Wills and Trust Planning
Inheritance Tax Planning
Property Tax Planning
Business Owners Tax Planning


Increase In Investigations Into Inheritance Tax



HMRC Investigations into Inheritance Tax up by 5%

In 2015-16 24% of all taxable estates were investigated by HMRC. With rapidly increasing prices in the property market, the amount of IHT potential is very significant. Figures just released show that HMRC made 5,400 estate investigations last year. This is a year on year increase of 5%. Challenging the value of estates and investigating IHT figures in tax returns is a lucrative method for HMRC of reaping extra tax.

Interestingly the House of Lord’s Sub Committee for the Finance Bill 2018 has recently revealed that they want to investigate the amount of power HMRC currently possesses, so statistics such as these are being increasing scrutinised.

The Report detailed that the area HMRC is querying in greatest detail is the valuation of residential property that is passed onto heirs. HMRC may argue that much higher value be attributed to land which has the potential for development or to properties that have potential for refurbishment.

If an HMRC investigation concludes that IHT has been underpaid, the estate may have to pay all the tax that is owed plus a hefty penalty. This could even be 100% of the tax at stake in the estate.

Areas of particular interest to HMRC in relation to IHT include the validity of claims for business or agricultural reliefs, omitted assets and whether submitted figures accurately reflect the current market value.

Currently, when assets of an estate are in excess of £325,000 IHT is payable. As of June 2018, 24,500 estates are now liable, compared with 23,200 June 2017. This chiefly reflects the increase in average house prices in the UK.

Property prices have soared particularly in the South East. The average property in London five years ago cost £324,518 whilst elsewhere in the country the average was £172,655. This year however the London average is £476,000 and the rest of the UK £245,076. Unfortunately HMRC have chosen to leave IHT frozen at £325,000. This goes some way to explaining why there has been an increase in investigations.

Of course there is a huge temptation to undervalue residential property to save IHT as it is likely that property is the biggest figure on a tax return. The increased scrutiny and rise in investigations means that HMRC could fine more beneficiaries and estates who may not necessarily be cash rich. These fines are life changing amounts of money in some cases.

The crux of the investigation is that HMRC may deem that there has been a lack of care in carrying out property valuations. Given the power they have to impose fines, taking professional advice around IHT is absolutely critical.

By choosing a professional, experienced and impartial expert to guide you through the minefield of IHT you and your loved ones are guaranteed the peace of mind that financial planning brings. Don’t put it off.  Contact us now,

A Sea Change for Landlords?



Areas Bluebond ServiceA Sea Change for Landlords?

The Government is determined to build a housing market fit for the future.  It  aims to make the private rental market fairer and more transparent for tenants.  In doing so, it will reduce the number of private landlords in the UK by making it less lucrative.  Landlords across the country are now resigned to the fact that due to more new legislation their profits will be reduced.   A stamp duty surcharge was introduced 2 years ago, and the 10% wear and tear allowance has been discontinued. Landlords can now claim only actual costs spent on repairs, rather than a blanket 10% reduction for wear and tear.

The latest attempt by the government has been to phase out tax relief on mortgage interest.  Higher taxation is forcing many landlords to rethink their strategy, and in some cases to sell up.  The gradual loss of tax relief from now until 2020 will hit higher rate and additional rate taxpayers.  Indeed the loss in tax relief is also likely to push around 450,000 lower rate tax payers into a high band, according to the National Landlords Association.

Until April 2017, Landlords could deduct all their mortgage interest payments before calculating their tax bill, meaning they would be taxed purely on their profits rather than their overall turnover.  With the majority of landlords utilising interest only mortgages, this meant the savings on offer were potentially significant.

However mortgage interest tax relief changes will be phased in soon and Landlords 2017-18 tax returns will be the first to fall under new government regulations.  Originally announced in the 2015 Budget, this means the amount of mortgage interest landlords can offset against their tax bill will be reduced.

This figure is set to drop each tax year until it is fully replaced by a tax credit for mortgage interest in 2020-21.  Investors could see thousands of pounds of potential profit wiped out.   When tax returns are filed for the 2017/18 tax year (due January 2019) they will only be able to claim tax relief on 75% of their mortgage interest.  They will get a tax credit on the rest of their mortgage interest payments.   The following year, the relief will only be available on half of their interest and they will get 20% credit on the rest.

Some are calling this latest move from the government the end of Buy to Let for all but the richest.  The number of new Buy to Let borrowers plummeted from 29,100 in March 2016 to around 4,000 the following month when the stamp duty surcharge was introduced.  According to the Council of Mortgage Lenders it has struggled to pick up substantially since.

New rules are also on the way to stop landlords and property owners pocketing tax-free cash on holiday let income.  Rent-a-room relief was aimed at helping home owners let their space rooms in a bid to reduce the housing crisis.  Instead, many are using this as an opportunity to rent out their homes to tourists while they moved out and claimed up to £7,500 a year in tax free income.   In an attempt to stop home owners from profiting from websites like Air BnB, the Government has stepped in with new legislation.

It will be introducing a new “shared occupancy clause” for rent a room relief, which will require the individual to be resident in the property and physically present for at least some part of the letting period.  Doing so will return the relief to its original purpose of incentivising the letting of spare rooms.

For example a home owner letting their main residence during the Wimbledon tennis tournament to a visiting player whilst they go on holiday for the whole rental period is not eligible for rent a room relief.  This is because there is no shared occupancy so it is taxable rental income and must be declared. However a landlord renting a room to a student for an entire term who goes on holiday for a week during that period is qualified for rent a room relief as occupancy is shared for part of the rental.

