Thursday, 18 December 2014

Pilot trusts post the Finance Bill 2015

One of the bigger surprises in this year’s Autumn Statement was the news that the much consulted upon new ‘Settlement Nil Rate Band’ has been dropped. 

One of the reasons for proposing a Settlement Nil Rate Band was to make the use of multiple trusts less attractive for Inheritance Tax (IHT) mitigation purposes.  Each trust would no longer have its own IHT nil rate band to set off against the periodic charges to IHT, such as the ten year anniversary charge and any exit charges, that it may face during its existence.

Now, with the publication of draft clauses for the Finance Bill 2015 last week, we learn that, in certain situations, there remains a future for planning involving multiple trusts after all.

Thursday, 4 December 2014

CGT Principal Residence Relief update

My 24 April 2014 blog reported that buried within the Government’s March 2014 consultation on extending Capital Gains Tax (CGT) to non UK residents was a change to CGT Principal Residence Relief (PRR) affecting UK residents. 

Last week, the Government published its response to the consultation and confirmed that PRR is set to change.  The changes are not as envisaged in the consultation document though. 

Thursday, 20 November 2014

Can trusts be trusted in the event of divorce?

Preserving family wealth is uppermost in many families’ minds.  Therefore, knowing how structures created to hold family wealth will perform in the event of a family member divorcing is crucial.

Unfortunately, the treatment of trusts on a beneficiary divorcing is to some extent uncertain.  The legislation is clear enough: anyone with an irrevocable, fixed interest in a trust (e.g. life tenant/capital remainderman) can have their interest transferred to their spouse or child in the event of a divorce or separation.  The terms of ‘nuptial settlements’, be they discretionary or fixed interest, can also be varied to permit a spouse and/or children to benefit.  Therefore, trusts that want to remain outside the divorce courts will take care not to be regarded as nuptial settlements. 

Thursday, 6 November 2014

Asset protection: careful what you promise...

Threats to wealth come in many guises.   Mr Southwell was described by the judge in Southwell v Blackburn at the Court of Appeal as ‘shrewd, cautious and guarded’.  He knew that if he married Ms Blackburn, who had two children from a previous marriage, she would have a financial claim against his assets in the event of divorce.  He also knew that, when he bought a property for her and her teenager children to live in with him, putting her on the title with him would be risky too, so he made sure that didn’t happen either.  He bought the property with the help of a repayment mortgage and he made all the repayments.  Exemplary thus far. 

Thursday, 23 October 2014

Come to our seminar on protecting family wealth: 13 November 2014, London

We’re often asked about the current state of play with UK pre-nups and, as a wealth lawyer, I’m always interested to know how bullet-proof trusts are, should a beneficiary divorce, and whether there are any alternatives to trusts that might offer better protection. 

So I've teamed up with my colleague Teresa Cullen, our family partner, and we'll be exploring exactly these issues in our seminar here at Fladgate, 16 Great Queen Street, London WC2B, on 13 November 2014. 

Further details below.  If you'd like to join us, please RSVP to register your interest. 

Bare Trusts: are they the ‘next big thing’?

The third consultation on Inheritance Tax (IHT) charges for trusts assumes that every individual will have only one settlement nil rate band (SNRB) to put against the periodic charges to IHT of all trusts created in lifetime, or on death, by that individual.  (For more on the new SNRB, see my blog post of 19 June 2014.)

As the SNRB does not renew itself every seven years, the well advised will soon begin to realise that the SNRB is a precious commodity that needs to be preserved and carefully allocated.

The SNRB only needs to be allocated among ‘settlements’ though.  As it seems that Bare Trusts are not settlements for IHT purposes, if the SNRB does come into effect, there will be no need to allocate any SNRB to Bare Trusts.  So, are Bare Trusts about to become all the rage, if you have young children or grandchildren to plan for?  You can save your SNRB to allocate against your other trusts/will trusts instead! 

