not a spouse or a civil partner, you will have no rights if a will has not been made. The laws of intestacy do not recognise a common law partner. Children of married partners may also find they are in line for less than they had thought.

There is a set of intestacy rules that states who gets what when someone dies without making a will.

Under the old rules if a party to a married couple or civil partnership with no children passed away without making a will the first £450,000 of their estate, and half of the remainder, would go to their partner. The remaining amount would then be split between the deceased blood relatives. Under the new rules the surviving married partner would get the whole lot.

If there were children from the marriage or civil partnership, the old rules would have dictated that the partner would get the first £250, 000 then there would have been a complicated system for sharing out anything above that amount with the partner still having a life interest in that money. Although they could not take any of the capital, they could take income from the money.

Under the new rules the surviving partner takes the first £250,000 and half of everything over that amount, the children would then at the age of 18 be entitled to the other half.

The rules of inheritance are as follows:

1/ Children or their descendants

2/ Parents

3/ Brothers or sisters or their descendants

4/ Half siblings or their descendants

5/ Grandparents

6/ Uncles and/or aunts or their descendants

7/ Half uncles and/or aunts or their descendants

8/ Whole estate passes to the crown

Making a will is an essential part of inheritance tax planning. If you would like some experienced advice, please contact us.


Lasting Power of Attorney

Smiling Senior Couple in a Park

Lasting Power of Attorney

The UK population is expected to rise to almost 75 million by 2039, with more than one in 12 people aged over 80. A 55-year-old male today can expect to live for another 31 years on average and a woman age 55 today can expect to get close to her 90th birthday.

Alongside retirement planning it may be prudent to also prepare for the possibility that as we become older we may be less able to make important choices about our finances and personal welfare.

The Lasting Power of Attorney (LPA) was introduced in England and Wales in October 2007, building upon and replacing the previous Enduring Power of Attorney Act 1985. This legal document allows an individual to appoint an attorney to make certain decisions on their behalf in specific circumstances and gives them the option to specify when they wish to grant that control. An attorney could be a friend or family member alternatively you could appoint a professional attorney.

There are two different types of LPA: personal welfare, and property and affairs:

Personal welfare

This allows the attorney to make decisions about an individual’s healthcare and welfare, including refusing or consenting to medical treatment on the individual’s behalf and deciding where they live. These decisions can only be taken when the individual lacks capacity to make them themselves.

Property and affairs

This allows an individual to elect someone to take over decisions about personal spending as well as how property and financial affairs are managed. Unless the power is restricted in some way, this can apply while the individual is still mentally capable. An individual may be spending long periods out of the country and not wish to discuss financial matter over the phone or by email. In this case they may wish to delegate certain powers for ease. This type of LPA remains valid even if the individual becomes mentally incapable. Alternatively, it could be stipulated that the LPA does not come into effect until the individual lacks mental capacity.

It is possible under each LPA to appoint different people to make decisions. Some individuals may wish their financial arrangements be made by a professional fiduciary and the responsibility for their personal welfare to be left to someone else.

The LPA must be registered with the Office of Public Guardian (OPG) for it to be valid and certain formalities must be followed.

There are controls in place that ensure the individual setting up the LPA understands the powers they are giving to their attorney and have not been placed under undue influence. The registration of the LPA cannot take place until this has been done.

The LPA registration currently takes between eight and ten weeks to register, this includes a four week waiting period, required by law, to enable those involved to raise any concerns.

It can be expensive, time-consuming and stressful trying to arrange a LPA after someone becomes mentally incapacitated. Planning ahead and arranging the LPA will help avoid unnecessary stress, expense, and delay and gives the peace of mind that the individual has granted decision-making powers to those they trust.

Deeds of variation remain unchanged

Deeds of variation remain unchanged

Deeds of variation remain unchanged

Following the revelation that Ed Miliband had been “accused” of using perfectly legal means of avoiding IHT by using a deed of variation – that moved ownership of some of the family home into his and his brother’s names – the government decided to review these arrangements.