A final concern for landlords is the new Government bill to ban letting fees across England.  Unexpected letting fees and high deposits can cause a substantial affordability problem for tenants and are often not clearly explained.  This leaves many residents unaware of the true costs of renting a property.

A recently introduced bill will bring an end to costly letting fees and save tenants around £240m annually, according to government figures.  The Bill will also give tenants greater assurances that the deposit that they pay at the start of the tenancy cannot exceed 6 weeks’ rent.

The Tenant Fees Bill will stop letting agents from exploiting their position as intermediaries between landlords and tenants and prevent unfair practices such as double charging for the same service. It will also help to increase competition between agents and landlords, which could drive lower costs overall and a higher quality of service for tenants.

The Tenant Fees Bill builds on the government’s work this year to protect tenants and landlords through the introduction of new rogue landlord database, banning orders for rogue landlords and property agents as well as new code of practice to regulate the letting and managing agents sector.

For all landlords who already abide by the current legislation and who treat their tenants fairly the changes will unfortunately only be visible in their year end profits.

For all landlords, tax and financial planning and the peace of mind that it brings is paramount.  Contact us now for professional impartial expert advice.

What Exactly Are the Tax Implications of a Civil Partnership?



What are the Tax Implications of a Civil Partnership?

Rebecca Steinfeld and Charles Keidan are celebrating their recent win in the Supreme Court.  By a unanimous vote, the 5 judges ruled that the Government’s refusal to allow opposite sex couple couples to have civil partners was ‘incompatible’ with human rights law.

Everyone agrees that this is discrimination, but the Government says it’s acceptable to treat different groups of people in different ways while they make up their minds, over a number of years.  If this case can establish that a “wait and see” policy is a breach of rights, it could help lots of other people facing discrimination to challenge unfair delays by the Government.

So what’s all the fuss about?   A civil partnership ceremony does not require vows to be exchanged and civil partnership certificates include the names of both parents of the parties, not only the fathers of the parties.  There is no mention of consummation of a civil partnership.  The dissolution of a civil partnership is also not the same as a divorce in that civil partners cannot rely on adultery as a factor for the irretrievable breakdown of the relationship.

In this remarkable case, Rebecca and Charles wanted to cement their commitment to each other and wanted to strengthen the security of their family unit.   They wanted to do it in a way which reflected who they are, how they see their relationship and also their roles as parents.  They wanted, in their words, a partnership of equals, without the negative connotations of marriage.

Since the landmark legal victory, the idea that a civil partnership could be available to heterosexual clients, as well as same sex couples is looking likely.    The case has proved to be of real significance to family and human rights law practitioners.

Currently there are over 3 million cohabitees in the UK with virtually no legal protection.  The opportunity that they could possibly be able to formalise their relationship with a civil partnership will automatically provide the same protections that marriage does.  Family law specialists will be keen to see people being removed from a legally problematic area.  Providing a way for couples to commit in a formal and legal way has a drastic impact on their long term financial situation.  Significant tax savings can be made which cohabiting couples simply don’t qualify for.

People who live together are taxed separately and each person has their own personal allowance entitlement.  However married couples can qualify for the Married Couples Allowance which entitles them to an unused Personal Allowance of up to £1,190 to be transferred to their spouse or civil partner if they earn more.

Transfers of assets between cohabitees are subject to Capital Gains Tax.  However, a spouse or civil partner doesn’t have to pay CGT on the transfer of assets between them because they are able to claim spouse exemption, provided that they are living together.

The most significant tax saving is likely to be Inheritance Tax.  Assets left by one spouse or civil partner to their surviving partner or spouse are not subject to Inheritance Tax, because spousal exemption can be claimed.  There is no limit to this exemption where both spouses are domiciled in the UK, although there are limits if one member of the couple is not domiciled in the UK.   Cohabiting unmarried couples or those not in a civil partnership on the other hand, have to pay Inheritance Tax on everything over the Nil Rate Band (£325,000) passing to their cohabitee.  Married couples and civil partners can transfer their unused allowance to be used on the second death, as well as transferring the new Residence Nil Rate Band.

In a situation of Intestacy, a married couple or civil partner will automatically inherit from their spouse or partners estate, although this will be limited if the deceased has children.  A cohabitee will not automatically inherit, unless the property is jointly owned.

Surprisingly there are some negative considerations to marrying or entering into a civil partnership.  For example a married couple or civil partner can only nominate one main residence for principal private residence tax exemption if sold.  Cohabitees each owning a property would not have to do this.

Charles and Rebecca have achieved their aim of receiving a declaration that the Civil Partnership Act is not compatible with sections of the European Convention on Human Rights.  It is now up to Parliament to act upon this declaration and take action to rectify the situation.

If you are a cohabitee unsure of your personal financial situation now is the time to obtain professional impartial advice from an experienced financial planner.  Contact us now https://www.bluebond.co.uk/directions/.







The long arm of HMRC?


The long arm of HMRC?

The implications of the outcome following the Brexit referendum are still being finalised.  However global financial institutions such as Goldman Sachs, Morgan Stanley, Deutsche Bank and others have said they will relocate workers to rival financial centres in Europe after March 2019.  A survey by Reuters indicated up to 5,000 financial jobs could be moved, depending on the final terms agreed by the Brexit negotiators.

It is worth pointing out that for the individuals thinking about relocating, the long arm of HMRC will make their finances more complicated than they had anticipated.   Moving country is a huge decision.  Quality of life, employment opportunities, climate and a good education system, could all be factors in this decision, but tax implications may also be significant.

There is widespread confusion about UK tax obligations among Britons thinking of moving abroad.  It is also fair to say it may not be the ideal choice of the individual involved to relocate and for many, it will be their first stint of working outside of the UK.