Now is the time, then, to reacquaint ourselves with what Bare Trusts have to offer. 

Thursday, 9 October 2014

Best will for… Part 3: most married couples

I like the simple things in life. When it comes to wills, most of my married couple (and civil partnership) clients want to keep things simple too. ‘Everything to my spouse and then to my children equally, please’ is a common refrain. There is nothing wrong with that.

The only problem with keeping things that simple, though, is that you can be wrong-footed if your family’s circumstances have changed by the time you die, or afterwards. The child’s marriage doesn’t work out. The child’s ex-partner wants a stake in your child’s home. Your spouse loses capacity to manage finances after your death. Lawyers have a tendency to look on the black side and chances are none of these things will happen. However, the fact is that a simple will, leaving everything to heirs outright, gives no protection against any of these things, so you are taking a risk.

Thursday, 25 September 2014

Family businesses and pre-emption rights: a trap for the unwary

Business owners are a notoriously busy lot.  Trying to get them to put wills in place can require persistence on the part of the adviser.  However, care is needed when making wills for business owners as getting the will in place, on its own, may not be enough.

Trouble can ensue when the share transfer provisions in the articles of the company, or any shareholders’ agreements, prevent the deceased’s shares being transferred to the heirs named in the will, or the trustees of any trusts in the will.  Restrictions placed on transfers are commonly called pre-emption rights. 

Thursday, 11 September 2014

Choosing trustees? Not so fast!

What is the key decision which repays very careful thought when setting up a trust or a will containing a trust?  Is it who can benefit from the trust (the beneficiaries)?  Of course, that is very important.  Or whether it is a fixed interest or a discretionary trust?  Absolutely, money in the right hands at the right time, naturally.  But I would argue that there is one matter that trumps even both of these.  No prizes for guessing (the clue is in the title!) – the No.1 spot has to go to choice of trustees.  Poor decision-making on this front can lead to big regrets all round as it is far from easy to force trustees to retire once they have accepted the position.  Read on if you require further persuasion.   

Thursday, 28 August 2014

Fed up with trusts? Try a FIC!

If you want to give something away but retain some control over it, chances are that an English lawyer will tell you to use a trust. 

I am a great fan of trusts but, let’s be honest, they have some potential drawbacks.  For example, if an individual puts more than £325,000 into trust, a 20% Inheritance Tax (IHT) entry charge could be payable.  Most trustees currently pay Income Tax at between 37.5% and 45% and Capital Gains Tax (CGT) at 28%, which leaves less after tax to reinvest.  It is also very difficult to prevent beneficiaries interfering in the trust administration completely – the whole premise of a trust is that the trustees have to be accountable to the beneficiaries.  Laudable but not always wanted.

In many cases, with proper tax planning and a carefully crafted trust deed, most of these potential drawbacks can be managed.  But, let’s be radical and think the unthinkable, are there any alternatives to trusts out there?  Cue the FIC (Family Investment Company).

Thursday, 14 August 2014

Lucian Freud’s ‘secret will’

A court case over the £42 million residuary estate of the painter Lucian Freud has resulted in its true recipients remaining a closely guarded secret, despite the fact that his will was made public when it was proved at the Probate Registry.

So how was this feat achieved and, for anyone not wanting the world to know to whom they leave their wealth after death, is this a trick worth imitating?

Thursday, 31 July 2014

Carry On Giving: how to manage the CGT bill on gifts

With asset values on the rise, many of my clients’ thoughts are turning to Inheritance Tax (IHT) planning.  That can sometimes lead to thoughts about giving away assets to children in lifetime in the hope of surviving seven years.  However, it seems even the best laid IHT mitigation plans can come unstuck when Capital Gains Tax (CGT) is factored in. 

Unfortunately, gifts still count as disposals at market value for CGT purposes so, unless a relief (such as private residence relief) applies, gifts can trigger CGT and the giver may need to find extra, liquid funds, above and beyond the gift itself, to pay the resulting CGT bill. 