They had a call for a review of the use of Deeds of Variation for tax avoidance purposes.

The aim of the review was to:

  • explore the differing circumstances in which they were used for tax avoidance,
  • develop a fuller understanding as to the frequency with which these type of plans were used,
  • examine in more depth how the current tax provisions worked, and
  • establish what changes, if any, should be made to deeds of variation.

It has now been announced that ‘Following the review announced at March Budget 2015, the government has decided that it currently will not introduce new restrictions on how deeds of variation can be used for tax purposes. However, they will continue to monitor their use.’

This really comes as no great surprise as since the transferable nil rate band was introduced in October 2007, the advantages of a variation have been limited. Before then they were widely used to set up discretionary will trusts ensuring that both nil rate bands of a couple were utilised.

That is not to say they are no longer useful; they still have value to wealthy families in ‘generation skipping’ and repairing perceived injustices in the legacies, amongst other things.

For instance if you have a potential inheritance tax liability it is possible to use a deed of variation to adjust the deceased persons estate to place all funds into a discretionary trust. This trust can now lend money to you which means you have use of the money without it falling into your estate. However, care needs to be taken on this type of planning to ensure that other IHT rules are not breached.

Please call us if we can help in this area.

Autumn statement announcements

Autumn statement announcementsAutumn statement announcements

George Osborne delivered his Autumn Statement on 25 November and it focused on economic and national security.

Rather than cover all announcements in depth, please find below a list of some of the key announcements.

Income Tax

  • By the end of the decade, everyone will have a digital tax account, whereby they can keep track of their tax affairs
  • The government will restrict tax relief for travel and subsistence expenses for workers engaged through a personal service company


  • The government remains concerned about the growth of salary sacrifice arrangements and is considering what action, if any, is necessary – they will gather further evidence
  • Pensions tax relief consultation – the government is interested in considering suggestions on whether and how the current system of pensions tax relief could be reformed
  • Secondary market for annuities – the government will remove the barriers to creating a secondary market for annuities, allowing individuals to sell their annuity income stream; there will be a consultation response this December


  • The annual subscription limits will remain at their current level for 2016-17 (adult ISA: £15,240; Junior ISA: £4,080)
  • Legislation will allow the ISA savings of a deceased person to continue to benefit from tax advantages during the administration of their estate; further plans for introducing this measure will be released in 2016

Inheritance Tax (IHT)

  • IHT receipts are forecast to rise to £5.6 billion by 2020/21, an increase on the estimate for the current tax year of 47%
  • The government will not introduce new restrictions on how deeds of variation can be used

Capital Gains Tax (CGT)

  • CGT will be payable within 30 days of the disposal of any residential property (for example, buy-to-let properties) from April 2019


  • There will be a new criminal offence for the most serious cases of failing to declare offshore income and gains
  • The civil penalties for deliberate offshore tax evasion will increase and there will be new penalty linked to the value of the asset on which tax was evaded plus increased public naming of tax evaders

Corporation tax

  • As previously announced, the headline rate of corporation tax will fall to 18% by the end of the Parliament (2020)

Stamp duty

  • Higher rates of SDLT (+3%) will be charged on purchases of additional residential properties (above £40,000), such as buy-to-let properties and second homes, from 1 April 2016



Income tax savings in 2016-17

The major tax rates and thresholds for 2016-17 are as follows:

  2015-16 2016-17
Basic rate 20% 20%
Higher rate 40% 40%
Additional rate 45% 45%
Starting rate for £5,000 savings income 0% 0%
Dividend ordinary rate – for basic rate taxpayers 10% 7.5%*
Dividend upper rate – for higher rate taxpayers 32.5% 32.5%*
Dividend additional rate – for 45% taxpayers 37.5% 38.1%*
Basic rate band £0-31,785 £0-32,000
Higher rate band £31,786-£150,000 £32,001-150,000
Additional rate band Over £150,000 Over £150,000

*if above the dividend allowance – see below.


