tag:blogger.com,1999:blog-46728736460092600202023-11-15T15:40:01.830+00:00 The Wealth Lawyer UK News you can use...Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comBlogger106125tag:blogger.com,1999:blog-4672873646009260020.post-58790226164340120892017-10-16T10:08:00.003+01:002017-10-16T10:09:51.654+01:00Come on over to our new place!<br />
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<span style="color: blue; font-family: "arial" , "sans-serif"; font-size: 10pt;"><span style="color: black;">Wealth Lawyer UK has a brand new website and a fresh new
look. Click </span><a href="https://www.wealthlawyeruk.com/"><span style="color: blue;">here</span></a><span style="color: black;"> for a link
to the new site, now hosted on Fladgate’s website. </span></span></div>
<span style="color: black;">
</span><br />
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "arial" , "sans-serif"; font-size: 10pt;"><span style="color: black;"><span style="color: black;"><span style="color: blue; font-family: "arial" , "sans-serif"; font-size: 10pt;"><span style="color: black;">We’ve also made it even easier to get your fortnightly fix on
developments in the legal Private Wealth world. Just register your
interest on the new website and blogs will be emailed direct to your inbox as
they appear – it couldn’t be easier.</span> </span></span></span></span></div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-17328559463407162962017-10-05T08:21:00.002+01:002017-10-05T08:21:45.294+01:00UK tax legislation update: taxation of non-doms<br />
<div style="margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: "arial" , "sans-serif"; font-size: 10pt; line-height: 115%;">Over
the past couple of years, the Government has placed non-doms on notice of its
intention to change the way in which they and their offshore trusts are taxed
for UK tax purposes.<span style="mso-spacerun: yes;"> </span>Now finally all previously
trailed provisions have been reintroduced into draft legislation, so here is a
brief reminder of the main provisions affecting the personal taxation of
non-doms, with some practical pointers.<span style="mso-spacerun: yes;">
</span>All of the following measures can be found in the Finance (No.2) Bill
2017:</span><a name='more'></a><span style="font-family: "arial" , "sans-serif"; font-size: 10pt; line-height: 115%;"><span style="background-color: white;"></span></span><br /></div>
<br />
<ul>
<li style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; font-style: normal; font-weight: normal;"><div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; line-height: 13pt; margin-bottom: 6pt; margin-top: 6pt; mso-add-space: auto; mso-list: l1 level1 lfo1; text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;">Deemed domicile status</span></i><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;">: once a non-dom
individual has been resident in the UK for 15 out of the previous 20 UK income
tax years, the individual will no longer be able to claim the UK’s favourable
remittance basis of taxation from the individual’s 16th year of residency.<span style="mso-spacerun: yes;"> </span>This is confirmed to take effect from 6
April 2017.<span style="mso-spacerun: yes;"> </span>When a deemed domiciled
individual is UK resident, worldwide income and gains will be subject to UK tax.<span style="mso-spacerun: yes;"> </span>Worldwide free estate becomes subject to
Inheritance Tax, unless a double tax convention applies.
</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; font-style: normal; font-weight: normal;"><div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; line-height: 13pt; margin-bottom: 6pt; margin-top: 6pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;">Formerly domiciled resident individuals</span></i><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;">:<span style="mso-spacerun: yes;"> </span>individuals born in the UK with
a UK domicile of origin but who leave the UK and acquire a foreign domicile of
choice will not be eligible for the remittance basis of taxation if the
individual becomes UK tax resident on their return to the UK from tax year
2017/2018 or later, but will have a one year grace period before becoming
exposed to Inheritance Tax on their worldwide assets.<span style="mso-spacerun: yes;"> </span>In addition, none of the tax protections for
existing offshore trusts will apply and existing trusts will lose Inheritance
Tax excluded property status in the individual’s second year of tax
residency.<span style="mso-spacerun: yes;"> </span>Rebasing and mixed fund
cleansing (see below) are not available.</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; font-style: normal; font-weight: normal;"><div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; line-height: 13pt; margin-bottom: 6pt; margin-top: 6pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-align: justify;">
<span style="font-family: "arial" , "sans-serif"; font-size: 10pt;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;">Trust protections</span></i><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;">: existing offshore trusts of
settlors who become deemed UK domiciled will be able to roll up foreign income
and gains tax free inside their offshore trusts, provided the trust is not
‘tainted’ by additions after deemed domiciled status commences and while no
capital payments or benefits are received.<span style="mso-spacerun: yes;">
</span>These trusts also continue to offer IHT protection.<span style="mso-spacerun: yes;"> </span>Once tainted, trust protections are lost for
good.<span style="mso-spacerun: yes;"> </span>There appears to be no <i style="mso-bidi-font-style: normal;">de minimis</i> so be particularly careful
here.</span></span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; font-style: normal; font-weight: normal;"><div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; line-height: 13pt; margin-bottom: 6pt; margin-top: 6pt; mso-add-space: auto; mso-list: l0 level1 lfo2; text-align: justify;">
<span style="font-family: "arial" , "sans-serif"; font-size: 10pt;"><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;">Rebasing opportunity for newly deemed domiciled individuals</span></i><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;">: provided qualifying conditions are met, non-dom individuals who become
deemed domiciled on 6 April 2017 under the new rules will be able to dispose of
foreign situated assets pregnant with pre 6 April 2017 gains and only pay UK
Capital Gains Tax on gains accruing in the period on or after 6 April 2017 to
date of disposal.<span style="mso-spacerun: yes;"> </span>Note that this is not
a relief from the tax consequences of remitting the sale proceeds to the
UK.<span style="mso-spacerun: yes;"> </span>Disposals must take place when the
qualifying individual is deemed domiciled - this should not be treated as an
open ended opportunity, therefore.</span></span></span></div>
<li style="color: black; font-family: "Arial","sans-serif"; font-size: 10pt; font-style: normal; font-weight: normal;"><div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; margin-bottom: 1em; margin-top: 1em; mso-add-space: auto; text-align: justify;">
<span style="font-family: "arial" , "sans-serif"; font-size: 10pt;"><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;"><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;"><i style="mso-bidi-font-style: normal;"><span style="font-family: "arial" , "sans-serif"; font-size: 10pt; line-height: 115%;">Mixed
fund cleansing for all non-doms</span></i><span style="font-family: "arial" , "sans-serif"; font-size: 10pt; line-height: 115%;">: a
two year window starting on 6 April 2017 in which non-doms can segregate money
in mixed fund accounts by transferring the income and capital gain element to
another <u>offshore</u> account, enabling them to remit the clean capital
element left behind in the original account without a UK tax charge.<span style="mso-spacerun: yes;"> </span>Some uncertainty around the finer points of
this opportunity remains.<span style="mso-spacerun: yes;"> </span>Further
guidance from HMRC is (over)due.<span style="mso-spacerun: yes;">
</span>However, use this period to start examining account composition.</span></span></span></span></div>
<span style="font-family: "arial" , "sans-serif"; font-size: 10pt;"><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;"><span style="font-family: "arial" , "sans-serif"; font-size: 10pt;"><br /></span></span></span></li>
<div style="color: black; font-family: Times New Roman; font-size: 12pt; font-style: normal; font-weight: normal; margin-bottom: 1em; margin-top: 1em; mso-add-space: auto; text-align: justify;">
</div>
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<span style="font-family: "arial" , "sans-serif"; font-size: 10pt;"><br /></span></div>
<br /><br />
<br />
</li>
</ul>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-74647981055102958182017-09-21T11:54:00.003+01:002017-09-21T11:54:33.752+01:00Can you disinherit your children if you want to?
<br />
<div style="line-height: 150%; margin: 6pt 0cm 10pt;">
<span style="mso-bidi-font-family: Arial;"><span style="font-family: Arial;">You may recall that, a couple of years ago,
the English press was full of reports of the Will case of <i style="mso-bidi-font-style: normal;">Ilott</i> v <i style="mso-bidi-font-style: normal;">Mitson</i>.
(For some background on the case, see my </span></span><a href="http://wealthlawyeruk.blogspot.co.uk/2015/08/nearest-but-not-necessarily-dearest.html"><span style="mso-bidi-font-family: Arial;"><span style="color: blue; font-family: Arial;">2015</span></span></a><span style="mso-bidi-font-family: Arial;"><span style="font-family: Arial;"> and </span></span><a href="http://wealthlawyeruk.blogspot.co.uk/2017/03/ilott-v-mitson-supreme-court-decision.html"><span style="mso-bidi-font-family: Arial;"><span style="color: blue; font-family: Arial;">2017</span></span></a><span style="mso-bidi-font-family: Arial;"><span style="font-family: Arial;"> blogs about it.) </span></span></div>
<br />
<div style="line-height: 150%; margin: 6pt 0cm 10pt;">
<span style="mso-bidi-font-family: Arial;"><span style="font-family: Arial;">The case was of interest to any testator who
is considering cutting out children from their Will. However the Ilott
case has now been applied in the more recent case of <i style="mso-bidi-font-style: normal;">Nahajec</i> v <i style="mso-bidi-font-style: normal;">Fowle</i> [2017] EW
Misc 11 (CC), in which another impecunious child applied to the court and was
successful in obtaining provision from her father’s estate, contrary to her
father’s express wish that she should receive nothing. So what can the <i style="mso-bidi-font-style: normal;">Nahajec</i> case teach us about whether it
is possible, even, for parents to successfully exclude adult children from
receiving any inheritance from them?</span></span><a name='more'></a><span style="mso-bidi-font-family: Arial;"><span style="font-family: Arial;">Under the Inheritance (Provision for Family
and Dependants) Act 1975, children may apply to court for such provision as
‘would be reasonable in all the circumstances of the case for the applicant to
receive for his maintenance’, which case law has determined means ‘provision to
meet the everyday expenses of living’ and can extend to the payment of a
child’s debts. A successful application to court can result in the terms
of the deceased’s Will being overridden, if ‘looked at objectively, his
disposition or lack of disposition produces an unreasonable result in that it
does not make any, or any greater, provision for the applicant’.<span style="mso-spacerun: yes;"> </span>The test is not one of whether the deceased acted
unreasonably. The assessment of whether reasonable provision has been
made is to be carried out by the court objectively but, in doing so, it must
have regard to a number of factors set out in statute. The deceased’s
wishes are not expressly stated as one of them but the court can have regard to
‘any other matter, including the conduct of the applicant or any other person,
which in the circumstances of the case the court may consider relevant’.</span></span><br />
<br />
<div style="line-height: 150%; margin: 6pt 0cm 10pt;">
<span style="mso-bidi-font-family: Arial;"><span style="font-family: Arial;">In this case, Stanley Nahajec had not been
in recent contact with any of his three children at the date of his
death. He had two sons from his first marriage and a daughter from a
later relationship. He left his £266,000 estate to a long-standing
friend, who himself was in some financial difficulty. By the time the
case went to court, one son, who was prevented from working due to disability
and ill health, had applied to the court for maintenance from the estate and
had been paid £22,000 (it is not clear whether this was a settlement negotiated
before the matter went to court, or a judgment). The other had chosen not
to claim and therefore this case concerned the 31 year old daughter who,
despite a recent health scare, was in low paid employment. However,
she had fallen into significant debt. </span></span></div>
<br />
<div style="line-height: 150%; margin: 6pt 0cm 10pt;">
<span style="mso-bidi-font-family: Arial;"><span style="font-family: Arial;">In a letter of wishes accompanying his Will,
the deceased explained that he was estranged from his children but he thought
that all his children were ‘sufficiently independent of means not to require
any provision’ and therefore it was not appropriate or necessary to make
provision for them. In his lifetime, the deceased was in the habit of
putting the phone down on his daughter when she tried to contact him and gave
her no financial assistance. </span></span></div>
<br />
<div style="line-height: 150%; margin: 6pt 0cm 10pt;">
<span style="mso-bidi-font-family: Arial;"><span style="font-family: Arial;">The statute’s requirement for objective
financial provision for maintenance seems difficult to overcome in the case of
children in straitened financial circumstances. The wishes of the
deceased are not the last word on the matter. The financial resources,
financial needs and conduct of any applicant, and of the estate’s beneficiaries
named in any Will or under the intestacy rules, are relevant to the court’s
determination. While a testator can choose the extent to which contact or
assistance is given by him in his lifetime, he cannot completely control the
financial circumstances of his children, of course. For that reason
alone, the <i style="mso-bidi-font-style: normal;">Nahajec</i> case underlines,
once again, that there is no concept of unfettered testamentary freedom under
English law and it is not possible to guarantee the outcome of any application
to court by a child of the deceased unless, perhaps, the child is an adult and clearly
standing financially on his own two feet. </span></span></div>
<br />
<div style="line-height: 150%; margin: 6pt 0cm; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;">
<span style="mso-bidi-font-family: Arial;"><span style="font-family: Arial;">So is there anything
that can be done? It is not possible to oust the jurisdiction of the
court to prevent children applying to claim for provision. Testators
might consider making provision for a life interest for a child, to provide the
child with income for maintenance, whilst preserving the capital required to
support the life interest in trust for the preferred heir, after the child’s
death. Alternatively, in anticipation of a capitalised maintenance award,
as occurred in the <i style="mso-bidi-font-style: normal;">Nahajec</i> case, a
life policy written in trust could be taken out to provide a capital sum to be
used to pay off the child. Testators should also be aware that if there
is a need to obtain a grant of probate after death, the value of the testator’s
estate becomes public knowledge and may encourage children to apply.