A survey was recently taken of 150 British expats across the world to gain insight into the most common misunderstandings about the UK tax laws.   Nearly three-quarters of those surveyed said they wrongly assumed they would no longer be UK domiciled after moving, which would free them from taxes levied by the HMRC such as UK inheritance tax, which at 40% is the 4th highest in the world, according to policy adviser the Tax Foundation

Many people believe leaving the UK will break the domicile position and therefore negate UK tax.  Unfortunately, those who move abroad for work along with those who move by choice need to remember that just because they have crossed the border it is not a clean break from the UK tax system.  For those domiciled, the tax code can also catch out those who seek to claim non-residency while on secondment to an overseas office, for example.  Non-residents have to pay tax on any UK income, such as rental income from a British property while residency could trigger HMRC taxes on worldwide earnings and capital gains.

A managing director at a US Investment Bank who moved to Milan from London in Spring 2018 said many of his peers believe they can keep their families in London and return on the weekend. Overstaying the permitted tax year allowance of 90 days or working from the UK on more than 30 of these days could trigger residency and a hefty bill.  Travel between the UK and the new country of residence has to be carefully managed and logged in case HMRC request evidence to support the individuals new non-resident status.

Losing domiciled status (which has roots back to 1799) is very difficult to achieve.  It involves individuals to sever all links and to pledge never to return to live in Britain among other strict criteria.   People who were born in the United Kingdom are generally deemed domiciled and as of April 2017 so are people resident in the UK for at least 15 of the last 20 tax years.

In April this year, new non domicile rules came into force which has pared back tax perks offered to people whose domicile is outside the UK imposing new limits on their ability to keep offshore income out of Britain’s tax net.

Permanent non-dom status will be abolished for anyone living in Britain for a least 15 of the past 20 years. Non-dom status for Britons who return to the UK but claim to have a permanent home abroad will also be removed.

These measures are the biggest tax changes to the tax rules since their introduction in 1914.  They have been introduced to tackle what the government has described as fundamental unfairness in the non-dom regime.  HMRC estimates the measures will generate an additional £995m in extra revenue.

A prominent example of a returning non-dom is Stuart Gulliver, Chief Executive of HSBC banking group.  Mr Gulliver was born and educated in the UK and acquired a tax domicile of Hong Kong after he moved there with HSBC in 1980.   This allowed him to keep his offshore income, including from a confidential Panama company, out of the British tax net.   However, he recently lost a High Court battle to stop HMRC investigating how he has kept a tax domicile in Hong Kong despite working in Britain for 13 years.

The survey of expats also highlighted confusion in other areas of financial planning.  Half the respondents admitted they had no idea whether their Wills would be legally recognised outside Britain.   In fact, people may require a UK Will and Power of Attorney for their UK assets and then a separate one covering their assets in the country they live in.  The Wills need to acknowledge each other to avoid potentially superseding each other.

Additionally, certain life insurance policies may not be effective in other countries.  The terms may not be altered easily so portability can be an issue.

Finally, bringing money back to the UK either for expenses or when someone returns home for good will have also have tax implications.  Efficient financial planning will make a significant difference to your financial situation.  Ensure you speak to an experienced and impartial professional for peace of mind.  Don’t put it off.  Contact us now for advice.




Could IHT actually be abolished?

Could Inheritance Tax be abolished?

Rumours are swirling that Inheritance Tax may perhaps be abolished.   It is tricky to navigate the current IHT regulations and many adults admit they find it baffling.  Despite the ability for a couple to pass on £850,000 free of IHT, receipts this year increased by 8% to £5.2 billion.

In January, Philip Hammond, Chancellor of the Exchequer, took the unprecedented step of contacting the Office of Tax Simplification asking them to completely overhaul Inheritance Tax.

In April the OTS published a call for evidence, and analysing the questions that it asked it is obvious they are considering a radical review.   Responses had to be returned to the OTS by 8 June and we are led to believe the report will be published before the 2018 Autumn Budget.

In May the Resolution Foundation, a leading economic thinktank, published their Intergeneration Commission Report.  It strongly recommended radical reforms of our IHT system.  The report stressed how inefficient the tax was.  Indeed it cited examples such as inheritances and other gifts totalled £127bn in 2015/16 but the only tax raised was £5bn.  This effectively equates to a rate of just 4%.  Between 2006/7 and 2022/23 IHT receipts are forecast to grow at less than a quarter as fast a rate as inheritances.

The Resolution Foundation has recommended the current IHT regime is scrapped.  The feasible alternative is to move to a lifetime receipts-based tax rather like the schemes currently in place in both France and Ireland.   The concept appears tried and tested and would deliver both practical and perceptual benefits.  Crucially, it would also increase tax receipts.


It would be a significant move away from our current system.  The receipts based system involves individuals having to keep track of cumulative receipts.  However gifts of £3,000 or less per donor per year and gifts between spouses, civil partners and charity gifts are excluded.  There would be a cumulative gift allowance of initially £125,000 tax free, with the allowance being indexed in line with inflation.

Gifts between £125,000 and £500,000 would have a basic rate of 20%, and a top rate of 30% would apply thereafter.  The estimate is that such a change would generate £11bn annually compared to the forecast of £6bn under the current system.

Some of the tax planning opportunities currently available would no longer be an option, namely the seven year cumulative gifting rule and the normal expenditure out of income exemption.

Agricultural relief and business relief which currently cost the Treasury £1.22bn, would also be better targeted to remove any predominantly tax-driven motivation for owning the assets.  It is likely that the relief is to be capped, the minimum ownership period will be increased and the relief would ideally be limited to genuine farmers and business owners rather than the financially astute planners.