The Income tax allowances for 2016-17 are:

Personal Allowance £11,000
Income limit for personal allowance £100,000
Blind person’s allowance £2,290
*New* dividend allowance £5,000
*New* personal savings allowance for basic rate taxpayers £1,000
*New* personal savings allowance for higher rate taxpayers £500

There are two important things to note:

  1. As mentioned in the last newsletter, the taxation of dividends is changing and you will get a new £5,000 tax-free dividend allowance. Any dividends above that are taxed, even if you are a basic rate taxpayer.
  2. A new personal savings allowance is being introduced (unless you are a 45% taxpayer) and you will get up to £1,000 tax-free savings interest (£500 for higher rate taxpayers). All interest payments will then be made without deduction of tax.

This means that you could pay less tax on your savings and investments. Get in touch and I can check this for you. This is especially important if you have stocks and shares or UK equity income funds.

Pension savings vulnerable to inheritance tax

Use a pension to save inheritance tax

Pension savings vulnerable to inheritance tax

If you are in poor health and you switch your pension provider to take advantage of the new pension freedom rules you could be making your pension savings vulnerable to inheritance tax. In practice this only applies to Final Salary Pension Schemes.

New pension freedoms came into effect in April 2015, however not all pension providers are offering the options that are available under the new rules. To access the range of flexibilities, you may have to shop around, with the possibility of moving money to a new provider.

If you do move your pension pot and then die within two years, the HMRC will investigate to see if you were in poor health.  If HMRC finds that your life expectancy was impaired, and you knew this, then some or all of the transfer could be included in your estate. HMRC will believe that the transfer of value was made specifically for inheritance tax purposes and it would be deemed that you made a fresh disposition of your death benefits.

There may be many reasons why people may wish to transfer their pension funds when they know their life expectancy is impaired. This could now leave some pension savers trapped in schemes that do not offer the flexibilities they need, worried that by moving their funds into something more suitable it will lead to their pension funds being hit by an inheritance tax bill.

This restriction for those with impaired life expectancy risks punishing member’s families by subjecting pension assets to unnecessary inheritance tax.

As pensions can now form part of your Inheritance Tax Planning, please call us for advice.

Alternative Investment Market (AIM) can be a tax perk for IHT



Alternative Investment Market (AIM) can be a tax perk for IHT

Making full use of the various opportunities to give money away is one available option to reduce your inheritance tax bill. Another way to take money out of your estate is to invest in small companies.

Investing in smaller companies listed on a special part of the stock exchange called the Alternative Investment Market (AIM) can be a tax perk for IHT.

Shares in the companies must be held for two years to qualify for the tax relief, however the companies must also meet certain criteria to gain the exemption. Not all of the AIM stocks do.

Companies on the AIM get the exemption because of the rules surrounding Business Property Relief with the government wanting to encourage investment in small and growing trading businesses. However there is no definitive list on which companies qualify, it is a judgement made by the taxman when the tax is due.

Investing this way does come with a couple of warnings though. Investing on AIM can be riskier, the companies are small and regulation is lighter. It is possible that future legislation will stop IHT relief on AIM shares as they become more mainstream (they can now be used in ISA’s). This means if it happens later in life you may not have time to do 7 year planning instead.

Investing purely for a tax break is a dangerous path, but faced with a large IHT bill when you already stand to lose 40% of your taxable estate, you may be more than happy to take the risk than to give the money to the taxman.

Please call us for help and advice before taking any steps to mitigate your IHT problem.

For and against inheritance tax

Tax planning


For and against inheritance tax

There is both an argument for and against inheritance tax. Does it create a fairer society or does it punish you for doing the right thing trying to provide for your family?

For Inheritance Tax

Wealth in the UK is more unequally spread than income. The UK’s richest 1000 families have more wealth than the poorest 40% of households combined. If inheritances were untaxed there would be no way to redistribute wealth.