However, with careful planning it is not always necessary to obtain a grant
after death.</span></span></div>
</div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-65628032156059643292017-09-07T12:04:00.003+01:002017-09-07T12:04:31.535+01:00IHT Residence Nil Rate Band: depending on downsizing?<span style="color: black; font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;"></span><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";">HMRC have published new guidance
covering the downsizing provisions of the Residence Nil Rate Band (<b style="mso-bidi-font-weight: normal;">RNRB</b>) (click </span><a href="https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold"><span style="font-family: "Arial","sans-serif";"><span style="color: blue;">here</span></span></a><span style="color: black; font-family: "Arial","sans-serif";"> for a
link to it).<span style="mso-spacerun: yes;"> </span>This will be of interest to
advisers looking for a relatively straightforward introduction to this aspect
of the RNRB which may be suitable for forwarding on to clients. </span></div>
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";"> </span></div>
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";">Whenever individuals interested
in their IHT planning downsize, gift or sell a property, the impact on the
availability of the RNRB should be considered.</span><a name='more'></a><br />
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";">The RNRB offers individuals who
have an estate worth £2,000,000 or less (or who carry out planning in their
lifetime to ensure that their estate falls below this figure on death),
survived by certain family members (lineal descendants only), the opportunity
to transfer a further sum free of Inheritance Tax (<b style="mso-bidi-font-weight: normal;">IHT</b>) on death, in addition to the IHT Nil Rate Band (<b style="mso-bidi-font-weight: normal;">NRB</b>).<span style="mso-spacerun: yes;">
</span>Currently a fully available RNRB and NRB would allow an individual to
transfer up to £425,000 free of IHT to his heirs on death, although this figure
will rise to £500,000 if death occurs after 6 April 2020.<span style="mso-spacerun: yes;"> </span>The RNRB must be claimed by the individual’s
personal representatives within two years of the end of the month of death. </span></div>
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";"> </span></div>
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";">The RNRB usually requires lineal
descendants to inherit a qualifying residential property on the individual’s
death.<span style="mso-spacerun: yes;"> </span>However, all is not necessarily
lost if the individual sells or gives away a residence, or downsizes to a less
valuable residence before they die.<span style="mso-spacerun: yes;"> </span>All
of the following conditions must apply for the ‘downsizing addition’ to be
available:</span></div>
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<ul style="direction: ltr; list-style-type: disc;">
<li style="color: black; font-style: normal; font-weight: normal;"><div style="color: black; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-list: l0 level1 lfo1; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";">the individual sold, gave away or downsized to a less valuable
residence on or after 8 July 2015;</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-list: l0 level1 lfo1; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";">the former residence would have qualified for the RNRB if it had
been retained until death; and</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-list: l0 level1 lfo1; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";">lineal descendants must inherit at least some of the estate.</span></div>
</li>
</ul>
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";">The downsizing addition aims to
put individuals in the same position that they would have been in under the
RNRB, if they owned a residence, or a more valuable one, which they disposed of
before their death but after the cut off date of 8 July 2015 (Budget Day).<span style="mso-spacerun: yes;"> </span></span></div>
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";"> </span></div>
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";">However, HMRC’s guidance states
that its availability ‘will also depend on the value of the other assets left
to direct descendants’.<span style="mso-spacerun: yes;"> </span>It’s important
to make sure, therefore, that assets of a value at least equivalent to the
available downsizing addition are left to lineal descendants.<span style="mso-spacerun: yes;"> </span>If this does not happen, some or all of the
downsizing addition may be lost.<span style="mso-spacerun: yes;">
</span>Remember that the downsizing addition can be increased by a transferable
element if the deceased was married.<span style="mso-spacerun: yes;">
</span>Particular care is needed if an individual downsizes to a smaller
property and intends to leave it to someone other than a lineal descendant on
death.<span style="mso-spacerun: yes;"> </span></span></div>
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";"> </span></div>
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";">It may be possible to use a deed
of variation within two years of a death occurring to ‘rescue’ any downsizing
addition that might otherwise be lost.<span style="mso-spacerun: yes;">
</span>However, only adults of full capacity can enter into deeds of variation
so they should not be relied upon as a planning strategy!<span style="mso-spacerun: yes;"> </span>Ensuring that the Will is correctly drawn to
capture any available downsizing addition is far more preferable. </span></div>
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span></div>
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif";"> </span></div>
<div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;">
<span style="font-family: Times New Roman;">
</span><span style="color: black; font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">Worked examples of
downsizing calculations can be found in HMRC’s guidance and in the dedicated
section of their IHT Manual, </span><span style="font-family: "Calibri","sans-serif"; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><a href="https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm46057"><span style="font-family: "Arial","sans-serif";"><span style="color: blue;">here</span></span></a></span><span style="color: black; font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">.<span style="mso-spacerun: yes;"> </span>They are helpful but only serve to
demonstrate just how complex the new rules are!</span></div>
<ul style="direction: ltr; list-style-type: disc;"></ul>
<div style="line-height: 150%; margin: 0cm 0cm 0pt; text-align: justify;">
<br /></div>
</div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-71010190738134947792017-07-27T10:11:00.002+01:002017-07-27T10:11:34.089+01:00Inheritance Tax planning for business owners is often overlooked
<br />
<div style="line-height: 115%; margin: 6pt 0cm 10pt;">
<span style="font-family: Arial;">When it comes
to selling up or transferring on a business to the next generation, entrepreneurs
and family business owners are usually encouraged to take measures to reduce
the level of Capital Gains Tax payable on the disposal of the business.
Far fewer entrepreneurs are advised to consider their Inheritance Tax (<b style="mso-bidi-font-weight: normal;">IHT</b>) planning, though, and yet failure
to consider the IHT aspects of a sale can cost families dearly in the long
term, when 40% IHT is levied on the proceeds of the business sale in due
course.</span><a name='more'></a><span style="font-family: Arial;">Many think of
IHT as a tax which only afflicts family wealth if the business owner is still
holding the proceeds of the business sale on their death. However, IHT is
a complex tax, affecting lifetime gifts as well as assets held on death.
Successful IHT planning is not just about being caught with the proceeds ‘when
the music stops’ (i.e. on death!). It is not the tax equivalent of a game
of musical chairs! </span><br />
<br />
<div style="line-height: 115%; margin: 6pt 0cm 10pt;">
<span style="font-family: Arial;">Successful IHT
planning for business owners starts pre-sale, with a proper evaluation of
whether any part of the value attributable to what is being sold qualifies for
IHT Business Property Relief (<b style="mso-bidi-font-weight: normal;">BPR</b>).
Simply put, this generous IHT relief can be used to allow an interest in a
qualifying trading business/partnership or unquoted shares in a trading company
to be transferred to the next generation completely free of IHT. As the
2009 <i>Nelson Dance</i> case demonstrated, BPR doesn’t just apply to the sale
of a qualifying business either – it can apply to the sale of assets used in a
qualifying business as well. The effect of the relief is to reduce the
value for IHT purposes of what might otherwise be a chargeable transfer for
IHT. At its most generous extent, any IHT that would otherwise be payable
on a transfer of a qualifying interest or qualifying assets is entirely
relieved. With careful planning, it does not matter if the business owner
fails to survive the transfer by the usual seven year period that is needed for
the purposes of IHT.</span></div>
<br />
<div style="line-height: 115%; margin: 6pt 0cm 10pt;">
<span style="font-family: Arial;">If there would
be concerns about transferring a business to the next generation outright,
transferring the business into a structure for the next generation’s benefit is
possible too, if the business owner wishes to retain control of the business
and yet still be treated as having made a gift for IHT purposes. However,
if a trust is to be used, it is imperative that pre-sale planning is carried
out because, unless BPR qualifying assets are placed into the trust, the amount
of value that can be put into the trust is limited to the available IHT ‘Nil
Rate Band’ – currently £325,000. The following example highlights this
important but often overlooked planning point:</span></div>
<br />
<div style="line-height: 115%; margin: 6pt 0cm 10pt;">
<i><span style="font-family: Arial;">Richard has
built up a successful business in the IT sector over the past decade. He
is now ready to sell to a private equity fund. Part of the deal involves
Richard selling his shares for £5 million. He has two teenage children
and pays for their private education. In due course he wants to fund them
through university and pay for their first homes. He thinks he will need
a fund of £3 million to do that. The shares qualify for 100% BPR. </span></i></div>
<br />
<div style="line-height: 115%; margin: 6pt 0cm 10pt;">
<i><span style="font-family: Arial;">If he puts £3
million of shares into a trust for his children (with a carefully drafted
trust, he can still retain control of them during the sale process), on an
eventual sale, the trustees will then hold £3 million of the sale proceeds in
the trust. Richard will have got £3 million of value into the trust
without having to pay any IHT upfront. </span></i></div>
<br />
<div style="line-height: 115%; margin: 6pt 0cm 10pt;">
<i><span style="font-family: Arial;">However, if
Richard allows the sale to go through and only then thinks about putting £3
million of the sale proceeds into trust, he will have an immediate IHT charge
of at least £535,000, as lifetime transfers to virtually every kind of trust
give rise to an immediate charge to IHT at a rate of 20%. Richard can put,
at most, £325,000 of the sale proceeds into trust for his children.
</span></i></div>
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">There are other taxes
to consider but the above example illustrates the IHT point. An unlimited
amount of assets qualifying for IHT BPR can be put into a trust. However,
leave it until after the sale and business owners can only put £325,000 of cash
sale proceeds into trust (or £650,000 at most for married couples), as cash
does not qualify for BPR. It may be possible for Richard to carry out some
remedial IHT planning post-sale but it is not ideal. Business owners miss
pre-sale IHT planning opportunities at their cost.</span><br />
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><br /></span><br />
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><em><span style="font-size: x-small;">Wealth Lawyer UK takes its annual summer break in August and will return on Thursday 7 September. Happy holidays to all readers near and far!</span></em> </span></div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-66168695363629235252017-07-13T08:10:00.002+01:002017-07-13T08:10:44.714+01:00UK beneficial ownership registers: now it’s your turn, trustees
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">On 26 June 2017, the UK Government introduced a beneficial ownership
register for trusts for the first time, in response to its need to comply with
the EU’s 4th Anti-Money Laundering Directive.<span style="mso-spacerun: yes;">
</span>Which trusts will be affected and what will trustees have to do?</span><a name='more'></a><br />
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">The changes, contained in UK Regulations, affect both UK and non-UK
trusts.<span style="mso-spacerun: yes;"> </span>A UK trust is defined as either
one where all the trustees are resident in the UK or where there is at least one
UK resident trustee and the settlor was resident and domiciled in the UK either
when the trust was set up or when funds are added to it.<span style="mso-spacerun: yes;"> </span>Residency means tax resident for UK tax purposes.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">A non-UK trust, defined as any trust which is not a UK trust, will have
to comply with the Regulations if it receives income from a source in the UK or
has assets in the UK on which it is liable to pay certain UK taxes – Income Tax,
Capital Gains Tax, Inheritance Tax, SDLT or Scottish LBTT, and SDRT. </span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">The trustees of affected trusts have three core obligations under the
new Regulations:</span></div>
<br />
<ul style="direction: ltr; list-style-type: disc;">
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-list: l1 level1 lfo1;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">Keep accurate and up-to-date records of all beneficial
owners and potential beneficiaries referred to ‘in a document from the settlor
relating to the trust such as a letter of wishes’. <span style="mso-spacerun: yes;"> </span>Paid professional trustees must retain these
records for five years after the date on which the final distribution is made
from the trust.</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-list: l1 level1 lfo1;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">When dealing with the likes of financial institutions,
lawyers, accountants and estate agents, trustees must identify themselves as
trustees and provide beneficial ownership information to them, updating that
information during the course of the relationship if necessary.</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-list: l1 level1 lfo1;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">Trustees who are liable for any of the UK taxes
mentioned above are also obliged to provide information about the beneficial
owners of the trust and potential beneficiaries to HMRC and, on request, to
other defined law enforcement agencies, which include the Financial Conduct
Authority in addition to the Police.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></span></div>
</li>
</ul>
<div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-list: l1 level1 lfo1;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;"><span style="mso-spacerun: yes;"></span></span><span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">A ‘beneficial owner’ of a trust includes the settlor, trustees,
beneficiaries (or where not all of the individuals benefitting from the trust
have been determined, the class of persons in whose main interest the trust is
set up or operates), and any individual who has ‘control’ over the trust, which
is defined in the Regulations and would include a protector or someone with the
power to appoint or remove trustees or beneficiaries.<span style="mso-spacerun: yes;"> </span></span></div>
<div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">HMRC is required to maintain a register of beneficial owners and potential beneficiaries of taxable trusts.<span style="mso-spacerun: yes;"> </span>It seems the register will not be made public.</span></div>
<div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">For existing trusts which are taxable, information must be provided to HMRC on or before 31 January 2018.<span style="mso-spacerun: yes;"> </span>Trusts set up after this date would have until 31 January following the tax year in which they are first liable to pay UK taxes to report beneficial ownership information to HMRC.<span style="mso-spacerun: yes;"> </span>So a trust set up on 1 November 2018 which will be liable to pay UK tax will have until 31 January 2020 to provide beneficial ownership information to HMRC.<span style="mso-spacerun: yes;"> </span></span></div>
<div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">It is not entirely clear from the Regulations whether trustees only need to report to HMRC in respect of a tax year in which they were liable to pay UK taxes or whether, once a report for a tax year has had to be made, the trustees are obliged to continue to report thereafter.<span style="mso-spacerun: yes;"> </span>In the absence of any guidance from HMRC at present, it seems that if, for example, the only asset of a trust is a property occupied by a beneficiary rent free, the trustees will not have any UK tax liability and therefore any obligation to report beneficial ownership information to HMRC, but will still have an obligation under UK law to keep beneficial ownership information and provide it when dealing with certain professionals.<span style="mso-spacerun: yes;"> </span>However in the year in which the trustees disposed of that property, triggering a liability to Capital Gains Tax, beneficial ownership information would also have to be provided to HMRC by 31 January after the end of the tax year in which the tax liability arose.<span style="mso-spacerun: yes;"> </span></span></div>
<div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">The information that the trustees will need to give to HMRC is extensive, as follows:</span></div>
<br />