The trust tax regime, arguably the most complex, is likely to be redesigned to reflect the lifetime receipt rules and the thinktank also has some suggests for pension inheritance.  These suggestions have caused concern as it recommends the removal of the tax free treatment of pension funds inherited on death of the member (under age 75).  Their suggestion is to make it liable to inheritance and income tax.

Their final suggestion is that capital gains tax apply on death, although restricted to additional residential properties and assets qualifying for business property relief and agricultural relief.

Of course these are only suggestions from the Resolution Foundation and it is entirely possible that the Office for Tax Simplification may have a completely separate set of regulations that they will introduce.   If these suggestions are implemented however, most hit would be small families, as there is a tax on the individual rather than two allowances from a couple gifting the money.

However, one thing that is very clear is that referring to IHT as a voluntary tax will be a thing of the past.  This phrase was coined on the basis that careful planning can significantly reduce or even negate an individuals liability.

Anyone who has held off making gifts for IHT planning purposes or for anyone who has deferred having that initial IHT discussion, now is the time to act.  It is vital to discuss this with an experienced, professional and impartial advisor.  Call us now before the autumn report is published and significant opportunities are lost.










Entrepreneurs Protect Your Wealth!

Entrepreneurs Protect Your Wealth!

Entrepreneurs seeking to build and develop their businesses are understandably focussed entirely on their commercial objectives and too often forget about financial planning.  It’s entirely understandable as cash is often tight in the initial stages.  Spending money on lawyers to protect assets that may not be worth much at that stage could seem unnecessary.

Obviously no one wants to think about marriage breakdown or death particularly if you are a dynamic young business owner on the path to success.  However, it is important to do this at the earliest opportunity.

Protecting your personal assets through your commercial documents should be done when actually setting up your company.  That way the initial wording to protect your personal position can be woven into your commercial documents.

There is usually provision in the articles of association for what will happen to shares in certain circumstances including on death.  However, despite the UK having a divorce rate of about 40% it is rare for these agreements to state what will happen if the founder suffers a relationship breakdown.

Entrepreneurs are often advised by their accountants to gift shares to their spouse for tax reasons.  However there is often no consideration given to what happens to these shares should the couple split up.   If the shares carry voting rights this can be problematic so the ideal situation is that any such shares automatically revert back if you get divorced at any stage.

Governing documents can also contain pre-emption rights, so that any shares are offered to other shareholders, members or partners in the business.  This can be done in conjunction with a ‘keyman’ insurance policy which pays out to the other parties allowing them to purchase the shares from your estate.

Safeguarding assets for children should be a consideration too.  There are steps you can take to protect any property or money you have intended for the children in the event of a relationship breakdown.

Gifts in your Will could be left to a Trust managed by the family so they do not actually own the assets, or they could be made contingent upon the children reaching a certain age.   Gifts such as cash to buy a property or to use as a deposit for a property purchase can also be made as a method of reducing  your inheritance tax liability.  This gift could be made on the proviso that the child enters a pre-nuptial or cohabitation agreement.  Another option would be to use a trust to protect the cash.

Of course having a Will is a vital part of financial planning.   A basic Will together with a joined up approach in the corporate governance documents will usually be adequate.  However once assets are worth £500,000 and above it is likely that a more detailed version will required to ensure that your are wholly protected.

The key to efficient planning is to review your Will every 5-7 years, to make sure it is inheritance tax efficient and still meets your particular needs.  If your personal circumstances change then an annual review would be a wiser option.

A pre-nuptial agreement is a very practical tool but allow plenty of time for this to be prepared as they are tailored specifically to your needs now and in the future.  Such an important document should be completed at least 6 months before the wedding.

If buying assets abroad is your intention ensure you understand how these would be affected by death or divorce.   Find a UK lawyer specialising in international cases as they will have a good network of specialists in other jurisdictions and will work with you to ensure your wishes are carried out both abroad and back in the UK.

A significant part of being a successful entrepreneur is making informed decisions about your personal wealth and being prepared for any event in the future.  Taking professional advice from an experienced impartial estate planner is crucial.  Contact us now for the piece of mind that efficient estate planning brings.














Where there’s a Will there’s a way …

Where there’s a Will there’s a way …

The whole estate planning process is difficult for many clients.  People often have a lot at stake financially and emotionally when they engage an estate planner.  The fact that others often have an intense interest in the outcome of any estate planning doesn’t make it any easier either.  This leads to inevitable postponement of estate planning which explains why some people still die intestate. This means the deceased has no control over who will inherit the assets in the estate and intestacy rules step in to determine which family member should benefit from the estate and in what portion.  The applicable intestacy rules will turn on the nature of the assets, where the assets are located and the domicile of the deceased.   Depending on the jurisdiction in point, the intestacy rules can offer rather different outcomes.


It is not unusual for individuals to invest in cross-border investments to gain exposure to international markets in property, shares, currencies and other investments.  This is often done in a bid to achieve diversification and to spread risk.  However, these cross border assets should be carefully considered when it comes to estate planning as they will fall under local regulations.  International estate planning can involve a range of tools and an individual with an international profile should at least have an effective Will in place.


Without proper legal advice many people make elementary mistakes when writing their Wills, which may mean a challenge can be brought by other potential beneficiaries down the line.


In the UK people are largely free to leave their assets to whoever they choose.  You may be surprised to learn that this is in sharp contrast to much of continental Europe where laws of succession mean its virtually impossible for French parents, for example to disinherit a wayward son or daughter.  There are restrictions though, and there are several grounds for a Will to be contested.


A Will is a formal legal document and while you can write it yourself, it needs to be done properly, signed and verified by 2 witnesses.  In order for a Will to be valid in the eyes of the law, the person making the Will needs to be of sound mind.  They must understand that they are making a Will and the effects of its contents.  They have to be clear of the nature of their Estate and its value, and understand the consequences of excluding certain people from their Will.


