The Blog

Pre-nuptial and post-nuptial agreements

Yesterday I held a meeting with one of the law firms we have done a lot of business with over the last few years with regards to trusts, Inheritance tax and Estate planning. However this meeting was with one of their family law divorce lawyers and the main topic under discussion was pre-nuptial and post-nuptial agreements.

Many of our clients have set up trusts over the years to help ensure their children have the means to retain their inherited assets in the event of divorce or bankruptcy. Although this is very sensible planning for most people with estates valued in excess of £650,000 we have not until recently stared to discuss the possibility of a more belt and braces approach.

It seems to me quite difficult to discuss pre-nuptial and post-nuptial agreements with someone you are about to marry or are already married to. All too American for us Brits? However, if such an agreement as a condition of becoming a beneficiary of a trust or will is something your parents or the trustees of a will insist on – that’s an all together different thing – and you should pass the blame to someone else!

For Pre-nuptial agreements – there is currently a case going through the Supreme Court (formerly the court of appeal) for the UK which should set a precedent as to how these cases are handled in the future. In addition there is some statutory law also currently being brought into play (depending on the next goverment) which will also help.

For post-nuptial agreements – these are already fairly well established and are already taken into account by the divorce courts in the rare instance someone has put one into place.

It seems the best scenario is to have both these agreements in place and also trust planning to be as safe as possible.

The overall costs of these types of plans are relativly negligable compared to the potential benefits and should be considered by most well off people for their children or themselves. As financial planners we are now including these arrangements in financial planning discussions with our  clients and can arrange meetings with the recommended law firm if required.

I will try and update you all on this as and when the ruling in the Supreme Court takes place.

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Salary v Bonus v Dividends

If you are a small business owner and you are thinking about paying yourself more in the next tax year starting 6th April 2010, you need to talk to your tax adviser or financial planner on the following points:

  • If your income exceeds £100,000 you will reduce your annual personal tax allowance by £2 for every £1 over £100,000 which could mean you end up with a effective tax rate of up to 60% on your income between £100,000 and  £112,950. You then pay 40% tax on the income between £112,950 and £150,000
  • If your income exceeds £150,000 you will pay 50% income tax on your income above this level or if the income is from dividends the rate will be 42.5%
  • All National Insurance rates will increase by 0.5%

This means that you may prefer to take a bonus, as you can decide when it is paid. If so, make sure you take it before the 6th April 2010 as it would still be subject to the lower rate of 40%. However you will have to pay and tax and NI in April 2010.

Normally unless your company is making in excess of £300,000 in profit annually, dividend payments are usually a better option than a bonus or salary increase as no NI is payable. Any dividends taken in March 2010 will only mean extra tax at 42.5% ( if your income exceeds £150,000) due in January 2011.

Given the current rate of Capital gains tax at only 18% there is a large difference between this and income tax and so investments and how they are taxed should also be looked at.

If you are a small business owner it is fairly likely that you are paying more tax than you need to and so require tax help.

A tax review of your company and personal tax and the interaction between them before April may help.

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Bluebond’s new website goes live

Welcome to the new Bluebond Financial Planning website.

We hope you like it and will bookmark it as a site to return to for help with your financial planning and financial advice.

Although the company has been trading for over 12 years this website replaced our original site in January 2010. As such we are working hard to add new pages on a weekly basis while still providing our clients with the excellent service levels they expect.

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