<ul>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-list: l0 level1 lfo2;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">name of the trust;</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-list: l0 level1 lfo2;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">date on which the trust was set up;</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-list: l0 level1 lfo2;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">a statement of account describing the trust assets,
including the address of any real estate held by the trust, and identifying the
value of each category of the trust assets at the date of the first report;</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-list: l0 level1 lfo2;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">the country of tax residency of the trust;</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-list: l0 level1 lfo2;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">the place of administration of the trust;</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-list: l0 level1 lfo2;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">contact details for the trustees;</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-list: l0 level1 lfo2;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">names of advisers who are paid to provide legal,
financial or tax advice to the trustees in connection with the trust;</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-list: l0 level1 lfo2;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">details of the trust’s beneficial owners, including an
individual beneficiary’s full name, date of birth, their role in relation to the
trust and UK national insurance or tax reference number or, if none, usual
residential address and, if that address is outside the UK, the individual’s passport
or ID card details or equivalent form of identification.<span style="mso-spacerun: yes;"> </span>Separate requirements apply to beneficiaries
who are legal entities.<span style="mso-spacerun: yes;"> </span>If the
beneficial owners include a class of beneficiaries, not all of whom have been
determined, it will suffice if a description of the class is given instead. <span style="mso-spacerun: yes;"> </span></span></div>
</li>
</ul>
<div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">HMRC has now published a link to its new Trusts Online Service, through which new trusts can obtain a trust tax reference number (replacing the paper Form 41G) and at the same time provide their beneficial ownership information.<span style="mso-spacerun: yes;"> </span>Existing trusts with a UK tax liability also need to register with the Service to provide their beneficial ownership information.<span style="mso-spacerun: yes;"> </span>Only trustees or their advisers with a Government Gateway account can access the online link.<span style="mso-spacerun: yes;"> </span></span></div>
<div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">The legislation expressly provides that trustees cannot be made liable for making disclosures in accordance with their obligations under the Regulations but this is unlikely to provide comfort to trustees whose trusts are governed by non-UK law.<span style="mso-spacerun: yes;"> </span>Trustees will want to be clear about the extent of their regulatory obligations to be sure that they are not exposed to claims of breach of confidentiality by their beneficiaries.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></span></div>
<div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">Personal representatives of complex estates, meaning estates worth in excess of £2.5 million or where the tax due for the entire administration period exceeds £10,000, or if the value of assets sold in any tax year exceeds a certain threshold (£500,000 for deaths after April 2016), will also have similar reporting obligations to those of trustees. </span></div>
<div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm;">
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB;">The information needed is extensive and, for existing trusts liable to UK tax in the current tax year, the deadline to provide information to HMRC will be 31 January 2018.<span style="mso-spacerun: yes;"> </span>However the obligation on trustees to maintain written records appears to have come into force on 26 June!<span style="mso-spacerun: yes;"> </span>Trustees who need to engage financial or professional advice from now on will need to provide beneficial ownership information.<span style="mso-spacerun: yes;"> </span>Therefore trustees should be taking steps now to collate beneficial ownership information and, if the trustees are liable to UK taxes, consider obtaining valuations of trust assets to provide HMRC with the required statement of account.<span style="mso-spacerun: yes;"> </span>Trustees may also consider asking settlors to review their letters of wishes.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></span></div>
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">What sanction is there likely to be for trustees who are non-compliant, particularly for non-UK trusts outside of the UK jurisdiction?<span style="mso-spacerun: yes;"> </span>Failure to comply with UK money laundering requirements is a criminal offence under the Regulations but, on a more practical level, the trustees’ UK accountants, lawyers, investment managers and letting agents are unlikely to feel able to do business with non-compliant trustees after January 2018.</span></div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-1545638923137829182017-06-29T08:58:00.001+01:002017-07-03T08:04:25.992+01:00Who owns the equity? Investment property ownership when relationships break down<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: "calibri";">The thorny issue of a
couple’s beneficial interests in a jointly owned property following
relationship breakdown has once again been examined by the court, this time
relating to a Privy Council decision on appeal from the Bahamian Court of
Appeal.<span style="mso-spacerun: yes;"> </span>The case concerned the
relationship between Mr Marr and Mr Collie, who together had jointly purchased
several properties over the years in the Bahamas during their 17 year relationship.</span></span><a name='more'></a><span style="mso-ansi-language: EN-GB;"><span style="font-family: "calibri";">The last major
decision on this point came out of the 2007 English case of<i style="mso-bidi-font-style: normal;"> Stack</i> v <i style="mso-bidi-font-style: normal;">Dowden</i>.<span style="mso-spacerun: yes;"> </span>It confirmed the principle that, in domestic
situations, ‘the starting point where there is joint legal ownership is joint
beneficial ownership...unless and until the contrary is proved’.<span style="mso-spacerun: yes;"> </span>To reach a different outcome, there needed to
be evidence that the parties shared a common intention that the beneficial
ownership should be held unequally.<span style="mso-spacerun: yes;"> </span>The
intention need not be expressly stated by either of the parties – inferences
from conduct and conversations throughout the relationship would be relevant.<span style="mso-spacerun: yes;"> </span>This mode of analysis was to be preferred to the
legal principle of a presumption of a resulting trust, where joint owners of
property hold the entire beneficial interest on trust for whichever of them pays
the purchase price, if only one of them had paid for it.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></span></span><br /></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "calibri";"><i style="mso-bidi-font-style: normal;"><span style="mso-ansi-language: EN-GB;">Stack</span></i><span style="mso-ansi-language: EN-GB;"> concerned the beneficial ownership of a home.<span style="mso-spacerun: yes;"> </span>However, in the <i style="mso-bidi-font-style: normal;">Marr</i> case, the relationship was both personal and commercial.<span style="mso-spacerun: yes;"> </span>Mr Marr had funded the purchase of a home
for him and Mr Collie but there were other residential properties, purchased as
investments.<span style="mso-spacerun: yes;"> </span>Although the facts were
disputed between the parties, Mr Marr, a banker, used his own funds to pay the
deposit and serviced any debt associated with their purchase, while Mr Collie provided
his building skills.<span style="mso-spacerun: yes;"> </span>No declaration of
trust existed setting out how the equity was owned by the two parties.<span style="mso-spacerun: yes;"> </span>Did the reasoning in <i style="mso-bidi-font-style: normal;">Stack</i> apply only to ‘the purely domestic setting’?<span style="mso-spacerun: yes;"> </span>The court in <i style="mso-bidi-font-style: normal;">Marr</i> said no.</span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: "calibri";">The <i style="mso-bidi-font-style: normal;">Marr</i> case is authority for extending the
<i style="mso-bidi-font-style: normal;">Stack</i> approach to jointly acquired
investment property, where there is an element of commercial endeavour as well
as a personal relationship.<span style="mso-spacerun: yes;"> </span>The
intention of the parties is still critical where a property is bought in the
joint names of a cohabiting couple, even if the purchase is for pure investment.
<span style="mso-spacerun: yes;"> </span>Putting a property into joint names is
evidence of intention but not conclusive evidence.<span style="mso-spacerun: yes;"> </span>Purely commercial transactions, where there
is no intention to derive any mutual benefit, continue to fall outside the<i style="mso-bidi-font-style: normal;"> Stack</i> common intention analysis.<span style="mso-spacerun: yes;"> </span>The case also extends the <i style="mso-bidi-font-style: normal;">Stack</i> analysis to a wide range of
jointly owned assets, in this case including a car, boat and artwork.</span></span></div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-41456457289825225332017-06-15T09:10:00.000+01:002017-06-16T08:42:52.588+01:00Will we have a UK public register for offshore entities owning UK property?<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "calibri";">The UK may become the first country to introduce a
beneficial ownership register for overseas companies and other legal entities owning
UK property (of any kind) or who wish to procure UK Government work. </span><a name='more'></a><br /></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "calibri";">According to the Government’s April 2017 ‘Call for Evidence’
publication, the register will be modelled on the existing UK Persons of
Significant Control (<b style="mso-bidi-font-weight: normal;">PSC</b>) register for
companies, with the information publicly available at Companies House. </span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "calibri";">Currently the legal ownership of registered UK properties is
publicly displayed at the Land Registry.<span style="mso-spacerun: yes;">
</span>Where a UK company owns a property, the company’s name is recorded on
the title of the property and so the PSC register shows who ultimately owns the
UK company.<span style="mso-spacerun: yes;"> </span>The Government faces the difficulty
of providing helpful transparency for tenants and neighbours while ensuring
that the obligations are not so onerous that they discourage overseas investment
in the UK.</span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "calibri";">The Government is proposing that any company which currently
owns a UK property, or wishes to purchase one, applies to Companies House with
information about each beneficial owner which mirrors that currently requested
under the PSC (name, date of birth, address, nationality and the nature of
their interest), unless the beneficial owner is an entity that reports its
beneficial ownership on another public register. <span style="mso-spacerun: yes;"> </span>Privacy exemptions will be considered where
the beneficial owner is a person of interest or may be at risk of violence or
intimidation. The company will then receive a registration number.<span style="mso-spacerun: yes;"> </span>Without this number, the Land Registry will
not transfer legal title or create a long leasehold interest.<span style="mso-spacerun: yes;"> </span>Potentially a contract for purchase or sale
could be voided.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "calibri";">The need to provide information will not be a one-off
exercise.<span style="mso-spacerun: yes;"> </span>Each company will have to
update their records every two years in order to maintain their registration
number. The Government may make failure to maintain the register a criminal
offence. <span style="mso-spacerun: yes;"> </span>Offshore entities already
owning UK property will have 12 months to obtain a registration number.</span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "calibri";">Concerns have been raised about the impact that this may
have on a buyer’s or seller’s willingness to deal with an offshore
company.<span style="mso-spacerun: yes;"> </span>As well as the risk of a voided
transfer, a seller may end up acting as a trustee for an offshore company buyer
post completion.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>Lenders may find themselves unable to sell the
property to redeem their charge, if the registered owner is an offshore company
which has not complied with its requirements under the register.<span style="mso-spacerun: yes;"> </span>It seems inevitable that requesting proof
that the offshore company has the registration number will form part of the
pre-exchange enquiries. <span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "calibri";">Not only will the directors of an offshore company need to
compile information about the beneficial owners, they must also confirm this
information with those owners.<span style="mso-spacerun: yes;"> </span>Is the
solution that an offshore company should provide this information to Companies
House in advance of purchasing a UK property, so that it is ready to proceed
with no delay once it has found one?<span style="mso-spacerun: yes;"> </span>This
would seem to require an offshore company to provide information to the Government
before it even has any interest in the UK!</span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "calibri";">From the Government’s consultation, it seems that it is
aware of many of these issues and intends to deal with them.<span style="mso-spacerun: yes;"> </span>The consultation closed in mid May and so we
must now wait for the outcome to see how workable the Government’s solutions
will be.<span style="mso-spacerun: yes;"> </span></span></div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-52481483654934394772017-06-01T08:14:00.000+01:002017-06-01T08:15:30.745+01:00To Airbnb or not to Airbnb?<span style="font-size: small;"><span style="font-family: "arial" , "helvetica" , sans-serif; font-size: small;">This week, I have a guest post from my colleague Grace Laws in our Property team, with her advice on the legal dos and don'ts of Airbnb letting:</span></span><span style="font-family: "arial"; font-size: xx-small;"><br /></span><br />
<span style="font-family: "arial"; font-size: xx-small;"><br />
</span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Airbnb has become known as the
world’s largest accommodation provider but it owns no property. It gives
property owners an opportunity to let their properties out on a short-term
basis with relative ease and gives consumers an opportunity to stay in a home
and ‘live like a local’ in their location of choice. As a result of this it has
become well known in recent years and is used frequently by many.</span></span></div>
<span style="font-family: "arial"; font-size: x-small;">
<span style="font-family: "times new roman"; font-size: small;">
</span><br />
</span><div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">For property owners it has
become an easy and profitable way of generating additional income, particularly
for those with residential properties in desirable city centre locations.
However, if you choose to use Airbnb or any other short-term letting website
for letting your property, it is important that you consider the legal
consequences of doing so alongside the financial benefits.</span></span><br />
<a name='more'></a><span style="font-family: "arial"; font-size: x-small;">The key legal factors
to consider are:</span><br />
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<h3 style="background: rgb(250, 249, 249); margin: 3.75pt 0cm 9.75pt;">
<span style="font-family: "arial"; font-size: x-small;">
<span style="color: #31343f; mso-fareast-font-family: "Times New Roman";"><span style="font-family: "georgia"; font-size: large;">Are you properly insured?</span></span></span></h3>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Airbnb offers the following
insurance as part of its business terms:</span></span></div>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<ul style="direction: ltr; list-style-type: disc;"><span style="font-family: "arial"; font-size: x-small;">
<li style="color: #31343f; font-style: normal; font-weight: normal;"><div style="background: rgb(250, 249, 249); color: black; font-style: normal; font-weight: normal; line-height: 15.75pt; margin-bottom: 0pt; margin-top: 0cm; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;">
<span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Host Guarantee: Airbnb agrees to pay you to repair or replace
certain covered property (i.e. your belongings) which is damaged or destroyed
as a result of certain covered losses.</span></div>
</li>
<li style="color: #31343f; font-family: "Times New Roman","serif"; font-size: 12pt; font-style: normal; font-weight: normal;"><div style="background: rgb(250, 249, 249); color: black; font-family: "Calibri","sans-serif"; font-size: 11pt; font-style: normal; font-weight: normal; line-height: 15.75pt; margin-bottom: 0pt; margin-top: 0cm; mso-list: l0 level1 lfo1; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto; tab-stops: list 36.0pt;">
<span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Host Protection Insurance: Airbnb agrees to provide primary
liability coverage up to a certain amount if a guest makes a claim for bodily
injury or property damage. It may also cover claims if a guest damages
the property itself.</span></div>
</li>
</span></ul>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Whilst this does provide
comfort to property owners, as is the case with any insurance policy, the terms
and conditions should be read carefully for exclusions and limitations.