Crucially, they must not be suffering from any disorders of the mind such as dementia, which may have an undue influence on their decision making.  This is to prevent them making bequests, gifts and exclusions that they would otherwise not have made.


It is possible to contest a Will if there is genuine evidence that it has not been correctly produced.  You can also make a claim if you believe someone wouldn’t have approved an aspect of the Will or was unaware of the contents of a Will.  Inevitably suspicions arise when there is a substantial gift made to the person who was involved in the writing of the Will.   This alone is a good reason to engage a professional.


Fraud can sometimes be suspected in a Will, for example a faked signature or a faked document.  However, the law can also define fraud as lying.  A could make up that B stole from C.  If C then excludes B from her Will based on that lie, the Will could ultimately be invalidated due to A’s fraud.


Estate planning can be very complex and mistakes do get made.  You can contest a Will if a genuine clerical error is made which results in the wishes of the deceased becoming unclear.   It is possible too, to claim where there is evidence of negligence in the drafting of the document, or where specific wishes are unclear.  A court may ultimately decide what the exact meaning of the Will may be.


If you think you have any grounds for complaint then it is important to move quickly, preferably before probate, and seek specialist legal advice as soon as possible.   The longer you take to lodge an action the weaker your case will be when it comes to court.   Initially the costs are relatively low; you can pay a small administration fee to lodge a caveat at the Probate Registry.    If the beneficiaries do not agree that there are grounds for complaint they can issue a short document known as a warning.  This sets out their reasoning for objecting to any claim.  Then the person contesting the Will, having received legal advice, can determine whether to proceed further.



At this point they lodge another short document known as an Appearance.   If no agreement is reached then the probate process – the gathering up and distribution of the estate in line with the Will – will begin.   Obtaining professional impartial estate planning advice is crucial.  Over the years we have tried to help people with badly written Wills often to little effect once the settlor of the estate has died.  The larger your estate the greater the need for both estate planning and inheritance tax planning as an integrated strategy.


Contact us now for the peace of mind that efficient estate planning brings.

















The Tax Gap

What is the Tax Gap?

The Tax Gap (which applies to Inheritance Tax as well as other taxes) measures the difference between the amount of tax the Treasury think it should be getting and what it has actually received.

HMRC is aware that it is virtually impossible to collect absolutely all of the tax that is owed to them.  Legal interpretation, avoidance, evasion and criminal attacks on the tax system along with simple errors and careless mistakes made in self assessment calculations all contribute to create this tax gap.

The amount of Inheritance Tax (IHT) the Government received in 2016/17 reached a record high of £4.84 billion.  This was an increase of 4% compared with the 2015/16 tax year which raised £4.7 billion.  Interestingly, the gap between tax received and tax owed has grown from £575 million in 2016/16 to £600 million in 2016/17, a 4.3% increase which is roughly in line with the increase in tax taken.

It is fair to say that Inheritance Tax is one of the most complex taxes in the system, and there is considerable scope for individuals to organise their affairs in a way which reduces the amount of tax which they pay.  In its current form, IHTs complexity actually encourages behaviours which are detrimental to sensible financial planning and the distribution of wealth through generations.   Because the rules are sometimes so irrational there is definitely an element of accidental evasion by those who don’t take professional advice.   The new main residence nil rate band was intended to take normal people out of IHT but it is so complex that people are missing out on its benefits.

The Government has ordered a review of the IHT system which the office of Tax Simplification is currently working on, but the results of the review and any consequent amendments thereafter are unlikely to be rapidly implemented.  Once the new system is in place however it should be simpler for taxpayers and theoretically a higher proportion of the tax due can actually be collected.

Part of the reason that IHT receipts have grown is the increase in property prices, which in turn causes the absolute amount of tax gap to increase.  The effective simplification of all IHT tax rules is the vital component in closing the tax gap for HMRC.  Currently as a population we have asset rich baby boomers, asset poor millennials and a ticking tax bomb.   In order to maximise the efficiency of your Inheritance Tax planning you need to speak to an impartial experienced professional.    Don’t keep postponing it.  Contact us now for effective advice.



IHT Gifts to Charity

IHT Gifts to Charity

What would it mean for charities if Inheritance Tax was abolished and therefore no tax incentive to leave a bequest?

Chancellor Philip Hammond has requested a complete overhaul of the UKs inheritance tax framework, and the Resolution Foundation (a leading group of experts), has proposed that the tax be scrapped entirely.  The government may not have such a radical change in mind for the IHT system but the public consultation period has now expired and charities have had a chance to say how they believe the future system will work.

The Resolution Foundation has proposed an interesting concept; a tax on your estate after you pass away is replaced with a ‘lifetime receipts tax’ which beneficiaries would pay as they go.  The scenario encourages people to pass on cash or assets to younger generations and potentially enable them to get on the housing ladder earlier on in their lifetimes.  This would be a lifeline to millions of young people who are currently priced out of the property market and are paying exorbitant rents to opportunist landlords.

However, what seems to have gone almost entirely under the radar is what such extensive changes would mean for legacies and charitable donations.   Tax relief plays a key role in motivating the public to do social good, and is a saving to the consumer, although effectively comes at a cost to the Government.

Legacy income is the largest single source of voluntary income for the sector and generates more than £3bn each year.   Thanks to the current generous system of tax relief, bequests to charity are currently exempt from IHT (otherwise charged at 40%) and a lower rate of tax (36%) is granted to any estate where 10 per cent or more is donated.