Thursday, 17 July 2014

‘One man, two guvnors’: appointing deputies in the Court of Protection

Since February, when the President of the Family Division and the Court of Protection issued practice guidance on the publication of Court of Protection decisions, there have been many more Court of Protection cases reported in the mainstream press. 

If publication of cases raises awareness among the general public of the benefit of planning for incapacity, that alone will make it worthwhile.  Many people are still unaware of what could happen to their assets if they become incapable of managing them or what the options are in this respect.

Thursday, 3 July 2014

Dying without a will – the hard facts

‘I really must get around to writing a will!’  I have heard that refrain from several wealthy individuals recently and it’s often easy to assume that everyone who should have a will knows that and has one.  But such assumptions are dangerous.

I am constantly surprised by who doesn’t have a will.  However, the surprise works both ways because those who haven’t made a will are usually amazed to learn from me how the intestacy rules will operate on their death if they don’t make one.

Thursday, 19 June 2014

‘Reports of my death have been greatly exaggerated’: Trusts, IHT and the Government’s proposals

In its latest consultation document of 6 June 2014, the Government proposed some radical amendments to the Inheritance Tax (IHT) system, which will affect anyone planning to set up new trusts or add to existing ones after 6 June 2014.

Thursday, 5 June 2014

Best will for……..Part 2: Married entrepreneurs

I am lucky enough to meet inspiring entrepreneurs on a regular basis in the course of my work.  Although they are busy building up successful business empires in very different sectors, they all tend to have one thing in common, though.  Their Inheritance Tax (IHT) planning is non-existent!  Yet if they knew what was at stake, their priorities might be rather different.

Thursday, 22 May 2014

Challenging times for wills

For many would-be inheritors, matters of inheritance matter!  Will Aid’s 2012 survey revealed that:
  • 60% of 18-24 year olds would use an inheritance to buy a home;
  • 48% of 35-44 year olds would repay their mortgage; and
  • 40% of 45-54 year olds would use an inheritance to provide a pension.
The reliance upon inheritances is borne out by anecdotal evidence from some of my financial adviser friends.  Adult children are factoring in their expected inheritance when assessing their future financial security and making plans.  These days, some children cannot afford not to inherit. 

Thursday, 8 May 2014

UK trustees: do you speak FATCA?

Do you know any UK resident trustees?  If so, do they realise that they need to be getting up to speed with FATCA (the Foreign Account Tax Compliance Act), even if the trust has no US citizen settlors, beneficiaries or US situated assets?!

Thursday, 24 April 2014

Changes afoot for owners of UK residences

The Government recently issued a consultation entitled ‘Implementing a capital gains tax (CGT) charge on non-residents’. Now, if you are UK resident for CGT purposes, you might have formed the view, quite reasonably, that, in view of its title, you need not add the consultation to your pile of bedtime reading. Tut tut, how could you be so silly?!

Buried deep within the consultation is a proposal which could also affect UK residents owning two or more residences. More on that below. First, here’s a quick summary of the main proposals in the consultation:
  • The Government is proposing that CGT should be extended to non residents disposing of UK residential property, starting in UK tax year 2015/2016. It is not yet clear whether the changes will apply only to gains accruing post April 2015.
  • Non resident individuals, including those owning jointly or in partnership with others, and non resident companies and trustees will be affected. The precise details of how the new CGT extension to non resident companies will mesh with their existing obligations under the Annual Tax on Enveloped Dwellings (ATED) regime are yet to be worked out.
  • Unlike ATED, there will be no minimum threshold of property value to which these changes will apply.
  • The key criterion is whether the property is used, or suitable for use, as a dwelling or residence. It need not be the owner’s main residence though. Buy-to-lets and second homes are also caught. In notable contrast to ATED, where there is relief for property rental businesses, there will be no relief for buy-to-lets. 
  • The rate of tax for individuals will be 28%. The rate for others has not been announced.
  • The tax will be collected through a combination of a withholding mechanism and self-reporting option, the former operated by professionals such as solicitors or accountants.