Taxing inheritances provides a possible extra source of revenue for public spending and it is levied on those who can afford it most.

The sheer complexity of inheritance tax, with 91 separate IHT reliefs, does however open up a series of avoidance opportunities. The complicated tax system is being taking advantage of more by the super rich in reducing their tax bills.

Against Inheritance Tax

IHT can be thought of as a double taxation. You have already paid tax when you earned your income and you are taxed again on your death.

The taxing of an estate could be seen as a disincentive to save, at the same time though the receiving of an inheritance may be a disincentive to work.

Inheritance tax is an extremely unpopular tax. You work hard all of your life to provide for yourself and your family and you are then prevented from doing what you want with your money at the end of your life.

Whatever the arguments, if you wish to avoid or eliminate your potential Inheritance Tax liability, please call us for help and advice.

Making gifts to reduce inheritance tax liability


Making gifts to reduce inheritance tax liability

Giving away your wealth during your lifetime is one of the easiest ways to reduce a future inheritance tax (IHT) liability and can also be an effective way of saving your heirs a significant IHT bill.

As well as watching your wealth being enjoyed by your loved ones, for every £10,000 moved out of your estate whilst you are living, it could save them £4,000 in tax.

Here’s how to make use of your options: 

Know your allowances and take advantage of them every year 

Currently, you can have an annual gifting allowance of up to £3,000. This can be divided up into any number of smaller gifts, and you can also make use of any unused gifting allowance from the previous tax year. For a couple this could potentially mean removing a maximum of £12,000 from their joint estate immediately.

You can make small gifts of up to £250 to as many people as you like, however the same beneficiary cannot receive a small gift and also any of your annual gifting allowance in the same tax year.

Depending on your relationship to the bride and groom, you can also make wedding gifts of between £1,000 and £5,000.

It is important to keep records for your executors so that they can prove how you have used your allowances. An annually completed form IHT403 will assist with this.

Investing in your child’s or grandchild’s future 

One of the most generous of tax breaks is paying into someone else’s pension.

If over a number of years you placed £10,000 into your child’s pension,(using your £3000 per year allowance) with basic rate tax relief it would be grossed up to £12,500. In addition, if they are a higher rate taxpayer they can then claim a further £2,500 in their tax return. The sum is then also tied up until they are at least 55, so you know it will not be wasted.

This is a considerably more tax-efficient way of leaving £10,000 rather than just in your estate. Left there it would reduce to just £6,000 following the IHT liability.

You could also be saving into a tax-efficient investment on behalf of a grandchild such as a Junior ISA. This could help them in the future with university or house purchase costs. The investment could enjoy the ‘gifts from income’ exemption if it is a regular gift and is taxed from your income. Reducing your IHT liability and at the same time, helping your grandchild prepare for their future.

This gifts out of normal income rule is not limited so in fact a person with a large pension income of say £100,000 could gift £50,000 per year if they did not need the money. You need to be careful to record your intention to make the gift regularly and it must come from income and not capital (5% income from investment bonds is not counted as this is deemed a return of capital)

Helping your child or grandchild onto the property ladder. 

With the average first-time buyer needing a £29,218 deposit, any help to get onto the property ladder will be appreciated. Paying their own mortgage instead of someone else’s, will assist them in the long term. A gift of a lump sum will be considered a potentially exempt transfer and fall under the 7 year rule.

Giving away your valuables

The value of your belongings, such as art or jewellery, will form part of your estate. Giving them away during your lifetime may give you the pleasure in seeing someone else enjoy them, as well as reducing a future liability. Dependent on the items value it could however take seven years for it to leave your estate for IHT purposes.

Leaving money to charity

Any gifts you give to registered charities during lifetime or on death are exempt from IHT, immediately taking them outside of your estate for IHT purposes. There are also tax benefits to giving in your lifetime. Gift aid on donations means every £80 you give to charity is grossed up to £100. If you are a higher rate taxpayer you are able to claim a further £20 in your tax return.