You need to ensure that the insurance provided applies to your property and
your individual situation. This is particularly important where you do
not have anyone managing the property on your behalf and monitoring whether
guests are using the property appropriately.</span></span></div>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Remember that the Airbnb
insurance does not replace the need to have your own buildings and contents
insurance. If you have a mortgage, the terms of the mortgage deed will
require you to maintain buildings insurance too (or ensure that your landlord
insures if the property is leasehold). Again, you need to check the terms
of these policies too to ensure they are not invalidated by renting out your
property. Usually a notification to your insurer is required when your property
is being let out for short-term lettings.</span></span></div>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<h3 style="background: rgb(250, 249, 249); margin: 3.75pt 0cm 9.75pt;">
<span style="font-family: "arial"; font-size: x-small;">
<span style="color: #31343f; mso-fareast-font-family: "Times New Roman";"><span style="font-family: "georgia"; font-size: large;">Will you breach your mortgage terms?</span></span></span></h3>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Your mortgage is likely to
contain restrictions on how you can use your property (in both the facility
letter and mortgage deed). You need to check the terms to ensure that
short-term lettings are permitted. If they are not, entering into a short-term
letting will breach the mortgage terms and may be an event of default under the
mortgage allowing the lender to enforce its security (i.e. take steps to call
back the loan).</span></span></div>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<h3 style="background: rgb(250, 249, 249); margin: 3.75pt 0cm 9.75pt;">
<span style="font-family: "arial"; font-size: x-small;">
<span style="color: #31343f; mso-fareast-font-family: "Times New Roman";"><span style="font-family: "georgia"; font-size: large;">Will you breach planning regulations?</span></span></span></h3>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Planning controls are also
important to consider, both at local and national level. In some areas a
short-term let may be considered as a material change of use (i.e. a change of
use from residential use without planning consent). This has been a
problem for Airbnb in cities around the world and has resulted in penalties
being issued on some occasions.</span></span></div>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">In 2015 an exception was
introduced to allow properties in London to be used as temporary sleeping
accommodation without this being considered a change of use, provided the total
number of nights the property is used for short-term lettings does not exceed
90 nights in a calendar year. There are restrictions to this exception,
so if you are considering using it you need to ensure the exception applies to
your property. Airbnb has been trying to assist with making their service more
compliant with local and national laws. As a result the Airbnb system now
automatically limits entire home listings in the Greater London area to 90
nights a year unless the property owner confirms that they have the required
planning permission.</span></span></div>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<h3 style="background: rgb(250, 249, 249); margin: 3.75pt 0cm 9.75pt;">
<span style="font-family: "arial"; font-size: x-small;">
<span style="color: #31343f; mso-fareast-font-family: "Times New Roman";"><span style="font-family: "georgia"; font-size: large;">If your property is leasehold (rather than freehold) will you
breach your lease terms?</span></span></span></h3>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Many leases restrict the
ability of the tenant to sublet their property or only allow sublettings if
landlord’s consent is obtained. Leases usually restrict the use of your
property (i.e. to residential use) and require you to comply with planning laws
affecting the property. A recent case held that a tenant had breached a
covenant which prohibited use of their flat for any purpose other than as a
private residence, as they had advertised the flat on the internet for
short-term lettings and granted a series of such lettings.</span></span></div>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Most leases will allow the
landlord to forfeit (i.e. terminate the lease by bringing court proceedings)
for breach of covenant. A landlord would also be able to bring a claim
for a monetary payment if it could prove it had suffered a loss. A tenant
can apply to court for relief from forfeiture but will need to remedy the
breach (i.e. stop entering into short-term lettings) in order to prevent the
lease being terminated.</span></span></div>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Many residential leases also
include regulations controlling how all tenants in the building use the
building (for example, restricting noise levels, pets, use of common
parts). Even if landlord consent is not required for short-term lettings,
guests need to observe these regulations during their stay at your
property. Airbnb allows property owners to set “house rules” during the
booking process and you need to ensure these include complying with any building
regulations imposed by your lease.</span></span></div>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<h3 style="background: rgb(250, 249, 249); margin: 3.75pt 0cm 9.75pt;">
<span style="font-family: "arial"; font-size: x-small;">
<span style="color: #31343f; mso-fareast-font-family: "Times New Roman";"><span style="font-family: "georgia"; font-size: large;">Should you make arrangements to have the property managed?</span></span></span></h3>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Although Airbnb and similar
sites offer an opportunity for individuals to maximise rental value from their
properties they do not provide a management service. Some owners have
code accessed boxes to allow guests to pick up keys but it is prudent to have
someone assist in managing your property (making keys available and dealing
with any issues arising). As a property owner you might expect guests to
be using your property for holiday or business stays but there are instances of
properties being used to host parties. Airbnb allows you to vet your
guests by viewing their profile, which is important (as are reviews from
previous Airbnb stays). However, having someone on hand to deal with
issues is advisable. From a security perspective, this also helps to
ensure that the property is not seen by the public as being left unattended for
long periods of time.</span></span></div>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<h3 style="background: rgb(250, 249, 249); margin: 3.75pt 0cm 9.75pt;">
<span style="font-family: "arial"; font-size: x-small;">
<span style="color: #31343f; mso-fareast-font-family: "Times New Roman";"><span style="font-family: "georgia"; font-size: large;">To Airbnb or not to Airbnb?</span></span></span></h3>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">An increasing number of
property owners regard Airbnb and other short-term letting sites as offering a
unique opportunity for them to maximise rental value from their
properties. However, it is important property owners have assessed the
legal issues involved to ensure that they are making an informed choice, and
that the financial benefits outweigh the legal and practical
considerations. When deciding whether to “Airbnb or not to Airbnb” make
sure you consider the legal issues involved.</span></span></div>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span><br />
<div style="background: rgb(250, 249, 249); line-height: 18pt;">
<span style="font-family: "arial"; font-size: x-small;"><em><span style="color: #31343f; font-family: "arial" , "sans-serif"; font-size: 10.5pt;">Grace Laws, Associate,
Fladgate LLP (<a href="mailto:glaws@fladgate.com"><span style="color: blue;">glaws@fladgate.com</span></a>)</span></em></span></div>
<span style="font-family: "arial"; font-size: x-small;"><span style="font-family: "times new roman"; font-size: small;">
</span></span></div>
<span style="font-family: "arial"; font-size: x-small;">
</span><br />
<br />
<br />
<br />
<br />Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-83379715975049280882017-05-18T08:06:00.001+01:002017-05-18T08:06:23.764+01:00Protecting personal representatives: interim estate distributions
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">How
should a personal representative (<b style="mso-bidi-font-weight: normal;">PR</b>)<b style="mso-bidi-font-weight: normal;"> </b>deal with a request from a beneficiary
for an interim distribution before the estate is finalised?<span style="mso-spacerun: yes;"> </span>Estates can take many months to conclude but
a beneficiary may be in need of some of their inheritance sooner.<span style="mso-spacerun: yes;"> </span>Can an executor help out without putting him
or herself on the line?</span><a name='more'></a><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">Any PR
(be they an executor of a Will or an administrator of an intestate estate) facing
a request for an early distribution should consider their own position as well
as the beneficiary’s.<span style="mso-spacerun: yes;"> </span>A PR owns a duty
to the court, both to gather in the assets of the deceased and also to ensure
that sufficient estate assets are retained to meet all liabilities and pay
creditors.<span style="mso-spacerun: yes;"> </span>Not all liabilities may be
evident at the time of death.<span style="mso-spacerun: yes;"> </span>Failure to
retain sufficient funds to pay these may result in creditors pursuing the PR personally,
so a PR must exercise caution in the face of such requests. </span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;"><br /></span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;"></span><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">Unless
the PR was very familiar with the deceased’s finances, or the beneficiaries can
be entirely trusted to return estate assets if necessary, a PR should consider
taking advantage of the protection offered by s.27 of the Trustee Act 1925 and
advertise for creditors in the London Gazette (and elsewhere if appropriate,
depending upon the deceased’s circumstances).<span style="mso-spacerun: yes;">
</span>Once the two month notice period has expired and if the PR has still
received no notification of a claim prior to distribution, any creditor who
appears after distribution has to pursue the recipient of the estate funds,
rather than the PR.</span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;"><br /></span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">Section
44 of the Administration of Estates Act 1925 provides that ‘a personal
representative is not bound to distribute the estate of the deceased before the
expiration of one year from the death’.<span style="mso-spacerun: yes;">
</span>Accordingly PR’s cannot be forced to distribute sooner but could
consider doing so if they are confident that all liabilities and creditors have
been ascertained</span><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">.<span style="mso-spacerun: yes;"> </span></span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;"><br /></span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">For
deceased UK domiciliaries, PRs should be aware that claims under the
Inheritance (Provision for Family and Dependents) Act 1975 can be issued up to
6 months after the Grant of Probate is itself issued and the claimant then has
a further four months in which to serve the claim.<span style="mso-spacerun: yes;"> </span>Therefore 1975 Act claimants can appear up to
ten months after the Grant has issued.</span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;"><br /></span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">If
an interim distribution is needed sooner, a PR should consider insisting on a
form of indemnity from the beneficiary to confirm that, should a claim be made
against the PR in connection with the estate, the beneficiary will indemnify
the PR for that claim out of the funds distributed.<span style="mso-spacerun: yes;"> </span>The PR will need to consider whether that
beneficiary will be good for the money if the indemnity needs to be relied
upon.<span style="mso-spacerun: yes;"> </span>Ideally the PR will also obtain
confirmation from the beneficiary that the beneficiary accepts the sums
distributed at least in partial satisfaction of their interest in the
estate.<span style="mso-spacerun: yes;"> </span>It may be appropriate to provide
a set of draft estate accounts at this point.</span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;"><br /></span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">Alternatively,
depending upon the assets comprising the estate and their administrative powers, the PR may be able to offer to
loan a beneficiary a portion of their share of the estate, in return for a
suitable indemnity.<span style="mso-spacerun: yes;"> </span>This is likely to be
more satisfactory for a PR, as the PR still retains ownership of the estate
assets, albeit in the form of an IOU. <span style="mso-spacerun: yes;"> </span>The creditworthiness of the beneficiary will
need to be considered once again.<span style="mso-spacerun: yes;"></span></span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;"><span style="mso-spacerun: yes;"> </span></span><br />
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">Lay PRs, in particular, can often feel under
pressure from family member beneficiaries to make early distributions.<span style="mso-spacerun: yes;"> </span>However, creditors need make no exceptions
for lay PRs! <span style="mso-spacerun: yes;"> </span>The law allows PRs to
protect themselves and a prudent PR will do just that. </span>Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-28824137535968592722017-05-04T07:55:00.002+01:002017-05-04T07:55:31.825+01:00Finance Bill 2017: Non-dom tax changes dropped – for now?
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">The Finance Bill 2017 contained a
number of measures altering the way in which long term UK resident non-doms and
UK residential property held in certain offshore entities would be taxed in the
UK.<span style="mso-spacerun: yes;"> </span>However, last week it became clear
that <i style="mso-bidi-font-style: normal;">all</i> of the non-dom tax changes
would be dropped from the Finance Bill, to allow a slimmed down version of the
Bill to progress through the legislative process before Parliament is dissolved
ahead of the General Election on 8 June.</span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">So what is the current state of
the law?<span style="mso-spacerun: yes;"> </span>Are the relevant pre-6 April
2017 tax laws still in force?<span style="mso-spacerun: yes;"> </span>Are
non-doms who have been resident here in the UK for 15 out of the previous 20
tax years now deemed domiciled, or can they still make use of the remittance
basis of taxation?<span style="mso-spacerun: yes;"> </span>Does foreign
corporate ownership of UK residential property still provide a UK Inheritance
Tax (<b style="mso-bidi-font-weight: normal;">IHT</b>) shelter or not?</span><a name='more'></a><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">Unhappily for clients and their
advisers, no one can give definitive answers to these questions at this
point.<span style="mso-spacerun: yes;"> </span>The Government has said that it remains
committed to the omitted provisions and intends to legislate for them at the
earliest opportunity at the start of the new Parliament.<span style="mso-spacerun: yes;"> </span>However, that presupposes that the same
Government will be returned to power after the General Election.<span style="mso-spacerun: yes;"> </span>Even then, it is unclear whether the non-dom
measures in a new Finance Bill will be given retrospective effect from 6 April
2017 or whether their effective date will be delayed, perhaps to the start of
the next tax year on 6 April 2018.</span><br />
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">There is no single, right
response to this unexpected announcement and any affected non-doms should ask
their adviser to review their position and give them specific advice.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">A particular issue affecting
holders of UK residential property in offshore structures (typically a family owned
offshore company which itself owns the UK residential property) is whether the
company should be liquidated now, if that has not already happened.<span style="mso-spacerun: yes;"> </span>Unless the property is being let out on a
commercial basis, it will be subject to the Annual Tax on Enveloped Dwellings (<b style="mso-bidi-font-weight: normal;">ATED</b>) while it remains in corporate
ownership, so there is an incentive to liquidate and avoid any further ATED
exposure.<span style="mso-spacerun: yes;"> </span>However, in these cases, it
has become a trade-off between IHT and ATED.<span style="mso-spacerun: yes;">
</span>Is it worth remaining in the corporate structure, just in case it
continues to provide an IHT shelter?<span style="mso-spacerun: yes;"> </span>The
price of playing this wait-and-see game can be measured in the ‘cost’ of the ATED
payable with each day that the corporate structure is retained.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">The status of the rebasing and
mixed fund cleansing opportunities for non-doms trailed in the Finance Bill are
also now uncertain, and therefore any non-dom planning on making disposals to
take advantage of either of these should also review their position before proceeding.