The impact of this framework has had a significant effect on legacies, but in an unexpected manner.  Research proves that tax relief can be a strong incentive for people to donate, particularly for those whose Estate encroaches the IHT threshold.  The real issue here though is that this potential tax relief gives solicitors and financial advisors the incentive to discuss legacy giving with clients who are they are writing Wills for.

Solicitors and financial advisors are not expected to be canvassing for charitable donations.  But they are expected to raise all issues that should be considered when people are writing their Wills.   Donating to charity isn’t always an obvious consideration but because of the tax relief aspect these professionals have a natural entry point for discussions with clients. And this has been an important factor in behavioural change.  Trials conducted by the Behavioural Insights Team show that when the option of leaving a gift to charity is referenced the number of gifts can be trebled.    Currently 7 out of 10 advisers regularly mention the tax benefits of legacy giving with their clients and without a similar tax incentive in place, such discussions are unlikely to occur.

The Government has always supported the concept of legacies and we are confident that future tax policies will continue to encourage and to inspire giving.

The IHT consultation led by the Office of Tax Simplification, closed last week. Charities’ response to this consultation was to highlight the importance of legacy income and IHT relief.   The Government is already in discussion with the Institute of Fundraising and the National Council for Voluntary Organisations.   From a charity perspective their focus is not to determine whether IHT is the best tax model, but to ensure that charities are carefully considered within this debate.   Another proposal is to introduce VAT exemption on Will writing costs for those that include charitable bequests.

As a sector, it is vital to convey the societal impact of gifts in wills, as well as the importance of tax incentives to creating an environment where conversations about charitable giving are becoming more routine.

IHT may well be in dire need of reform, but the potential impact on legacy giving must not be overlooked in its new incarnation.   It is crucial that you take professional impartial advice when considering the potential IHT implications of bequests.  Speak to us now to discuss your IHT concerns.











What’s the Point of Marriage?

What’s the Point of Marriage?

Latest figures from the Office of National Statistics indicate that the marriage rate has been on a downward trajectory since the early 1970’s, hitting its lowest level on record in 2015.

For many young couples there is a significant quandary between buying a house together and getting married.  The cost of the average UK wedding is now an eye watering £27,161, according to the Skipton Building Society.   So does it make sense to sacrifice all your savings for a wedding in order to prosper from the financial perks of marriage later down the line?

Over a 50 year marriage, a couple could be as much as £190,964 better off, even taking the potentially extraordinary cost of wedding into account (although unfortunately most of the benefit is a saving in inheritance tax).

It’s a common misconception that couples who are living together have the same rights as married couples.   In fact, cohabiting couples have very little rights.   Should the couple decide to separate there is no legal entitlement to shared assets either.   At the risk of sounding unromantic, the best tax strategy you can have is to get married.

Unlike couples who are simply living together, married or civil partnership couples can share their assets between them to make the most of both of their tax free allowances, and ultimately avoid a hefty tax penalty.   This is significant benefit.

Each individual currently has an annual Capital Gains Tax (CGT) allowance of £11,700.  Where an individual might incur capital gains of more than this, they can transfer some of the assets to their spouse and effectively benefit from double the allowance (so a married couple holding the assets jointly could make a gain of £23,400 before paying any tax).

If this is still going to leave you with a CGT bill, it is prudent to split the assets in such a way that you use both allowances and the lowest rate taxpayer foots the bill for the additional capital gains to minimise the amount of tax due.   Married couples can also transfer assets to make the most of the annual dividend allowance and personal savings allowance.

Married couples can also enjoy £238 tax saving this financial year by using the marriage allowance.   If one spouse has less than £11,850 in taxable income during the tax year, they can transfer £1,190 of their personal tax-free allowance to their other half – provided the higher earning spouse is a basic rate taxpayer earning up to £46,350 (£43,430 in Scotland) a year.

Unfortunately most of the benefits of marriage occur at the most difficult times.  As morbid as it seems, this is biggest upside to being married from a tax perspective.   This is the reason why many long term cohabiting couples marry in older age, or if one partner is terminally ill.  Assets passing between married couples on death are generally exempt from inheritance tax.  This can amount to a saving of 40% which can potentially save the surviving spouse hundreds of thousands of pounds.

Every individual has an inheritance tax threshold which is currently set at £325,000 while homeowners have a property threshold, which will be £175,00 by 2021.  When married partners leave assets to one another, their tax free bands are added together so that the surviving spouse has a threshold of £650,00 and (assuming they are passing it to children or grandchildren) £350,000 worth of property free of tax.

However there are also advantages arising on death.  Assets that have made significant gains, if passed to a spouse on death, are generally given a new base value for tax purposes at the date of your death, all the while still avoiding inheritance tax.

In 2015 a rule change meant that ISAs inherited from a spouse or a civil partner were now free from tax liabilities.  Previously the tax efficient status of those products ceased on owners death.   The surviving spouse can now apply for an additional ISA allowance, known as an Additional Permitted Subscription allowance, which is equal to whatever their partner held in the ISA at the time of their death.

Although increasingly rare, there are still millions of people with generous defined benefit pensions which often include, surprisingly, a spouses pension if their partner passes away.   The average rate a spouse can get is around half of their partners pension, payable for the rest of the spouses life, so potentially a huge benefit.  If you’re not married the pension trustees may still pay the pension, however it is completely at their discretion.  Generally married couples find it easier to inherit their partners pension on death, regardless of what kind of scheme it is.  It is important to read the small print however, as policies vary enormously.

While cohabiting couples can draw up agreements and wills to help determine how assets are split or inherited, there’s very little they can do to avoid paying taxes altogether.   Of course there is the argument that the government needs to keep up with the times and give cohabiting couples some of the tax benefits their married peers enjoy; regrettably it’s unlikely to change for the foreseeable future.  Cont

Can An Executor be liable for Inheritance Tax?