You could also give qualifying investments such as shares or unit trusts to charity. You will not then have to pay any Capital Gains Tax on them.

If you leave at least 10% of the net chargeable value of your estate to charity on death it will reduce the IHT rate charged from 40% to 36%.  So for £100,000 liability if 10% was gifted the tax would be £32400 instead of £40,000. The beneficiaries would be left with £57600 instead of £60,000.

Making gifts to reduce inheritance tax liability are a quick and effective solution to a potential IHT problem.

WARNING – Be careful about making large gifts of assets or capital as if your children get divorced a lot of that money could get lost – this can be solved using trust so please call us for help

Downsizing and the Residence Nil Rate Band



Downsizing and the Residence Nil Rate Band

From 6 April 2017, the government will phase in a new residence nil-rate band, for when a residence is passed on death to a direct descendant. In addition to the Residence Nil Rate Band (RNRB) that can be used upon death, HM Revenue and Customs have confirmed an estate would also be eligible for the proportion of the residence nil-rate band that is foregone as a result of downsizing or disposing of the property.

The new residence nil rate band will be

  • £100,000 in 2017 to 2018
  • £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021 then increasing in line with the Consumer Price Index from 2021 to 2022.

As long as qualifying conditions are met, lost RNRB, due to the deceased having downsized to a less valuable residence or had ceased to own it, will still be available as long as these events happened after 8 July 2015.

The qualifying conditions for the additional RNRB would be roughly the same as those for the RNRB. If the individual dies on or after 6 April 2017, property disposed of must have been owned by them and it would have qualified for the RNRB had the individual retained it. Less valuable property, or other assets of an equivalent value if the property had been disposed of, and which are in the deceased’s estate, will also qualify.

The following conditions would also apply;

  • The disposal or downsizing of the property occurs after 8 July 2015.
  • There would be no time limit on the period in which the downsizing or the disposals took place before death, subject to the date above.
  • There is no limit to the number of downsizing moves between 8 July 2015 and the date of death of the individual.  Disposing of part of a property (including land occupied and used as a garden or grounds) or a share in it is also included.
  • Where a property is given away, assets of an equivalent value to the value of the property when the gift was made must be left to direct descendants.
  • The value of the property is classed as the net value. So after any deduction of mortgage or other debts charged on the property.
  • If the value of the estate at death is greater than £2m, the additional RNRB will be tapered away the same as the RNRB.

The total for the available RNRB and the additional RNRB would be applied together however this will still be capped so that they do not exceed the limit of the total available RNRB for a particular year.

Like most aspect of Inheritance tax planning experienced advice is essential to produce an optimal plan – please call us if you have any queries in this area.

Raising of the inheritance tax limit


Raising of the inheritance tax limit

The raising of the inheritance tax limit, announced by Chancellor George Osborne this summer, comes with a lot of caveats. The increase is a special inheritance tax concession made available only for family homes of people with children.

Under the family home allowance, a married couple’s joint £650,000 inheritance tax exemption is extended to £1m, with the extra allowance applicable only to the family home, when it is bequeathed to children, grandchildren, stepchildren or adopted children. The allowance, however does not change for anyone else. Nephews, nieces and the children of close friends will all miss out.

The extra allowance is to be phased in, starting at £100,000 in 2017. It will then be raised by £25,000 each year until 2020. By then, on top of their individual £325,000 allowance, each spouse will have the separate individual £175,000 allowance.

Therefore the amount that can be passed on tax free in 2017 will be the standard £325,000, plus the new £100,000 for the main residence. The total of £425,000 per person can then be passed onto the surviving partner taking their allowance on death to £850,000.

The existing individual allowance of £325,000 is now frozen and is set to remain in place until April 2021.

This change to inheritance tax has made a complex area even more complex. As always experienced advice is essential. Please call us if you have any queries in this area.