</span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; font-size: 10.5pt; line-height: 115%; mso-ansi-language: EN-GB;">The situation is highly
unsatisfactory for both non-doms and their advisers and we can only hope that
clarification of the current state of the law will follow swiftly after 8
June.<span style="mso-spacerun: yes;"> </span></span></div>
</div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-78645094810000833192017-04-20T08:00:00.000+01:002017-04-20T08:00:19.168+01:00‘No looking back’ – one ATED tax trap to avoid
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">April is ATED filing month –
2017/2018 ATED tax returns must be filed and any ATED tax paid by 30 April at
the latest.<span style="mso-spacerun: yes;"> </span>Even if no ATED is due,
because a relief from ATED applies, that relief still needs to be claimed on an
ATED tax return, which must be submitted by the end April deadline just the <a href="https://www.blogger.com/null" name="_CurrentPage"></a>same.</span><a name='more'></a><span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">ATED applies to companies owning
UK let residential property too.<span style="mso-spacerun: yes;">
</span>However, a 100% relief from ATED is available if the company is running
a property rental business and the relief is claimed each year.</span><br />
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">One crucial trap to guard against
is occupation of the company’s property by a ‘non-qualifying individual’.<span style="mso-spacerun: yes;"> </span>These include people who are ‘connected to’
the company, in the very wide sense conferred on that phrase by s.1122
Corporation Taxes Act 2010.<span style="mso-spacerun: yes;"> </span>For example,
the settlor of a trust which owns an interest in the corporate entity which
owns the property will count as a ‘non-qualifying individual, as will the
settlor’s relatives – meaning siblings, and either ancestral or lineal
descendants – and even their respective spouses and their families!<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">The non-qualifying individual has
to be ‘permitted to occupy’, according to the ATED legislation, which may give
an escape route if the directors of the company were not aware of the
occupation and therefore could not have given permission, implied or
express.<span style="mso-spacerun: yes;"> </span>Unfortunately there is no
definition of what ‘permitted to occupy’ means, either in the legislation or in
HMRC’s ATED Technical Guidance.<span style="mso-spacerun: yes;"> </span>However,
in the content of other taxes, HMRC regards use of a property as occupation if
the person who does stay at the property or uses it has a right of access to it
and does keep belongings there.<span style="mso-spacerun: yes;"> </span>No
guidance is also given on how long a period of occupation is needed in order to
trigger these provisions.<span style="mso-spacerun: yes;"> </span>In an example
given in the Technical Guidance, a month of occupation was long enough but
there is no discussion of whether a week or even a few days would have been
problematic.<span style="mso-spacerun: yes;"> </span>Therefore, it’s best to try
to avoid these murky waters if possible. <span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">It is relatively easy for
companies to find themselves in trouble over non-qualifying occupation.<span style="mso-spacerun: yes;"> </span>The family member who stayed a few nights in
the company’s London flat, in the void period between lettings, is a classic
situation but unfortunately this can lead to an unhappy outcome.<span style="mso-spacerun: yes;"> </span>The consequences of non-qualifying occupation
can be severe:</span></div>
<br />
<ul style="direction: ltr; list-style-type: disc;">
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">ATED relief is denied
for the whole of the ATED tax year in which the non-qualifying occupation takes
place, unless there was a qualifying tenant renting the property as part of a
property rental business prior to the non-qualifying occupation (in which case
relief will be allowed for the period of ‘qualifying’ occupation).</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Relief is also denied
for up to the next three ATED tax years, until such time as there is
‘qualifying occupation’.</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">ATED relief is
withdrawn for the previous ATED tax year if, in fact, there was no qualifying
occupation during that tax year.<span style="mso-spacerun: yes;"> </span>(This
could be the case if the company was taking steps to rent out the property,
such as alterations or redecoration, for which ATED relief is available if the
steps are taken without undue delay).</span></div>
</li>
</ul>
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">The look forward and look back provisions can
result in companies owing ATED for tax years in which it was thought that an
ATED relief was due.<span style="mso-spacerun: yes;"> </span>The position needs
to be corrected by submission of an amended ATED tax return for all years
affected, as quickly as possible as time deadlines apply to the tax return
filing.<span style="mso-spacerun: yes;"> </span></span></div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-11933044765988483012017-04-06T08:27:00.000+01:002017-04-06T08:27:31.354+01:00LEIs and UK trusts: time to apply for another ID number
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">Trustees of UK trusts
holding a UK managed investment portfolio will soon need to apply for a Legal
Entity Identifier (<b style="mso-bidi-font-weight: normal;">LEI</b>) number from
the London Stock Exchange. </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">The EU legislation
known as the Markets in Financial Instruments Directive (MiFID) affects firms
who provide services to legal entity end users which involve financial
instruments, such as shares, bonds and collective investments.<span style="mso-spacerun: yes;"> </span>Its latest incarnation, MiFID II, comes into
effect on 3 January 2018.<span style="mso-spacerun: yes;"> </span>It places upon
them new transaction reporting obligations, meaning that they cannot execute a
trade in a financial instrument on behalf of any client for whom they do not
have an LEI.</span></span><a name='more'></a><span style="font-family: Calibri;"> </span><span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">The concept of the LEI
has been endorsed by the G20 countries since 2011.<span style="mso-spacerun: yes;"> </span>It aims to provide a unique, alphanumeric identifier
to any legal entity or structure, including companies, charities and trusts, enabling
it to be identified in any jurisdiction in the world in which it operates
financially.<span style="mso-spacerun: yes;"> </span>It is designed to enable
verification of entities to take place quickly, wherever they are located, and
to be the new, global standard in entity identification.</span></span><br />
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">The London Stock
Exchange has been authorised to issue LEI numbers in the UK.<span style="mso-spacerun: yes;"> </span>Trustees can apply for them online or allow
their authorised representative (such as the trust’s investment manager) to
apply on their behalf.<span style="mso-spacerun: yes;"> </span>Understandably,
many financial intermediaries are offering assistance to their affected clients
to help them complete the LEI application process in time.</span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">If applied for
directly, the LSE is charging a fee of £115 plus VAT to issue an LEI number and
a fee of £70 plus VAT for each annual renewal thereafter, at which point the
entity will be asked to provide updated information.</span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">Only trusts holding
financial investments will need an LEI number, but bare trusts are exempt in
any event.<span style="mso-spacerun: yes;"> </span>As there is no publically
available information to verify a trust’s credentials, it appears that the LSE
will require sight of the first couple of pages of the trust deed as part of
the application process.<span style="mso-spacerun: yes;"> </span></span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">A central database of
all issued LEI numbers is held by the Global Legal Entity Identifier Foundation
(GLEIF), a not-for-profit organisation created in 2014 to support the implementation
and use of the LEI.<span style="mso-spacerun: yes;"> </span>The database is
publically searchable and free to use.<span style="mso-spacerun: yes;">
</span>At the moment, the database displays only basic details such as the entity’s
name, address and LEI number.<span style="mso-spacerun: yes;"> </span>However,
the GLEIF states that ‘In a next step, the LEI data pool will be enhanced to
include the ‘Level 2’ data that will answer the question of ‘who owns whom’’.<span style="mso-spacerun: yes;"> </span></span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">Will the LEI prove to
be ‘the one ID number to rule them all’ and remove the need for trustees to
keep providing KYC every time they embark on a new relationship with a
financial institution?<span style="mso-spacerun: yes;"> </span>Only time with
tell.<span style="mso-spacerun: yes;"> </span></span></span></div>
</div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-45803969177652776922017-03-23T07:58:00.003+00:002017-03-23T07:58:45.673+00:00Ilott v Mitson Supreme Court decision: UK testamentary freedom reasserted
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">Last week, the Supreme Court
brought to an end a 13 year legal battle over the late Mrs Jackson’s Will.<span style="mso-spacerun: yes;"> </span>The Will left virtually all of Mrs Jackson’s
assets (some £480,000) to three UK charities, cutting out entirely her only
child (Mrs Ilott), who was for many years estranged from her mother but who
lived in very financially straitened circumstances with her husband and five
children.</span><a name='more'></a> <br />
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">Mrs Ilott brought a claim against
the estate under the Inheritance (Provision for Family and Dependants) Act
1975.<span style="mso-spacerun: yes;"> </span>That Act allows certain categories
of applicants to apply for reasonable financial provision from a deceased UK
domiciliary’s estate.<span style="mso-spacerun: yes;"> </span>The potential
applicants under the Act include a child of the deceased but reasonable financial
provision is limited to ‘such financial provision as it would be reasonable in
all the circumstances of the case for the applicant to receive for his
maintenance’ (section1(2)(b)).<span style="mso-spacerun: yes;"> </span>The
District Judge, at first instance, awarded £50,000 out of the estate to Mrs
Ilott, in satisfaction of her 1975 Act claim but, on appeal, the Court of
Appeal awarded £163,000.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">The Supreme Court (per the
judgment of Lord Hughes, with whom the rest of the Supreme Court Judges agreed)
acknowledged that the 1975 Act impinges upon testamentary freedom in the
UK.<span style="mso-spacerun: yes;"> </span>However, the concept of testamentary
freedom remains central to English law: </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">‘<i style="mso-bidi-font-style: normal;">The law knows of no rule of automatic succession or forced heirship</i>’
(paragraph 1). </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">The decision also recognised that
the long estrangement between the mother and daughter should be given due
weight.<span style="mso-spacerun: yes;"> </span>The 1975 Act states that, in
determining whether the deceased’s Will or the intestacy rules (if there is no
Will) make reasonable financial provision for the applicant under the Act, the
court is obliged to have regard to a number of matters, including the financial
resources and financial needs of the applicant, as well as those of the other
beneficiaries.<span style="mso-spacerun: yes;"> </span>The size and nature of
the estate and ‘any other matter, including the conduct of the applicant or any
other person, which in the circumstances of the case the court may consider
relevant’ (section 3(1)) are also taken into account.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">The Supreme Court was critical of
the Court of Appeal’s view that the long estrangement counted for little:</span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">‘<i style="mso-bidi-font-style: normal;">It is not the case that once there is a qualified claimant and a
demonstrated need for maintenance, the testator’s wishes cease to be of any
weight.<span style="mso-spacerun: yes;"> </span>They may of course be
overridden, but they are part of the circumstances of the case and fall to be
assessed in the round together with all the other relevant factors…it was not
correct that so long and complete an estrangement was of little weight…care
must be taken to avoid making awards under the 1975 Act primarily awards for
good behaviour on the part of the claimant or penalties for bad on the part of
the deceased</i>’ (paragraph 47).</span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">The court confirmed that the
estrangement should limit the quantum of the award.</span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">The judgment also provides useful
guidance on what maintenance means in practice.<span style="mso-spacerun: yes;">
</span>It was noted that the concept of maintenance is broad but it should be
taken to mean an amount to meet the everyday expenses of living – neither
everything that would be desirable for the claimant to have but equally not
limited to a subsistence level of living.<span style="mso-spacerun: yes;">
</span>Reference was made, with approval, to a claim by a married adult son
living in comfortable circumstances on a good income, whose claim to have his
mortgage paid off was refused (<i style="mso-bidi-font-style: normal;">Re
Jennings, deceased </i>[1994] Ch 286, per paragraph 14).<span style="mso-spacerun: yes;"> </span>Equally, the court confirmed that necessitous
circumstances are not, by themselves, always sufficient to justify a claim
under the Act.<span style="mso-spacerun: yes;"> </span>Maintenance should be
regarded as the provision of an income, albeit that a capital sum could be
awarded to provide the income stream.<span style="mso-spacerun: yes;"> </span>If
housing is needed to meet a claim for maintenance, the court noted that a life
interest would usually be awarded in preference to a capital sum.<span style="mso-spacerun: yes;"> </span>In Mrs Ilott’s case, many of her everyday
living expenses were being met by her state benefits.<span style="mso-spacerun: yes;"> </span>The £50,000 awarded was felt to be the
correct amount to enable Mrs Ilott to purchase essential white goods, basic
carpeting and curtains and replace worn out furniture in the family home.<span style="mso-spacerun: yes;"> </span>These were regarded as necessities for daily
living by the court and therefore meeting the requirement for maintenance.<span style="mso-spacerun: yes;"> </span>If the £50,000 award was used in this way,
Mrs Ilott’s capital would soon fall below £16,000 again, at which point her
state benefits would restart.<span style="mso-spacerun: yes;"> </span>The Court
of Appeal’s decision to award a capital sum to enable Mrs Ilott to buy her home
was rejected because her Housing Benefit was paying the bulk of her rent.</span></div>
<br />
<div style="margin: 0cm 0cm 0pt; text-align: justify;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt; mso-ansi-language: EN-GB; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">The Supreme Court’s
decision restores confidence in the will-making process.<span style="mso-spacerun: yes;"> </span>It provides an invaluable road map for anyone
tasked with advising a prospective will-maker whose Will provisions may prove
controversial to their family and any financial dependants, as well as for consolers
of disappointed children. </span></div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-14839340301692490942017-03-09T08:22:00.000+00:002017-03-09T08:22:04.758+00:00How to manage UK probate fee increases
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">Currently most applications made by solicitors for a UK grant of
representation for a deceased’s estate incur a flat fee of £155 payable to the
Probate Registry.<span style="mso-spacerun: yes;"> </span>However, perhaps
within a little over two months’ time, a grant could cost as much as
£20,000!<span style="mso-spacerun: yes;"> </span>How did we get here and, more
importantly, what can be done about it?</span><a name='more'></a><br />
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">The probate fee increases were first trialled in a Government
consultation published on 18 February 2016 (further details in my 25 February
2016 blog </span><a href="http://wealthlawyeruk.blogspot.co.uk/2016/02/probate-fee-increases-death-tax-by-any.html"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;"><span style="color: blue;">here</span></span></a><span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">) and,
despite the vast majority of respondents disagreeing with the return to probate
fees based on estate value, the Government is pressing ahead on the grounds
that fee increases in the Probate Registry will help to ensure that the UK
court system as a whole covers its costs.<span style="mso-spacerun: yes;">
</span></span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">The Government must first pass enabling legislation, but it is
expected that applications for grants made from as early as May 2017 will be
faced with these new charges, which scale the probate fee payable to the size
of the estate, as follows:</span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<table border="1" cellpadding="0" cellspacing="0" style="border-collapse: collapse; border-image: none; border: currentColor; mso-padding-alt: 0cm 5.4pt 0cm 5.4pt; mso-table-layout-alt: fixed;">
<tbody>
<tr style="height: 14.2pt; mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 14.2pt; padding: 0cm 5.4pt; width: 168.45pt;" valign="top" width="225">
<div style="margin: 0cm 0cm 0pt;">
<b><span style="font-size: 10.5pt;"><span style="font-family: Arial;">Value of estate (before
Inheritance Tax) </span></span></b></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 14.2pt; padding: 0cm 5.4pt; width: 177.15pt;" valign="top" width="236">
<div style="margin: 0cm 0cm 0pt;">
<b><span style="font-size: 10.5pt;"><span style="font-family: Arial;">Proportion of all estates
in England and Wales</span></span></b></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 14.2pt; padding: 0cm 5.4pt; width: 4cm;" valign="top" width="151">
<div style="margin: 0cm 0cm 0pt;">
<b><span style="font-size: 10.5pt;"><span style="font-family: Arial;">Proposed fee </span></span></b></div>
</td>
</tr>
<tr style="height: 12.5pt; mso-yfti-irow: 1;">
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.5pt; padding: 0cm 5.4pt; width: 168.45pt;" valign="top" width="225">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">Up to £50,000 or exempt from
requiring a grant of probate </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.5pt; padding: 0cm 5.4pt; width: 177.15pt;" valign="top" width="236">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">58% </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.5pt; padding: 0cm 5.4pt; width: 4cm;" valign="top" width="151">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">£0 </span></span></div>
</td>
</tr>
<tr style="height: 12.5pt; mso-yfti-irow: 2;">
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.5pt; padding: 0cm 5.4pt; width: 168.45pt;" valign="top" width="225">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">Exceeds £50,000 but does not
exceed £300,000 </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.5pt; padding: 0cm 5.4pt; width: 177.15pt;" valign="top" width="236">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">23% </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.5pt; padding: 0cm 5.4pt; width: 4cm;" valign="top" width="151">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">£300 </span></span></div>
</td>
</tr>
<tr style="height: 12.5pt; mso-yfti-irow: 3;">
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.5pt; padding: 0cm 5.4pt; width: 168.45pt;" valign="top" width="225">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">Exceeds £300,000 but does not
exceed £500,000 </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.5pt; padding: 0cm 5.4pt; width: 177.15pt;" valign="top" width="236">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">11% </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.5pt; padding: 0cm 5.4pt; width: 4cm;" valign="top" width="151">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">£1,000 </span></span></div>
</td>
</tr>
<tr style="height: 12.6pt; mso-yfti-irow: 4;">
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.6pt; padding: 0cm 5.4pt; width: 168.45pt;" valign="top" width="225">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">Exceeds £500,000 but does not