Thursday, 10 April 2014

ATED goes large

ATED (the UK’s Annual Tax on Enveloped Dwellings) is one of the newest taxes to hit the statute book but it became clear in this year’s Budget that, as taxes go, it is destined for even greater things in 2015 and beyond.

ATED is an annual tax, levied on non natural persons (such as companies) owning UK residential property.  Assuming one of the ATED reliefs is not available, the amount of ATED payable per annum depends upon the value of the property at the last valuation point (currently 1 April 2012) and the annual chargeable amount (ACA) for the particular ATED tax year, as the ACAs increase with the UK’s Consumer Price Index each year. 

Thursday, 27 March 2014

Do I have to accept an executorship?

A good friend (or client) of yours has sadly passed away and has named you as an executor of his Will.  What do you do now?  Must you act?

It is always flattering to be trusted with such a responsible role.  In some respects, you may feel morally obligated to act.  However, it is always worth taking some time out to think carefully about what you are taking on before you say yes; something that a solicitor can help you do, as we regularly deal with estate administrations and know what they really entail.

Thursday, 13 March 2014

Trusts and the EU’s Fourth Money Laundering Directive

It is rare for trusts to cause a rumpus.  However, the European Commission’s latest draft EU Money Laundering Directive has put trusts in the spotlight and resulted in some alarming press reports.  So what’s going on and who will be affected by the changes proposed by the Directive?

Thursday, 27 February 2014

Surplus income gifts and Inheritance Tax: are you fit for the fight?

UK Inheritance Tax (IHT) is essentially a tax on capital at death but allowing unused income to accumulate over the years, in effect turning itself into chargeable capital, can increase a person’s IHT liability.
It is a common misconception that one has to survive all gifts by seven years before the gift will be free of IHT.  Generally that tends to be true of capital gifts but not necessarily so for gifts of income.  If it is possible to show a regular pattern of gifts, made out of income that is not needed to maintain the giver’s standard of living, then the gifts may be exempt from IHT immediately. 

Thursday, 13 February 2014

Shall I compare thee to….a trust?

Novelty is usually a quality to be applauded but not necessarily in the law.  When drafting documents, the temptation is to follow the tried and tested route.  I was reminded of this recently when I was asked to clarify what type of trust had been created by a will containing the phrase ‘To my trustees on trust for my spouse absolutely’.  That magic word ‘trust’ had been used and there was reference to trustees.  Surely a trust had been created? 

Friday, 7 February 2014

The latest on pre-nups

Readers may be interested to read the following article from Teresa Cullen, our new matrimonial partner, about an important new development concerning pre-nuptial agreements.

Thursday, 30 January 2014

Having property work done – understanding the basics

Private Wealth law is my specialism but even I have to admit that tax and wills are not the be-all and end-all!  We have an enduring love affair with bricks and mortar here in the UK, so for this blog I have invited Gillian Birkby, a partner in our construction practice, to give us some quick tips of interest to anyone about to embark on a construction project. 

Thursday, 16 January 2014

What a relief!

The Chancellor’s Autumn Statement last month confirmed that capital gains tax (CGT) is to be extended to UK residential property owned by non-residents.  At the time of writing this, we are still waiting for further details in the form of a consultation document.  However, I predict that securing CGT Principal Private Residence (PPR) Relief will become a popular topic of discussion in 2014 for those non-residents who do use a UK property as a residence.  There may be no downside in their electing for the UK residence to qualify for PPR Relief, if they can.
Even for UK residents, PPR Relief should be of immense interest because it is one of the most valuable reliefs that most people are likely to take advantage of in their lifetimes.  In short, it allows people to sell their homes and not have to pay CGT on the growth accrued during their period of ownership.  So in times of rising house prices, it pays to ensure that your PPR Relief claim is rock solid.