Pensions as part of inheritance tax planning


Pensions as part of inheritance tax planning

Following pension reforms earlier this year it is now more attractive to pass retirement wealth onto the younger generations without being subjected to inheritance and income tax, if you die before age 75, having not accessed the funds.

Introduced by the UK Coalition government, the changes have been welcomed by those looking for inheritance tax planning opportunities. This area had been of great concern in the past, rather than consuming them people now see an advantage to leaving their pension funds in place in retirement.

Coupled with the changes in income drawdown this makes pensions a highly effective inheritance tax tool, changing how individuals tap into their assets in retirement and turning tax planning on its head.

The new rules allow a beneficiary to inherit some or the entire fund as a lump sum, or income from drawdown, tax free, up to the Lifetime Allowance, currently £1.25m, if the pension fund holder dies before age 75. After, age 75, if the fund is paid as income, not a lump sum, the tax will be at the recipient’s marginal rate.

Under the old regime, there was a trend towards actively running down assets in the pension fund after 75, but there’s now been a move towards running down cash in other assets first, such as Individual Savings Accounts. There is now less need to use all the pension pot. In some cases Equity Release could also be an option.

As defined benefit arrangements (final salary arrangements) are not covered by the changes there is now an incentive for savers to transfer these funds to a personal pension. Individuals with deferred defined benefit pensions (other than unfunded public sector schemes) might find it more attractive to transfer the cash equivalent transfer value of those rights to a self-invested personal pension, in order to increase the potential death benefits and/or potentially lower the taxation of lifetime and post death benefits.

Although the changes fully apply to income drawdown policies, such as self-invested personal pensions, capped drawdown or flexi-access drawdown, they only partially extend to annuities. The death benefit changes only cover annuity policies where the policyholder has opted for value or capital protection which comes at a cost. Otherwise, any residual funds left in an annuity pot when the annuitant dies will be decided by the pension trustees.

Further changes that came into force this April mean a policyholder has full freedom to designate who benefits from their pension pot. They now have the opportunity to nominate anyone rather than the old rules which only allowed spouses and dependants to benefit. It is however important for policyholders to ensure the intended beneficiaries of their pension wealth are named on the death benefit nomination declaration and ensure this information is regularly updated.

Using pensions as part of inheritance tax planning is now essential, and experienced advice should always be sought.

New Pension Death Benefits and Freedoms potential problems


New Pension Death Benefits and Freedoms potential problems

The 15th July Finance Bill states that from next April pension death benefits will be free from tax if the pension owner dies before his/ her 75th birthday and taxed at that person’s marginal rate if they die after they have reached the age of 75.

This is generally very good news for pension savers wishing to pass as much as possible to their beneficiaries on death.  However there are some key issues that pension plan owners will need to consider/ address.

Firstly, it is important to recognize that many old pension plans are structured so that any death benefits pass immediately into a trust on death.  The issue with this is that, if the pension owner is over 75 when he/she dies, then all benefits which have entered the trust will be taxed at a rate of 45% as this is the rate of Income Tax which applies to trusts.  If the ultimate beneficiaries are taxed at either 20% or 40%, they will therefore be disadvantaged by this arrangement.

It is also important to understand what your current pension plan will and will not provide.  Not all plans will offer the new pension freedoms granted through the Finance Bill.  Individuals therefore need to ascertain exactly what rules attach to their plan.  In particular individuals should be aware that if their plan does not offer the new pension freedoms then it is likely that it will not offer Flexi Access drawdown either.  In this situation, depending on circumstances, it may very well be in the interests of an individual to move their pension plan.

The area  relating to New Pension Death Benefits and Freedoms and inheritance tax  is full of complexity and we strongly recommend that you consult a fully qualified experienced Financial Adviser.

Distinguishing between Agricultural Property Relief and Business Property Relief


Distinguishing between Agricultural Property Relief and Business Property Relief

Inheritance Tax (IHT) is payable on death on a person’s estate above their nil rate band (currently £325,000) at a rate of 40%.  In addition transfers out of a person’s estate by way of a gift are also taxable at a rate of between 20% – 40%, the rate charged being dependant on the nature and timing of the transfer.