exceed £1m </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.6pt; padding: 0cm 5.4pt; width: 177.15pt;" valign="top" width="236">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">6% </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.6pt; padding: 0cm 5.4pt; width: 4cm;" valign="top" width="151">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">£4,000 </span></span></div>
</td>
</tr>
<tr style="height: 12.5pt; mso-yfti-irow: 5;">
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.5pt; padding: 0cm 5.4pt; width: 168.45pt;" valign="top" width="225">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">Exceeds £1m but does not
exceed £1.6m </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.5pt; padding: 0cm 5.4pt; width: 177.15pt;" valign="top" width="236">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">1% </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.5pt; padding: 0cm 5.4pt; width: 4cm;" valign="top" width="151">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">£8,000 </span></span></div>
</td>
</tr>
<tr style="height: 12.6pt; mso-yfti-irow: 6;">
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.6pt; padding: 0cm 5.4pt; width: 168.45pt;" valign="top" width="225">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">Exceeds £1.6m but does not
exceed £2m </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.6pt; padding: 0cm 5.4pt; width: 177.15pt;" valign="top" width="236">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">0.3% </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 12.6pt; padding: 0cm 5.4pt; width: 4cm;" valign="top" width="151">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">£12,000 </span></span></div>
</td>
</tr>
<tr style="height: 6.2pt; mso-yfti-irow: 7; mso-yfti-lastrow: yes;">
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 6.2pt; padding: 0cm 5.4pt; width: 168.45pt;" valign="top" width="225">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">Above £2m </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 6.2pt; padding: 0cm 5.4pt; width: 177.15pt;" valign="top" width="236">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">0.5% </span></span></div>
</td>
<td style="background-color: transparent; border-image: none; border: 0px rgb(0, 0, 0); height: 6.2pt; padding: 0cm 5.4pt; width: 4cm;" valign="top" width="151">
<div style="margin: 0cm 0cm 0pt;">
<span style="font-size: 10.5pt;"><span style="font-family: Arial;">£20,000 </span></span></div>
</td>
</tr>
</tbody></table>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">The fee is based on the net real and personal estate passing under
the grant.<span style="mso-spacerun: yes;"> </span>Fortunately, therefore, life
tenants of IPDIs (a form of Will-based trust) or pre 22 March 2006 interest in
possession trusts do not have to worry that the aggregation of their personal
assets with the value of the trust will increase their probate fee under the
new scale.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">Note that the date of death is immaterial; it is the date of the
application for a grant that will govern whether the new fees apply.<span style="mso-spacerun: yes;"> </span>The Probate Registry is gearing up for a marked
influx of applications ahead of this change.</span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">Many estate administrations involve applying for a grant,
particularly where assets are held in the deceased’s sole name.<span style="mso-spacerun: yes;"> </span>Financial institutions usually want to see a
grant unless the value of the deceased’s holding is relatively modest.<span style="mso-spacerun: yes;"> </span>Anyone with an ISA of any value will need a
grant for their estate as ISAs cannot be held in joint names.<span style="mso-spacerun: yes;"> </span>Also the UK Land Registry will insist on
sight of a grant if land is to be transferred from a deceased sole owner into
the names of the personal representatives, or if personal representatives want
to sell the deceased owner’s land or transfer it into the name of an heir.<span style="mso-spacerun: yes;"> </span><a href="https://www.blogger.com/null" name="_CurrentPage"></a></span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">These fee changes may encourage married couples to consider owning
assets jointly so that, when the first death occurs, assets pass automatically
to the surviving spouse by survivorship – no grant needed and therefore no
probate fee incurred.<span style="mso-spacerun: yes;"> </span>However, this may
raise issues of control for some couples, or conflict with their tax planning, as
they may want their share of jointly owned assets to pass into a will trust or
ultimately to someone other than the surviving spouse after the first death. <span style="mso-spacerun: yes;"> </span>Sometimes it may be acceptable for legal title
to pass by survivorship to the surviving spouse and the beneficial interest to
be held as tenants in common (i.e. as ‘divided shares’) but this may not
provide sufficient protection for some couples and could still result in a
grant being needed to deal with the beneficial interest.<span style="mso-spacerun: yes;"> </span></span><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">(For a good introduction to the differences
between joint tenants and tenants in common ownership of UK property for
co-owners, have a look at my colleague Joe Hobson’s article </span><a href="https://www.fladgate.com/2017/03/he-who-shares-wins-buying-residential-property/"><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;"><span style="color: blue;">here</span></span></a><span style="font-size: 10.5pt;"><u><span style="color: blue; font-family: Arial;">.</span></u></span><span style="font-family: "Arial","sans-serif"; font-size: 10.5pt;">)</span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">The threat of significant probate fees may also force some
individuals or widow(er)s to consider making lifetime gifts of assets to their
heirs (or face pressure from their heirs to do so).<span style="mso-spacerun: yes;"> </span>If probate fees are based on the net value of
the estate passing under the grant, deathbed gifts, even if they give rise to
gifts with reservation of benefit for Inheritance Tax purposes, may become much
more common.<span style="mso-spacerun: yes;"> </span>Use of ‘probate bypass’
trusts is unlikely to prove popular as transferring assets into most types of trust
could give rise to an immediate 20% Inheritance Tax entry charge.<span style="mso-spacerun: yes;"> </span>Transferring assets into the joint names of
the individual and their heir(s), so that the asset passes by survivorship, could
be considered but this is fraught with difficulty.<span style="mso-spacerun: yes;"> </span>Consider the example of a mother who decides
to transfer her share portfolio into the joint names of herself and her son,
who is to inherit the portfolio after her death.<span style="mso-spacerun: yes;"> </span>Unless the equity ownership is documented
very carefully, the mother could be regarded as making a disposal for Capital
Gains Tax purposes and a gift for Inheritance Tax purposes.<span style="mso-spacerun: yes;"> </span>Uncertainty may arise as to whether the
mother or the son should pay tax on the portfolio’s dividends and gains.<span style="mso-spacerun: yes;"> </span>Can the son be trusted not to deal with the
portfolio contrary to his mother’s wishes?<span style="mso-spacerun: yes;">
</span>Is the answer the same if the mother loses capacity?<span style="mso-spacerun: yes;"> </span>If the son divorces, will his ex-wife accept
that the son does not own at least 50% of the portfolio?<span style="mso-spacerun: yes;"> </span>On the mother’s death, the arrangement is
likely to come under some scrutiny, both by HMRC and also the other heirs of
her estate.<span style="mso-spacerun: yes;"> </span>Joint ownership should not
be jumped into lightly, simply for the sake of saving probate fees.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">Executors of estates which need to submit an IHT400 account to
HMRC – being estates in excess of £1m or in excess of the £325,000 nil rate
band if no Inheritance Tax exemption or transferable nil rate band is being
claimed – must get their skates on and submit an IHT400 without delay, if they
do not want to be caught by the fee increases.<span style="mso-spacerun: yes;">
</span>Usually these estates submit the IHT400 and wait for HMRC to return a
stamped IHT421 to confirm all IHT falling due at that point has been paid
before applying for the grant, as the stamped IHT421 must be submitted with the
other grant application papers to the Probate Registry.<span style="mso-spacerun: yes;"> </span>HMRC can take upwards of a month to issue
these at present.<span style="mso-spacerun: yes;"> </span>Executors may be in
the difficult position of facing not only penalties if they submit an incorrect
IHT return, but also unhappy beneficiaries if they miss the (as yet unknown) fee
increase deadline.<span style="mso-spacerun: yes;"> </span>In a press release
earlier this week though, the Probate Registry confirmed that it is possible to
submit the IHT400 to HMRC and make the grant application to the Probate
Registry simultaneously, provided the probate application is marked to say that
this has been done.</span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="color: black; font-family: "Arial","sans-serif"; font-size: 10.5pt;">NB: Do not be fooled by reference to ‘probate fees’ in the
Government’s consultation documents.<span style="mso-spacerun: yes;"> </span>A
grant of probate is issued where a person dies having made a Will but intestate
estates (for which a grant of letters of administration is usually made) will be
liable for the fee increases as well.<span style="mso-spacerun: yes;">
</span>There is still no excuse for dying without a Will!</span></div>
</div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-57259041716280923052017-02-23T07:58:00.004+00:002017-02-23T07:58:48.144+00:00A simple way for non-dom married couples to manage the Inheritance Tax on UK residential property from 6 April 2017
<br />
<div style="margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Offshore
companies holding UK residential property will no longer be opaque for UK
Inheritance Tax (<b style="mso-bidi-font-weight: normal;">IHT</b>) purposes from
6 April 2017.<span style="mso-spacerun: yes;"> </span>The change is being
achieved, courtesy of the Finance Bill 2017 as currently drafted, by removing
IHT ‘excluded property’ status from an interest in a closely held company (see the
15 December 2016 blog for a brief definition) which derives its value, directly
or indirectly, from UK residential property.<span style="mso-spacerun: yes;"> </span></span><a name='more'></a>
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">In
plain English, that means that anyone owning a right or interest in such a
company will have an asset that will be taxable to 40% IHT if the person owns
that interest on death.<span style="mso-spacerun: yes;"> </span>The same
situation applies if instead the person is a partner in a partnership invested
in UK residential property.</span><br />
<br />
<div style="margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">From
the introduction of the Annual Tax on Enveloped Dwellings (<b style="mso-bidi-font-weight: normal;">ATED</b>) in 2013, using a company to hold a UK residential property
came with an annual ATED tax bill, if the property was simply used as a family
residence, but as the company structure prevented the UK property from being
exposed to IHT, this was an annual price that many non-UK domiciled families
were willing to consider paying.<span style="mso-spacerun: yes;">
</span>However, now that the IHT protection of the company is being lost, as a
result of the Finance Bill 2017 changes, a key reason for keeping a UK
residential property in an offshore corporate structure is about to be
lost.<span style="mso-spacerun: yes;"> </span>Not surprisingly, therefore, removing
the residential property from the corporate structure into personal ownership
is becoming more prevalent.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">For
many non-domiciled families with UK residential property interests, this will
be their first brush with IHT.<span style="mso-spacerun: yes;"> </span>Two key
planning points will be of interest to non-dom families faced with this new
predicament.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Firstly,
a tax deferred is potentially a tax mitigated.<span style="mso-spacerun: yes;">
</span>Married couples jointly owning UK residential property in their personal
capacities should ensure that they make UK Wills leaving their UK residential
property outright to each other on death or, if that is not desired, in a
certain sort of trust written into the Will instead, which gives the surviving
spouse a life interest in the property.<span style="mso-spacerun: yes;">
</span>If a Sharia compliant distribution will be required on death, a suitably
flexible life interest will trust may still offer an acceptable solution.<span style="mso-spacerun: yes;"> </span>Structuring matters this way will ensure
that, on the death of the first spouse, their interest in the UK property will
attract the benefit of the generous, 100% IHT spouse exemption, so that no IHT
will be payable on the first spouse’s death.<span style="mso-spacerun: yes;">
</span>The deferral will give the surviving spouse the opportunity to sell the
UK residential property and take the sale proceeds out of the UK before the
surviving spouse’s death.<span style="mso-spacerun: yes;"> </span>As long as the
survivor does not own UK residential property at their death, there will be no
IHT provided the sale proceeds are abroad.<span style="mso-spacerun: yes;">
</span>For some families, this simple estate plan will suffice.<span style="mso-spacerun: yes;"> </span>In short, making a UK Will in the correct
format secures a complete IHT exemption for non-dom married couples on the
first death.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">If
the corporate structure owning the UK residential property interest is to be
retained notwithstanding these changes, the owner of the interest in the
company should ensure that their interest is left to their spouse in a way that
attracts the IHT spouse exemption.<span style="mso-spacerun: yes;"> </span>As
the company will invariably be a non-UK company, advice should be sought in the
jurisdiction in which the company is registered as to whether making a Will in
that jurisdiction will be the best means of transferring the interest in the
company to the surviving spouse on death.<span style="mso-spacerun: yes;">
</span>An English tax adviser can confirm whether the terms of any foreign Will
will secure the IHT spouse exemption.</span></div>
<br />
<div style="margin: 0cm 0cm 10pt; text-align: justify;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Secondly
- be wary of the potential IHT consequences of lifetime gifts of personally
held UK residential property.<span style="mso-spacerun: yes;"> </span>The IHT
legislation prevents lifetime gifts of assets being effective for IHT purposes
if, at any later stage, the gifted property is not enjoyed to the virtue entire
exclusion of the giver.<span style="mso-spacerun: yes;"> </span>These are
referred to as gifts with reservation of benefit.<span style="mso-spacerun: yes;"> </span>According to HMRC, that means that if parents
give their occasional London residence to, say, their children and continue to
occupy that residence in the absence of the children for more than two weeks
each year thereafter, the residence will still be taxed to IHT on a parent’s
death, even if the parent had made a Will in the format above.<span style="mso-spacerun: yes;"> </span>There are a couple of statutory let outs to
the reservation of benefit rules for gifts involving residences but, in
general, gifts with reservation of benefit are to be avoided at all costs. </span></div>
</div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-87551868915262144212017-02-09T08:04:00.000+00:002017-02-09T08:04:51.276+00:00Finance Bill 2017 tax changes: how can UK resident non-doms protect their offshore trusts?
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "Arial","sans-serif";">To
date, UK resident non-doms may not have been greatly impacted by the UK tax
system’s plethora of measures to try to get the foreign income and gains
received by offshore trusts (i.e. trusts that are not UK tax resident) taxed in
the UK. This is because one of the key anti-avoidance provisions, the
‘S.86 Settlor Charge’ which can make a trust’s settlor liable for the offshore trust’s
gains, only applies to settlors who are both resident and domiciled in the
UK.</span><a name='more'></a><span style="font-family: "Arial","sans-serif";">Its
sister charge, the ‘S.87 Beneficiary Charge’, can apply to match trust gains
with distributions and benefits (‘capital payments’) to the trust’s
beneficiaries.<span style="mso-spacerun: yes;"> </span>This will not trouble a
UK resident non-dom beneficiary either, provided the capital payments are made
or enjoyed outside the UK, and kept there, and the resident non-dom claims the
remittance basis of taxation. </span><br />
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "Arial","sans-serif";"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "Arial","sans-serif";">Similarly,
the Settlement regime and the Transfer of Assets Abroad provisions in the current
Income Tax legislation can also tax foreign trust income on settlors. These are
manageable if the settlor is claiming the remittance basis of taxation and
capital payments are not remitted to the UK.<span style="mso-spacerun: yes;">
</span></span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "Arial","sans-serif";"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "Arial","sans-serif";">However,
long term UK resident non-doms could find that, unless they move quickly, the
taxation of their offshore trusts, as they currently know it, changes for them
from 6 April 2017. Based on the current draft Finance Bill 2017, those
non-doms resident in the UK for 15 or more out of the 20 income tax years,
ending with the tax year prior to the one in question (so for tax year
2017/2018, starting 6 April 2017, the 20 years is up to and including tax year
2016/2017), will be deemed to be UK domiciled for Income Tax and Capital Gains
Tax purposes. In other words, access to the remittance basis of taxation
is to have a time limit placed upon it – a maximum of 15 years for those
individuals here for a continuous period of 15 tax years. </span></div>
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "Arial","sans-serif";"><br /></span></div>
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "Arial","sans-serif";">Stripped of the
remittance basis of taxation, UK resident deemed dom settlors could feel the
full force of S.86 and be taxed on trust gains as they arise. Under new
rules contained in the Finance Bill, capital payments to close family members
will also be taxed on a UK resident settlor (this will apply to all UK resident
settlors, be they non-dom or deemed dom, from 6 April 2017) if they are not liable
for UK tax on the close family member (because the family member is a
remittance basis user, for example).<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "Arial","sans-serif";"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "Arial","sans-serif";">The
picture is not so gloomy for trust income. Draft legislation just
published confirms that foreign trust income will only be taxed on UK resident
settlors if they or close family members actually receive a benefit from the
trust (as for gains). UK resident settlors will no longer automatically
be taxed on foreign trust income simply because they are also a potential
beneficiary of the offshore trust.<span style="mso-spacerun: yes;"> </span><a href="https://www.blogger.com/null" name="_CurrentPage"></a></span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "Arial","sans-serif";"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "Arial","sans-serif";">So
does this mean that soon to be deemed doms should abandon their offshore
trusts? Far from it. Offshore trusts continue to offer a shelter
from UK Inheritance Tax for assets placed into them before the settlor becomes UK
domiciled, deemed or actual. And, going forward, settlors and their close
family members who can leave capital and income in the trust without taking a
benefit will still find that foreign income and gains can be rolled up in an
offshore trust free of UK Income Tax and Capital Gains Tax, provided that the
offshore trust meets the criteria for the new status of ‘protected trust’
offered in the Finance Bill 2017. This requires there to be no
capital or income additions to the trust by the settlor or another trust of
which the settlor is a beneficiary or the settlor of that trust. </span></div>
<br />
<div style="margin: 0cm 0cm 0pt;">
<span style="font-family: "Arial","sans-serif";"> </span></div>
<span style="font-family: "Arial","sans-serif"; mso-ansi-language: EN-GB; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin;">Any non-dom UK resident settlors about to become
deemed domiciled should get their offshore trusts screened now, to identify
potential sources of additions. Apart from a few exceptions, any
addition, of however much and even if inadvertent, from 6 April 2017, will mean
that the protected status is lost for good and the offshore trust’s income and
gains are then assessed on the UK resident deemed dom settlor as they arise.