Can An Executor be liable for Inheritance Tax?

Before you agree to taking on the role of an Executor it’s important to be aware of all the potential responsibilities that it entails. Being asked to become an Executor for a friend or a relative can seem flattering, indeed quite an honour, but not everyone understands exactly what they are taking on.

When the person dies, as Executor you are obliged to deal with their Estate ensuring that their Will, assuming they had one, is adhered to.  It will be your responsibility to make sure the deceased’s Estate is correctly valued for inheritance tax purposes and that any outstanding tax bill is paid.  While that may seem obvious, what is not obvious is that the Executor can be personally liable for the IHT bill even if they are not a beneficiary (it’s worth pointing out that it is possible to be both a beneficiary and an Executor of the same Will).

In England and Wales, an Executor can be held personally financially liable for any loss that a breach of their duty incurs, regardless of whether the error was inadvertent or intentional.  Executors are obliged to disclose all known information about the Estate of the deceased, typically income from bank accounts, liabilities from credit cards, utility bills and other outstanding debts.

Interestingly, beneficiaries may start legal proceedings against the Executor in certain circumstances, often to recover losses incurred due to errors made in the Estate administration process.  Verifying that all the Estate information is accurate is a crucial part of the Executors role and it may be appropriate to complete financial asset searches and gather further information by other means to ensure all assets and liabilities have been located and accounted for.

When dealing with Estate funds, all liabilities must be paid before funds are released to any beneficiaries.   If there are insufficient funds within the Estate to pay all debts, the Executor will need to prioritise the funeral costs and associated expenses before following the procedure for an illiquid Estate (one in which the assets are not easily converted into cash).

In 2013 a Mr Harris was made Executor of a £1.2m estate.  He filed an IHT return with HMRC and paid the initial taxes due.  However, as the Estate included land the remaining balance owed to HMRC didn’t need to be paid immediately.   Mr Harris arranged for the Estate to be passed onto the beneficiaries; in this particular case the majority of the Estate went to one individual.  There was an agreement that this beneficiary would settle the remaining IHT bill.  Unfortunately this beneficiary immediately headed to Barbados and didn’t pay the bill.

This left the Executor liable to pay the remainder of the £340,000 bill.  As he no longer had the funds from the Estate to cover this cost he appealed, denying personal responsibility for it.   A judge ruled that Harris is in fact personally liable for this, and HMRC could potentially seize Harris own assets, including his house.   Of course this is an extreme example but a good illustration of fact.

A more frequent issue is the question of how to pay an IHT bill when assets need to be sold to cover the cost.  HMRC expects IHT bills to be settled within 6 months of an individuals death, after which it will start charging interest on unpaid tax.  However, an Executor cannot sell assets until probate has been granted.   Fortunately there are some options available to circumvent Executors personally funding IHT bills.

If the deceased has enough cash or investments to pay the bill then you can approach their bank or investment manager and ask them to release the money.  Most are willing to assist.  Additionally, if the Estate contains certain assets that need to be sold in order to pay the bill HMRC will allow you to pay in instalments.   This includes property and shares that gave the deceased more than 50% control of a company.  The first instalment is due 6 months after the death date and the rest is paid in annual instalments until the assets is sold.

In case of property, you can pay the IHT in annual instalments of 10% of the bill, plus interest, if a beneficiary chooses to live in the property, meaning it won’t be sold.  Be aware though that interest is charged at 3% for instalments.  The final option is to take out an Executors loan to cover the IHT bill until probate is granted.  Assets from the deceased’s Estate can then be sold to cover the loan repayment.

Finally, if all this is too much responsibility, you can always refuse the request to become an Executor.  Whether you are appointed under a Will as an Executor or you become an administrator of an estate because of intestacy, you can officially renounce the nomination.


Always ensure you take impartial professional advice for all your Inheritance Tax and Estate Planning issues.  Contact us now


The Dangers of Poor Tax Advice

Property tax


The Dangers of Poor Tax Advice

We were contacted recently by potential clients with an interesting situation.  They wanted to review their likely inheritance tax position.

In 2003 they had asked a solicitor to put their home into a trust in order to avoid possible care home fees.  As there was no capital gains tax incurred on their home and the value of the property was below the nil rate band allowance there was no tax to pay. Unfortunately by doing this they had unwittingly created a significant problem which we were unable to help them with.

The reason Trusts are so effective for Inheritance Tax Planning is because they work on the basis that the Trust is recognised as a separate legal entity under English Law.

In this particular case the property has virtually doubled in value in the last 15 years.  The Trust now fully owns the property and any disposal of it in the future either by gifting it back to the client or to their children will generate a capital gains tax bill of around £80,000.

The situation is compounded by the fact that the house is entirely owned by the Trust, meaning the clients lose their allowance for the Residential Nil Rate Band (RNRB).  This will be £175,000 each by 2021.  The RNRB allowance is only available to individuals gifting their main residence to direct descendants or adopted children and therefore not available to a Trust.

To further exacerbate the problem the clients have not been paying any rent to live in this property they gifted to a Trust.  As such, HMRC will regard this as a “gift with reservation of benefit”.  Therefore the value of the property (but not the legal ownership) which is around £650,000 will fall back into the estate.  Consequently the £650,000 is now liable to Inheritance Tax even though the actual legal ownership of the property no longer resides with the potential clients.

The clients have other assets of around £400,000.  This gives them a potential IHT liability of £160,000.  If they do nothing about this it will increase depending on the value of the property (which is a failed gift) and the value of their other assets.

So to recap, the intention behind the initial planning was the potential avoidance of care home fees. However, it is likely that the local authority will stipulate that the right to utilise and remain in the property still resides with the client.  They are likely to insist that the property is rented out and that income utilised for care home fees.  So even the original idea will not work.