There are some reliefs and allowances which help reduce IHT payable such as the £3,000 annual gift allowance and the small gifting allowance of £250 per person.  Two of the most substantial reliefs are Agricultural Property Relief (APR) and Business Property Relief (BPR).

BPR provides relief from IHT on the transfer of relevant business assets at a rate of 50% or 100%.  Relevant property must be held for at least 2 years in order to qualify.

APR is designed to prevent IHT from being so much of a burden to farming families that they are forced to sell their farms to pay the tax. APR applies only to agricultural land and buildings which have been occupied for agriculture as well as owned for a minimum period.

The application of these reliefs can involve substantial complexity.  For example APR application would include woodland if occupied with agricultural land, buildings used for intensive livestock or fish rearing, if that building is occupied with the agricultural land, cottages and farmhouses together with land occupied with them as are of a character appropriate to the property. APR does not apply to woodland not occupied with agricultural land, buildings used for the rearing of birds and fish, though fish farms are eligible, paddocks for ponies used for recreational purposes, farms not occupied for agriculture, agricultural buildings which dominate the land rather than being ancillary to the land or farmhouses of a character not appropriate to the agricultural land.

However it is not uncommon for someone to claim BPR on assets which are not covered by APR for example, a farm could claim BPR on its vehicles, machinery and stock whilst at the same time claiming APR on its agricultural land. Similarly BPR could be claimed on buildings that used to be used for agricultural purposes but are now used for the holiday industry such as holiday cottages.

IHT planning as it applies to the application of APR or BPR reliefs can therefore be seen to be a complex business requiring in-depth analysis of how each asset is used and it is strongly recommended that advice from a suitably qualified independent financial adviser be sought.

Complexity of inheritance tax planning

Financial Planning

Complexity of inheritance tax planning

The UK faces one of the highest effective rates of inheritance tax of any country in the developed world. Currently in 2015 it is 40% of any non-exempt assets over £325,000. Only France beats the UK in the G7 countries on that front.

The high level of the tax is compounded by the complexity of inheritance tax planning system. Of those estates which are worth more than £1 million, approximately 40 per cent pay no inheritance tax at all – mainly due to forward thinking and good planning I suspect.

It is not really surprising when you consider the fact that there are 91 different tax reliefs which open up a vast array of discounts and exemptions. Everything from wedding gifts, annual allowances on holiday lets to historic pieces of art is covered by the different reliefs.

These wide variety of reliefs and exemptions hold many traps for the inexperienced or unwary. Inheritance Tax planning is complicated; it can be unfair, and at times surprisingly arbitrary.

It’s not getting any easier. The Conservative Party pledged in its manifesto to introduce a new £175,000 transferable residential property allowance given to children or grandchildren. There is no doubt that this will reduce the burden on many households and so at least it is a step in the right direction. Like the nil rate band transferable allowance it will need to be claimed leading to further complications.

It would seem that a better way to reform inheritance tax would be to overhaul and simplify the tax relief system. This review is already under way but bearing in mind the lack of tax income at present the review is unlikely to produce many benefits for those people whose assets exceed one million pounds.

If you are in this position and would like to hold a no cost no obligation meeting to determine how you can save your family significant amounts of inheritance tax please call or email us.

Spousal bypass trust for pension benefits


Spousal bypass trust for pension benefits

Spousal bypass trusts have historically been used as vehicles in which to place life assurance and pension benefits however the decision to continue to use them for pension benefits has become more complex following the new pension freedom rules introduced since April 2015.