The stakes could be high. </span></div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-18554309176757575942017-01-26T08:09:00.001+00:002017-01-26T08:09:20.631+00:00Long term UK resident non-doms to be deemed UK domiciled
<br />
<div style="margin: 6pt 0cm; text-align: justify;">
<span style="font-family: Arial;">The UK Government has released draft
legislation giving effect to its proposal to deem the domicile status of
certain UK resident non-doms to be UK domiciled, regardless of their actual
domicile.</span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">The changes only apply to non-doms who, on or after 6 April
2017, have been tax resident in the UK for 15 out of the previous 20 tax
years. For example, in tax year 2017/2018 beginning on 6 April
2017, the changes would only affect any individual who has been resident in the
UK continuously since UK tax year 2002/2003 or earlier. These non-doms
will be deemed to be UK domiciled. </span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Becoming deemed UK domiciled has a number of implications
for UK taxes.</span><a name='more'></a><span style="font-family: Arial;">The main implications for personally held assets are:</span><br />
<br />
<div style="margin: 6pt 0cm;">
<i><span style="font-family: Arial;">Loss of access to the remittance basis of taxation</span></i></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">The remittance basis is a favourable system of taxation
allowing foreign income and gains to remain outside the scope of UK tax unless
remitted to the UK. Currently any non-dom, no matter how many years
resident in the UK, can claim this basis of taxation, although some have to pay
a charge for it. From 6 April 2017, deemed domiciled individuals cannot
access the remittance basis of taxation and will be liable to UK Income Tax (<b style="mso-bidi-font-weight: normal;">IT</b>) and Capital Gains Tax (<b style="mso-bidi-font-weight: normal;">CGT</b>) on their worldwide income and
gains in the year in which they arise.</span></div>
<br />
<div style="margin: 6pt 0cm;">
<i><span style="font-family: Arial;">Exposure to Inheritance Tax (<b style="mso-bidi-font-weight: normal;">IHT</b>)</span></i></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Personally held assets wherever situated in the world will
be exposed to IHT at 40% on death. All other aspects of the IHT regime,
including the need to survive lifetime gifts by seven years and not to retain
benefits in gifts in order to make effective gifts for IHT purposes, will apply
to worldwide assets.</span></div>
<br />
<div style="margin: 6pt 0cm;">
<b><span style="font-family: Arial;">Rebasing opportunity: for long term resident non-doms
only</span></b></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">The previously trailed rebasing opportunity will allow
inherent gains in assets as at 6 April 2017 to be wiped so that, on a
subsequent disposal whilst deemed UK domiciled, a non-dom individual will not
suffer CGT on the pre 6 April 2017 element of the gain. The qualifying
criteria have slightly altered and are now the following:</span></div>
<br />
<ul style="direction: ltr; list-style-type: disc;">
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 6pt; mso-add-space: auto; mso-list: l0 level1 lfo1;">
The asset disposed of simply needs to be a
personally held non-UK situated asset (or if it has been a UK situated asset in
the past, it ceased to be so from 16 March 2016 until 5 April 2017). The
previous requirement to have held the asset on a certain date in 2015 has been
dropped. It remains the case, however, that rebasing is not available for
assets held in trust and only if the disposal of the asset will give rise to
gains taxable to CGT, as opposed to IT (so beware offshore income gains).</div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
The individual must become deemed domiciled on 6
April 2017. Unfortunately if an individual becomes deemed domiciled in a
later tax year, rebasing is not available so re-examine the residency status of
individual tax years if necessary, to see if more tax residency years can be
found if needed.</div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
The Remittance Basis Charge (<b style="mso-bidi-font-weight: normal;">RBC</b>) must have been paid for at least
one tax year. Claiming the remittance basis is insufficient on its
own. It may be possible to amend a return for a previous tax year in
order to claim the remittance basis of taxation if necessary.</div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
It will be necessary to elect out of rebasing,
on an asset by asset basis. Rebasing will be automatic on assets that
qualify but an election out will allow losses to be claimed and utilised.</div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 6pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
The individual must not be a ‘formerly domiciled
resident’, meaning someone born in the UK with a UK domicile of origin. </div>
</li>
</ul>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Non-doms will still need to think carefully about how the
non-gain element of the non-UK asset will be taxed on disposal, if some or all
of the proceeds of sale are to be brought into the UK. This is where the
mixed fund cleansing opportunity (explained below) may help to prevent so-called
mixed funds being brought to the UK after the asset is disposed of, with the
punitive UK tax consequences that usually follow.</span></div>
<br />
<div style="margin: 6pt 0cm 0pt; mso-add-space: auto;">
<b><span style="font-family: Arial;">Mixed
fund cleansing opportunity: for all non-doms</span></b></div>
<br />
<div style="margin: 12pt 0cm 0pt; mso-add-space: auto;">
<span style="font-family: Arial;">All
resident non-doms can bring funds untainted with any foreign income and gains
which have arisen in a period of UK residency (called ‘clean capital’) to the
UK without having to worry about having to pay UK tax on them. Accordingly
clean capital is a precious commodity. The mixed fund cleansing
opportunity allows non-doms already resident here to create more clean capital
to bring into the UK – a tempting prospect if the supply of clean capital to
cover UK living expenses could run out before the non-dom is ready to leave the
UK and cease residency.</span></div>
<br />
<div style="margin: 0cm 0cm 0pt; mso-add-space: auto;">
<span style="font-family: Arial;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; mso-add-space: auto;">
<span style="font-family: Arial;">The
good news is that the opportunity is open for a year longer than previously
announced. It will run from 6 April 2017 to 5 April 2019. </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; mso-add-space: auto;">
<span style="font-family: Arial;"> </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; mso-add-space: auto;">
<span style="font-family: Arial;">In
contrast to rebasing, there is no requirement to become deemed domiciled on 6
April 2017 and no requirement to have paid the RBC; just to have claimed the
remittance basis. </span></div>
<br />
<div style="margin: 0cm 0cm 0pt; mso-add-space: auto;">
<span style="font-family: Arial;"> </span></div>
<br />
<div style="margin: 0cm 0cm 6pt; mso-add-space: auto;">
<span style="font-family: Arial;">The
quid pro quo for this generosity is that it will only apply to cash in non-UK
bank accounts, so to create clean capital from non-cash assets, they will have
to be liquidated and it must be possible to identify the different elements of
the proceeds, so that if the asset was purchased from clean capital, the
original clean capital corpus must be readily distinguishable from subsequent
foreign income and gains, especially if these were reinvested or commingled
with the original clean capital. </span></div>
<br />
<div style="margin: 6pt 0cm;">
<b><span style="font-family: Arial;">Heading for the exit?</span></b></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">If a non-dom individual is currently non-UK resident or will
be so before 6 April 2017 but, due to recent UK residency, would satisfy the
new 15/20 year test on 6 April 2017, the changes will not apply to them if they
maintain their non-UK residency.</span></div>
<br />
<div style="margin: 6pt 0cm 0pt;">
<span style="font-family: Arial;">However,
anyone who will be deemed UK domiciled from 6 April 2017 and then leaves the UK
would have to stay non-UK resident for six complete UK tax years before being
able to return to the UK with a re-set clock and start claiming the remittance
basis of taxation again. At least ceasing UK residency would allow
foreign income and gains to be enjoyed free of IT and CGT again immediately
though, as exposure to these taxes requires residency. The new
legislation imposes a different rule for IHT – only three complete tax years of
non-UK residency will be required to lose deemed domicile status for IHT
purposes but in this period, exposure to IHT on worldwide assets will continue
as IHT exposure only requires a UK domicile; UK residency status is not also a
requirement.</span></div>
</div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-54522238374331737342017-01-12T09:37:00.002+00:002017-01-12T09:37:25.592+00:00‘Toxic’ survivorship clauses: does your Will contain one?
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Do you have a survivorship clause in your Will?<span style="mso-spacerun: yes;"> </span>Chances are you do, if you leave assets to
someone outright in your Will.<span style="mso-spacerun: yes;"> </span>The
mischief that these clauses are designed to avoid is this.<span style="mso-spacerun: yes;"> </span>If A gives a gift to B in his Will and B dies
the day after A, B’s estate will get the gift and it will be B’s Will that
decides where A’s gift ends up.<span style="mso-spacerun: yes;"> </span>However,
in these circumstances, A may have wanted someone else to get the gift instead
(A may not like B’s choice of heirs!).<span style="mso-spacerun: yes;">
</span>Survivorship clauses are meant to solve this problem.<span style="mso-spacerun: yes;"> </span>They also prevent the delay associated with
the same money being administered through two separate estates and can reduce
the total Inheritance Tax bill on both estates.<span style="mso-spacerun: yes;">
</span></span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Survivorship clauses introduce a condition of survivorship
to an otherwise outright gift in a Will – for example: ‘I give £100,000 to my
nephew if he survives my death by 28 days’.<span style="mso-spacerun: yes;">
</span>Sometimes a catch-all survivorship clause is included instead; for
example: ‘My estate is to be divided as if any person who dies within 28 days
of my death had predeceased me’.<span style="mso-spacerun: yes;">
</span>However, this exact catch-all phrase unfortunately caught out the
estates of the late Mr and Mrs Winson, as recently decided in the case of <i style="mso-bidi-font-style: normal;">Jump </i>v<i style="mso-bidi-font-style: normal;"> Lister</i> [2016] EWHC 2160 (Ch).</span><a name='more'></a><br />
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Mr and Mrs Winson made similar Wills leaving everything to
each other but if that gift failed, each Will contained a near identical list
of cash gifts to be made, totalling £214,500 in each Will, and the rest to two
nieces.<span style="mso-spacerun: yes;"> </span>Their Wills contained the above
survivorship catch-all clause.</span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Unfortunately, Mr and Mrs Winson died of natural causes at
home and, as it was impossible to say which survived the other, English law (specifically
the commorientes rule in section 184 Law of Property Act 1925, which is
designed to help determine ownership of assets where survivorship is uncertain)
stepped in to deem the younger (Mr Winson) to have died last. Therefore, in Mrs
Winson’s case, her husband was deemed to survive her because he was younger but
not by 28 days and so the gift to him failed.<span style="mso-spacerun: yes;">
</span>In Mr Winson’s case, his wife as the elder was deemed to have already
predeceased him and so the gift to her automatically failed.<span style="mso-spacerun: yes;"> </span>The result was that the recipients of the
cash gifts received the same gift twice, from each Will.<span style="mso-spacerun: yes;"> </span>As there was no ambiguity in the wording of
the survivorship clause, the court felt unable to reach any other conclusion.<span style="mso-spacerun: yes;"> </span>Whilst Mr Winson had asked for confirmation
from the solicitor draftsman that the legacies would not be paid twice, Mrs
Winson had not. <span style="mso-spacerun: yes;"> </span>Therefore there was
insufficient evidence of her intentions on the matter to found a claim for
rectification of her Will, to prevent the cash gifts being made twice. </span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Not all survivorship clauses are ‘toxic’ but in this case, a
combination of unusual circumstances and a lack of appreciation about how the
commorientes rule would operate on the survivorship clause in the Will resulted
in unintended consequences.<span style="mso-spacerun: yes;"> </span>The
survivorship clause should have been disapplied in respect of the gift to the
spouse in the Winsons’ Wills.<span style="mso-spacerun: yes;"> </span>The case
shows that it’s wise to get the will-drafter to focus on the issue by
confirming in writing how the survivorship clause </span><a href="https://www.blogger.com/null" name="_CurrentPage"></a><span style="font-family: Arial;">could
operate.<span style="mso-spacerun: yes;"> </span>The case is also a clear
reminder that Will drafting is a tricky business.<span style="mso-spacerun: yes;"> </span>Mr and Mrs Winson could not have spotted the
issue even by reading their Wills carefully.<span style="mso-spacerun: yes;">
</span>No one who was unaware of the commorientes rule would have either.</span></div>
</div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-37765045459183967902016-12-15T08:02:00.000+00:002016-12-15T08:05:15.772+00:00UK residential property in offshore structures: more surprises from the Government<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">The Government has confirmed its intention to make UK
residential property held indirectly by non-doms through an offshore structure chargeable
to UK Inheritance Tax (<b style="mso-bidi-font-weight: normal;">IHT</b>).<span style="mso-spacerun: yes;"> </span>As planned, this will begin on 6 April 2017.</span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">Although the proposal was first announced as far back as
July 2015, draft legislation effecting this change was only published on 5
December 2016 – and it contains some surprises.</span><br />
<a name='more'></a><span style="font-family: "arial";"><span style="background-color: white;"></span></span><b style="mso-bidi-font-weight: normal;"><span style="font-family: "arial";">Main features of the
draft legislation</span></b><br />
<br />
<div style="margin: 6pt 0cm;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "arial";">Affected structures
clarified</span></i></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">Owners of interests in partnerships and closely held
companies whose value is derived, directly or indirectly, from UK residential
property, are the key targets.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">A close company broadly means one owned by five or fewer
participators (essentially anyone who has an interest in the company, not just
shareholders), or owned only by directors, who together control the company.</span></div>
<br />
<div style="margin: 6pt 0cm;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "arial";">Debt in the structure</span></i></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">The Government’s 18 August Consultation envisaged that debt
funding provided by connected parties would be ignored when valuing an interest
for the purposes of these changes.</span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">This proposal has been shelved.<span style="mso-spacerun: yes;"> </span>Instead, any person providing a loan, or
offering money or money’s worth by way of security, collateral or guarantee, to
an individual, a partnership or a trust where the funds are used to finance the
acquisition, maintenance or enhancement of UK residential property will be
treated as having an asset that is within the charge to IHT.<span style="mso-spacerun: yes;"> </span>Funds used to invest in close companies or
partnerships who carry out the acquisition etc. instead are also caught.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">However, any such loan can be deducted (unless otherwise disallowed
under existing IHT legislation) when valuing the close company or partnership
interest.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">It does not matter when the loan or collateral etc. was
provided, making this element of the legislation retrospective.<span style="mso-spacerun: yes;"> </span>The entire value of the collateral or
guarantee will be subject to IHT, regardless of the value of the UK residential
property that it relates to.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">If the close company has liabilities and owns a number of
assets, in addition to UK residential property, the liabilities are to be
attributed to all the property rateably (regardless of the actual
position).<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 6pt 0cm;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "arial";">Two year tail</span></i></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">After 6 April 2017, for owners of qualifying company or
partnership interests or who have lent funds or provided collateral or a
guarantee, IHT exposure will continue for two years after ownership of the
qualifying interest or the other arrangement ceases.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 6pt 0cm;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "arial";">Secondary IHT
liability for company directors dropped</span></i></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">The Government had planned to make directors of affected
close companies liable in certain situations to any IHT that may arise under
the new rules, if the company was the legal owner of the UK residential
property.<span style="mso-spacerun: yes;"> </span>However in the Autumn
Statement, the Government announced that it would consider alternative
