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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.

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.





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.

HMRC Challenges Tax Avoidance

Tax Avoidance

HMRC Challenges Tax Avoidance

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

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

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

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

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

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

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


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.

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.



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.

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.

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.

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.


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.

Terraced homes are the best investment?

The average price of a terraced house has risen faster than any other type of home over the last decade, a report reveals.

Between 2001 and 2011, the average terrace has shot up by 68 per cent in value, overshadowing the performance of bungalows and flats.

In 2001, the average terraced home cost £89,843. Today the same property would be worth £151,332, an increase of nearly £62,000.

All other types of properties have rocketed in value over the same period, but none has kept pace with the rise of the terraced house.

Flats and maisonettes are at the bottom of the property price rise league, up 49 per cent over the last decade. A flat which cost £109,936 in 2001 would cost £163,825 today, according to the Halifax, which is now part of the Lloyds Banking Group.

The figures highlight the long-term property boom, with prices reaching record highs in many areas despite the recent recession and the economic crisis.

For many families, who bought a terraced home many years ago before the boom, it has proved to be like winning the lottery.

Their home has shot up in value to such an extent that many could not afford to buy the same property if they were starting out again.

Halifax said the price of a terraced house has shot up so much because it is the most ‘affordable’ type of home in Britain. The average price of a terraced home is cheaper than the average price of any other type of property.

A typical bungalow costs £187,167. A semi-detached home costs an average of £164,970. A detached home costs £273,173 and a flat or maisonette costs £163,825.

Suren Thiru, housing economist at the Halifax, says: ‘Demand for terraced homes is likely to have been supported by their relatively favourable levels of affordability over the period.

‘The rapid house price rises have priced many potential home movers out of the upper end of the UK housing market.’

A separate report, from the property firm Hometrack, warns that only the rich can afford to buy in the countryside.

This is because the average price of a home on the first rung of the property ladder in rural areas, at £187,715, is far higher than in urban areas, at £133,005.

House prices set to rise?

The UK property market has hit the bottom and will begin to turn around ahead of Christmas, it is claimed .

But the recovery will be slow rather than a return to boom and bust, according to the Centre for Economics and Business Research.

A separate study published  by the Institute for Public Policy Research calls for measures to prevent house price bubbles.

Mortgages should be capped at 90% of property value, it says, with loans limited to 3.5 times household salary.

Reckless lending in the past by banks and building societies, with loans of up to 125% and five times salary, triggered the property surges that have been disastrous for the economy.

CEBR chief executive Douglas McWilliams said: ‘We still believe house prices will fall this year, although there are signs that prices will stabilise over the second half of the year.

‘We think the market is currently close to the bottom for the UK as a whole and there are signs that prices will stabilise over the second half of the year.

‘The main factor driving up prices is the shortage of available housing which has already pushed up rents.

‘Housing completions fell to only 130,000 in 2010, well below the level required to keep pace with demographic change.’

Mr McWilliams suggested London prices rises will remain ahead of the rest of the UK.

‘With the pound forecast to remain low, and London likely to remain internationally attractive, this is likely to continue to boost house prices in the capital, which are forecast to rise about 2% a year faster than for the UK as a whole,’ he said.

‘But the factors that will ultimately drive up house prices again are the loose monetary policy that will accompany the Government’s deficit reduction and the ability of banks to lend again on consumer-friendly terms as their own underlying financial position improves.’

He added: ‘This should not be confused with boom and bust. We are forecasting a gradual four-year recovery at an annual rate of about 4%.’


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Insurance is an essential part of any one’s life.  But if you are self-employed with or without a family, and are a small business owner,…

Child trust funds scrapped

New chancellor George Osborne has advised that Child Trust Funds will be scrapped in January.  What does that mean to people who already have an account and those who are expecting a baby?

Child Trust Funds (CTFs) were intended to give children a financial head start in life.  Currently, every baby born after 31st August 2002 receives at least £250, with children getting a top-up payment from the government (usually £250) when they turn seven (both in voucher form).

In the future, government contributions into CTFs will firstly reduce and then stop altogether.  Subject to legislation being approved by parliament, the new government intends to reduce the amount of money that children receive at birth from £250 to just £50 from 1st August 2010.  Children from lower income households will receive £100, down from £500.  On the same date, it is planned that all government top-up payments at age seven will end.  This will affect all children that turn seven after 1st August.  From January 1st 2011, new vouchers will no longer be issued.

For those with CTFs already it is expected that they will continue to operate as they do now.  That is to say, they will likely continue to be CTF accounts until the child’s 18th birthday and will carry on benefiting from tax-free investment growth.  However, once the new legislation is in place, there will be no further entitlement to government contributions.

If you are expecting a child and it is born before the legislation to stop issuing CTF vouchers is in place and you meet the other eligibility requirements you will still receive a CTF voucher.  Alternatively, if you have received a voucher, but have not yet used it, you can still do so up to the expiry date shown on the voucher.  If you do not use it, HM Revenue & Customs will open an account for your child and tell you about it.

So, the good news is, for those who already have a CTF, they won’t lose anything – family and friends will still be able to top up existing accounts – up to £1,200 a year, and the account should remain in place until the child turns 18.  Such children can continue to benefit from tax-free investment growth.

For those who haven’t yet opened an account, but are entitled to one and have their voucher, please make use it while you can; as much as you can.  You may no longer receive a top-up when your child turns seven, but at least the account will be there and if you can, you will be able to top it up.

One final piece of ‘good news’ in all of this, the government will save £320 million from reducing and then stopping its contributions to CTFs.  It is part of a planned £6.24 billion worth of spending cuts this year.

If you want to know more about investments for your child, please call us on 01582 832253 or Email us.

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In the interests of financial security, business stability, and continuity particularly for private limited companies where there may only be a small number of principal…
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