The main benefits of retaining funds within a pension are as follows:

  1. If a member of a pension scheme dies before they reach age 75, the pension benefits are free from Income Tax, Capital Gains Tax and Inheritance Tax.
  2. If a member of a pension scheme dies after age 75, the pension benefits from 6 April 2016, will only be subject to the beneficiaries marginal rate of Income Tax, regardless of whether they are taken as a lump sum or as income. However in respect of monies paid into a trust, the tax rate, which is yet to be confirmed, is likely to be 45 per cent.
  • Any funds retained in a pension fund will not incur a time limit, neither will they be subject to IHT for periodic and exit charges.
  1. Pension fund beneficiaries will be able to nominate who they wish to be their “successor” beneficiary. The taxation of benefits passed to the successor will depend on the age at which the original beneficiary died.

The main benefits of using a trust are as follows:

  1. If a member dies before he or she reaches the age of 75, any payments into a trust would be tax-free and not subject to future tax charges based on the age of the beneficiary on death or legislative changes.
  2. Because funds held in the trust are the property of the trust and not the beneficiary, they are protected from claims by spouses on divorce, local authorities for long term care and creditors in bankruptcy. Pensions, on the other hand, are held for a nominated individual and the funds would therefore be counted as part of his or her financial resources and therefore subject to claims on divorce, long term care and bankruptcy.
  • A beneficiary’s estate value can be reduced, and therefore their Inheritance Tax Liability substantially reduced, by the trustees granting an interest free loan to the beneficiary which would need to be repaid on death.

Therefore it can be seen that the two different treatments will yield different tax advantages.  Which proves to be the most beneficial overall may prove difficult to assess.

Another factor to take into consideration concerns what is known as “perpetuity period” which determines the length of time for which the trust is effective.  This will depend on the date the member joined their pension scheme.  If the member joined before 6 April 2010 the perpetuity period of the trust will be 21 years’ from the date of the members death.  However if the member joined after this date the perpetuity period is 125 years.  This therefore is an important consideration when spousal bypass trusts are intended to be used as an estate planning tool.

Therefore it can be seen that it is not always clear at the outset whether the use of a spousal bypass trust is the best course of action.  Nevertheless to ensure that the client or their beneficiaries have the option of using such a vehicle it makes sense to put one in place together with an appropriate letter of wishes.

Certainly the considerations are complex and the requirement to have good quality, professional advice, more important than ever.

Call us or email us if you need help on your inheritance tax planning

AIM ISA portfolios for IHT planning


AIM ISA portfolios for IHT planning

For those planning for retirement and inheritance tax, the new inherited Isa rules mean that a surviving spouse can benefit from a deceased partner’s Isa wrapper. Whereas previously the tax advantages of an ISA disappeared on death, the new rule means that the value of the deceased persons Isa can be added to their spouse’s yearly allowance, thereby keeping the money’s tax benefits. So if someone leaves an Isa valued at £50,000 this tax year, their spouse will be entitled to a one-off Isa allowance of £65,240.( 2015/2016)

However, your Isa is still potentially liable for inheritance tax (IHT). While no IHT is levied on inheritances between spouses, the total value of a normal Isa does get added onto the value of the surviving spouses estate.

However, there is an Isa product that does allow you to avoid IHT altogether – the Aim inheritance tax Isa. Providers will invest in a portfolio of companies listed on Alternative investment Market (AIM) that qualify for Business Property Relief (BPR). Because their shares are not subject to inheritance tax after being held for two years, an Aim Inheritance Tax Isa will give you potential benefits of IHT exemption after just two years (rather than the usual 7 years) and allow constant access to your money – something which many other forms of estate planning, like trusts, do not allow.

Aim is a market where expertise is essential and can really be rewarded. Over longer investment horizons, smaller companies offer potential for levels of earnings growth that just aren’t often found in larger companies. However, care is required as it’s vital to remember that Aim shares are “ very volatile, often illiquid and much higher risk than blue chip shares listed on the main index. There’s another catch: inheritance tax exemption is assessed by HMRC on a case-by-case basis when an investor dies. Therefore if the IHT exemption rules on AIM shares are changed the planning may not work.

In cases of large ISA portfolios where you feel you may not live 7 years to place assets into Trust an AIM ISA portfolio may be useful but experienced advice is essential

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