These potential clients didn’t take advice from an Independent Financial Advisor before they embarked upon moving their house into a Trust.  They merely instructed a solicitor to act on their behalf for the conveyancing.  They will end up at the very least paying a large CGT in the Trust, and if they do nothing they will end up with a much larger IHT bill on their Estate.

Ironically if they had done absolutely nothing they would not have paid anything in tax provided one of them survives until 2021 which is highly likely.

We couldn’t help these potential clients because the Trust was already in place, so we referred then back to their original solicitors.

The moral of the story is that lack of good advice has cost the inheritors of these potential clients over £80,000 in unnecessary tax.

To avoid situations like this it is vital to take experienced advice before progressing with any plans that you believe will have a direct impact on your taxation and IHT.  Contact us now for reliable and expert inheritance tax advice.










Wealth Inequality

Wealth inequality is by no means exclusive to the UK, however we do have a very high level compared to other developed countries.   Typically, households in the bottom 10% of the population have on average a disposable income of £9,644 after direct taxes.  By contrast the top 10% have net incomes almost 9 times as much (£83,875).  The poorest fifth of society have only 8% of the total income whereas the top fifth have 40%.  Wealth is even more unequally divided than income.  The richest 10% of households hold 45% of all wealth.  The poorest 50% by contrast, own just 8.7%, and the South East has almost twice (184%) the amount of wealth of an average household in Scotland.

The Organisation for Economic Cooperation and Development OECD) has released a report concluding that disparities have increased in recent decades.  Wealth – for example property, savings, share portfolios and pensions – grows and becomes self reinforcing because the rich have more to invest in higher yielding assets, greater financial knowhow and better access to investment advice.

Individuals with more money to invest have more power, influence and opportunities and are able to generate income without having to work.  A key aspect of wealth accumulation is that it operates in a self reinforcing way; wealth begets wealth, the report said. It may be argued that wealth begets more power, which may ultimately beget more wealth.  Overall, this means that in the absence of taxation, wealth inequality will tend to increase.

The eminent economist Thomas Piketty has highlighted the importance of wealth in entrenching inequality.  He has called for a global wealth tax to reduce this inequality and to increase social mobility.  This report from the OECD is partly in response to his comments, and it highlighted that taxing capital income would not do enough to reduce wealth inequality.  It went on to say the answer may lie in higher taxes on inherited wealth.  Inherited wealth is unearned and therefore unfair, the report surmised.

Increased home ownership and rising house prices mean the wealth of younger generations now depends more on how much they inherit, increasing inequality.   By accepting the argument for tougher wealth taxes and proposing inheritance tax as a key measure, the OECD is likely to instigate further dispute in the UK, where the tax is highly unpopular.  There has been a surge in inequality between the generations.  Most married couples can leave up to £850,000 to their direct descendants without paying inheritance tax.  That figure will rise to £1m by 2020 if they own a home worth more than £350,000.

Experts have agreed that the analysis produced by the OECD is very useful as the actual essence of the argument is sensible.   Wealth is much more unequal than income but it is discussed much less.   Politicians across the spectrum recognise that taxing wealth will be necessary, as the so called Baby Boomer generation (born between 2946-1964) retire and need social care.

UK estates paid a record high of £5 billion in inheritance tax last year.  This figure is set to rise especially for people that leave it too late to take action. For help and advice on Inheritance Tax Planning please call us now.

New Record High For Inheritance Tax Payments

New Record High For Inheritance Tax Payments

New figures from HMRC show an alarming 13% year on year rise in Inheritance Tax receipts, raking in a staggering £5.3 billion to the end of February.  These record sums forced Chancellor Phillip Hammond to instigate reforms in the notoriously complex IHT system.

The review of the system was ordered at the end of January but the timescale is unclear and the threshold of IHT (which has remained at £325,000 since 2009) has not been cited thus far.

Interestingly, the combination of the unchanged IHT threshold and soaring property prices are the main reasons that more people are eligible for death duties.   Substantial portions of peoples’ estates are now being taken, often quite unexpectedly, by HMRC through IHT.  The value of these is rising at a startling rate and no one wants their descendants to be landed with hefty and avoidable IHT bills.

The Government have introduced the residence nil rate band (RNRB) which was gradually bought in from April 2017.  Under the RNRB married couples or those in civil partnerships will eventually have an extra £350,000 worth of IHT free allowance per couple.  Unfortunately it is not fully phased in until the 2020/21 tax year and the rules are extremely complex.

Another quirk in IHT which needs resolving is extending civil partnerships to couples of different genders  and the next step in this change would be full legal rights for unmarried and non civil partner cohabiting couples.  Since 2006 the law in Scotland gives some cohabitees some rights but not to tax exemptions and the Law Commission in England and Wales did not suggest that in its’ report at the time.  The President of the Supreme Court has said several times that cohabiting couples should have more rights when their relationship ends but she has not suggested tax rights on death.  At the moment, a bereaved partner without legal status may not just be landed with a large and perhaps unexpected IHT bill, they can also lose their home.

Lord Willetts said recently that IHT was “poorly designed, widely abused and a classic bad tax with a very high rate and very high exemptions”.  He went on to say “we could lower the rate but with a broader tax base which would be fairer for all”.

If you wish to avoid or reduce this punitive tax, careful planning from an IHT specialist is invaluable.  Call us now.



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.

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.

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 planner.




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.

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 assured 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.

Should you require help on this we would refer you to a separate firm of  independent financial advisers


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 http://www.niesr.ac.uk/blog/when-experts-agree-how-take-economic-advice-over-referendum.

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

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.

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.

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