approaches to enforcement.</span></div>
<br />
<div style="margin: 6pt 0cm;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "arial";">New TAAR</span></i></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">A widely worded Targeted Anti-Avoidance Rule will apply to
counteract any arrangements whose purpose, or main purpose, is to secure a tax
advantage by avoiding or minimising the effects of the new look-through rules.</span></div>
<br />
<div style="margin: 6pt 0cm;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "arial";">Planning points</span></b></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">The changes will be of concern to individual owners of close
company and partnership interests, and trustees, who must now get to grips with
the IHT relevant property regime and its periodic charges to IHT.<span style="mso-spacerun: yes;"> </span>Here are some points for consideration:</span></div>
<br />
<ul style="direction: ltr; list-style-type: disc;">
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 6pt; mso-add-space: auto; mso-list: l0 level1 lfo1;">
As the definition of a participator in a close
company is very wide, it may be worth checking whether all companies within the
structure are really closely held.<span style="mso-spacerun: yes;">
</span>Ownership of UK residential property through unit trusts or widely held
companies will act as a block against these provisions.<span style="mso-spacerun: yes;"> </span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
The proposed two year tail provides another
major incentive to de-envelope before 6 April 2017 for those who have decided
that it is the right course of action for them.<span style="mso-spacerun: yes;">
</span>The Government confirmed in its consultation response that no
de-envelopment relief will be provided. </div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
Structures must now be reviewed for the
existence of loans, security, collateral or guarantees so that the IHT
implications for the providers of those assets can be assessed and
consideration given to changing the finance structure if possible and desirable.</div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
If a close company with liabilities contains a
mixture of assets including UK residential property, consider moving the non-UK
residential property out of the company so that the value of the close company
shares under the new IHT rules will be reduced by the liabilities as much as
possible.<span style="mso-spacerun: yes;"> </span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 6pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
The introduction of the TAAR will make contrived
avoidance of the new rules risky.<span style="mso-spacerun: yes;"> </span>The
difficulty will be determining when the line is crossed. </div>
</li>
</ul>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: "arial";">The final version of the legislation will be subject to
confirmation at Budget 2017, for which no date has been announced as yet but
which is likely to take place in</span><a href="https://www.blogger.com/null" name="_CurrentPage"></a><span style="font-family: "arial";"> mid-March
2017.<span style="mso-spacerun: yes;"> </span></span><br />
<span style="font-family: Arial;"><br /></span><br />
<span style="font-family: Arial;"><em><span style="font-size: x-small;">Happy Christmas to all my readers around the world! Next post: Thursday 12 January 2017</span></em> </span></div>
</div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-9725128845155550092016-12-01T10:17:00.004+00:002016-12-01T10:17:34.300+00:00Get ready for another ATED valuation date
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">The Autumn Statement on 23
November contained no further detail about how the Government’s proposals for
achieving Inheritance Tax transparency for offshore structures from 6 April
2017 is going to work in practice.<span style="mso-spacerun: yes;">
</span>However, in rather ominous fashion, the Government did use the occasion
to confirm that the changes are going ahead as planned from 6 April 2017.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Non-doms owning UK residential
property through offshore trusts, companies or other vehicles need to get their
skates on if they are to get any reorganisations finished by 6 April 2017 (see
my blog of 3 November 2016 for one reason why doing so may be desirable).<span style="mso-spacerun: yes;"> </span>However, there may be another good reason –
some may find their company’s Annual Tax on Enveloped Dwellings (<b style="mso-bidi-font-weight: normal;">ATED</b>) bill goes up substantially
too.<span style="mso-spacerun: yes;"> </span>Here’s why.</span><a name='more'></a><br />
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">1 April 2017 is another
‘Valuation Day’ for ATED purposes.<span style="mso-spacerun: yes;"> </span>A
Valuation Day affects how much ATED a company pays.<span style="mso-spacerun: yes;"> </span>At its simplest, ATED is payable if a
non-natural person (be they UK based or offshore) beneficially owns a single
dwelling interest with a taxable value of (currently) more than £500,000.<span style="mso-spacerun: yes;"> </span>The amount of ATED that, say, a company pays
is based on the taxable value of the single dwelling interest, which is
calculated with reference to the open market value of the property on the most
recent valuation date.<span style="mso-spacerun: yes;"> </span>The ATED
legislation provides for five year intervals between valuation dates (with
separate rules for properties acquired in between valuation dates).<span style="mso-spacerun: yes;"> </span>The first valuation date was 1 April 2012 and
the next is 1 April 2017. </span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Many companies may have only
started to pay ATED in 2015 and 2016 because the property that they may have
owned for many years prior to 1 April 2012 was, on that date, only worth
between £1,000,001 and £2,000,000 (for ATED 2015/2016) or £500,001 and £1,000,000
(for ATED 2016/2017).<span style="mso-spacerun: yes;"> </span>The ATED threshold
value dropped to between £1,000,001 and £2,000,000 for the first time in ATED
tax year 2015/2016 and to the lower band in ATED tax year 2016/2017.</span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">The Autumn Statement confirmed
that the ATED rates for 2017/2018 will rise in line with inflation.<span style="mso-spacerun: yes;"> </span>However, for those companies who find that,
in the last five years, their property has jumped into the next ATED valuation
bracket, the increase will be much more substantial, particularly if moving
between some of the higher brackets, as this table of 2016/2017 ATED tax year
rates shows:</span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<b><span lang="EN" style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN;">Chargeable amounts for 1
April 2016 to 31 March 2017</span></b></div>
<br />
<table border="0" cellpadding="0" style="mso-cellspacing: 1.5pt; mso-yfti-tbllook: 1184;">
<thead>
<tr style="mso-yfti-firstrow: yes; mso-yfti-irow: 0;">
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div style="margin: 0cm 0cm 10pt;">
<b><span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Property value</span></b></div>
</td>
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div style="margin: 0cm 0cm 10pt;">
<b><span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Annual charge</span></b></div>
</td>
</tr>
</thead>
<tbody>
<tr style="mso-yfti-irow: 1;">
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">More than £500,000 but not more
than £1 million</span></div>
</td>
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div align="right" style="margin: 0cm 0cm 10pt; text-align: right;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">£3,500</span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 2;">
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">More than £1 million but not
more than £2 million</span></div>
</td>
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div align="right" style="margin: 0cm 0cm 10pt; text-align: right;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">£7,000</span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 3;">
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">More than £2 million but not
more than £5 million</span></div>
</td>
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div align="right" style="margin: 0cm 0cm 10pt; text-align: right;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">£23,350</span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 4;">
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">More than £5 million but not
more than £10 million</span></div>
</td>
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div align="right" style="margin: 0cm 0cm 10pt; text-align: right;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">£54,450</span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 5;">
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">More than £10 million but not
more than £20 million</span></div>
</td>
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div align="right" style="margin: 0cm 0cm 10pt; text-align: right;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">£109,050</span></div>
</td>
</tr>
<tr style="mso-yfti-irow: 6; mso-yfti-lastrow: yes;">
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">More than £20 million</span></div>
</td>
<td style="background-color: transparent; border-image: none; border: rgb(0, 0, 0); padding: 0.75pt;">
<div align="right" style="margin: 0cm 0cm 10pt; text-align: right;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">£218,200</span></div>
</td>
</tr>
</tbody></table>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">(</span><span lang="EN-US"><a href="http://www.gov.uk/"><span lang="EN-GB" style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;"><span style="color: blue;">www.gov.uk</span></span></a></span><span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">: Crown copyright</span><span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">)</span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">For example, a company owning a
property worth £1,700,000 on 1 April 2012 will have had to pay £7,000 of ATED
for the last two ATED tax years only but if the property has risen in value to £2,100,000
by 1 April 2017, the company will be expected to find £23,350 per annum instead
(using current tax year’s rates).<span style="mso-spacerun: yes;"> </span>That
will put the Government’s planned inflationary increases in the shade! </span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">The Government says that the 2017
Valuation Date will affect ATED tax calculations in 2018/2019 onwards.<span style="mso-spacerun: yes;"> </span>This means that there should be no rush to
get 1 April 2017 valuations done in time for the 30 April 2017 deadline for the
next payment of ATED.<span style="mso-spacerun: yes;"> </span>However, the
year’s delay may lull some into a false sense of security.<span style="mso-spacerun: yes;"> </span></span></div>
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">The new ATED valuation date and the expense
involved in getting another valuation done are additional factors to throw into
the mix when working out whether it is worthwhile keeping UK residential
property ‘enveloped’ in an offshore structure after 5 April 2017. </span></div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-27196301071704935822016-11-17T08:14:00.002+00:002016-11-17T08:14:26.656+00:00Appointing joint attorneys? Here’s a welcome clarification of the law
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">Lasting Powers of
Attorney are an essential wealth management tool for anyone who directly holds
UK assets and can name at least someone whom they trust to take decisions on
their behalf.<span style="mso-spacerun: yes;"> </span>They are often made by
individuals concerned about who would continue to make decisions about their
finances or their health and welfare if they ever lost capacity to do so
themselves.<span style="mso-spacerun: yes;"> </span>They are increasingly
popular – registrations of Lasting Powers topped 533,000 in the year to end
March 2016; a 35% increase from the previous year.<span style="mso-spacerun: yes;"> </span>The increasing number of registrations indicates
that there are more Lasting Powers in circulation.<span style="mso-spacerun: yes;"> </span></span><a href="https://www.blogger.com/null" name="_CurrentPage"></a></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">Many clients want to
appoint more than one attorney.<span style="mso-spacerun: yes;"> </span>The
Lasting Power of Attorney legislation permits the appointment of both attorneys
and replacement attorneys, the latter acting as substitutes.<span style="mso-spacerun: yes;"> </span>Joint attorneyships are not uncommon.<span style="mso-spacerun: yes;"> </span>Take the situation of an individual – James –
who wants to appoint his wife Amy and his brother Bill as his attorneys, to act
jointly in relation to his finances.<span style="mso-spacerun: yes;"> </span>His
lawyer tells him that it would be prudent to name a replacement attorney too and
he chooses his son Christopher.<span style="mso-spacerun: yes;"> </span>But his
son is still in his twenties and, if either Amy or Bill or both were able to
act, he would like them to do so in preference to Christopher. <span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">This simple sounding request has had English law in knots for a while.<span style="mso-spacerun: yes;"> </span></span></span></span></span><a name='more'></a><br />
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">English law assumes that, by appointing Amy
and Bill jointly, James is saying that if Amy predeceases him, it doesn’t mean
that he wants Bill to act alone.<span style="mso-spacerun: yes;"> </span>In
other words, James is appointing Amy and Bill as a unit – if he can’t have both
of them acting, neither of them should.<span style="mso-spacerun: yes;">
</span>Often this is not what clients like James want and, fortunately, a recent
case in the High Court (<i style="mso-bidi-font-style: normal;">Miles</i> v <i style="mso-bidi-font-style: normal;">The Public Guardian and Others</i> [2015]
EWHC 2960 (Ch)) has confirmed that James can have what he wants – but only if
he words his Lasting Power correctly. </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">The Miles case
involved a ‘hybrid power’.<span style="mso-spacerun: yes;"> </span>Mrs Miles
wanted her attorneys A and B to act jointly in relation to her home and
transactions with a value in excess of £10,000.<span style="mso-spacerun: yes;">
</span>Otherwise she was happy for A and B to act jointly and severally.<span style="mso-spacerun: yes;"> </span>She only wanted her replacement attorney C to
step in if both A and B couldn’t act.<span style="mso-spacerun: yes;"> </span>The
court approved the following wording:</span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<i style="mso-bidi-font-style: normal;"><span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">"I wish my attorneys A and B to act as
follows:</span></span></i></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<i style="mso-bidi-font-style: normal;"><span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">(1) So long as both attorneys are able and
willing to act, I wish them to make the following decisions jointly: sale of
the house; transactions over £10,000 [or the like] but all other decisions to
be made jointly and severally;</span></span></i></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<i style="mso-bidi-font-style: normal;"><span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">(2) In the event that one of my original
attorneys A and B is unable or unwilling to act, I then appoint the remaining
of my original attorneys A or B, as the case may be, as replacement attorney to
act solely;</span></span></i></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<i style="mso-bidi-font-style: normal;"><span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">(3) In the event of both my original attorneys
being unable or unwilling to act, I appoint C as a replacement attorney to act
solely [with whatever variations the case requires]."</span></span></i></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="mso-ansi-language: EN-GB;"><span style="font-family: Calibri;">James can take comfort
from this case because it provides authority (at paragraph 19) for him to appoint
Amy and Bill jointly in relation to all decisions and state specifically that
if either of them is unable to act, the remaining one is appointed to act
solely, as replacement attorney.<span style="mso-spacerun: yes;"> </span></span></span></div>
<span style="font-family: "Calibri","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US;">James’
advisers might have told him in the past that such an appointment in a Lasting
Power was impossible or would risk being challenged by the Office of the Public
Guardian (as indeed happened to Mrs Miles).<span style="mso-spacerun: yes;">
</span>Clients like James may want to revisit their Lasting Powers now.<span style="mso-spacerun: yes;"> </span></span></div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-12458195145499086882016-11-03T08:10:00.000+00:002016-11-03T08:10:17.482+00:00Non-dom tax changes – IHT periodic charges and offshore trusts
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Well advised non-doms know that UK situated assets should
never be directly held by their offshore discretionary trusts.<span style="mso-spacerun: yes;"> </span>To do so would subject the offshore trust to
periodic charges to UK Inheritance Tax (<b style="mso-bidi-font-weight: normal;">IHT</b>).<span style="mso-spacerun: yes;"> </span>These charges comprise the entry charge, the
ten year anniversary charge, and exit charges, where value leaves the trust
after creation.</span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">To avoid these charges arising, it has been commonplace for
UK situs assets, such as UK real estate, to be owned by an offshore company,
which in turn is wholly owned by an offshore trust.<span style="mso-spacerun: yes;"> </span>The trust’s asset is the shares in the
offshore company – non-UK situs, so the trust is not subject to periodic IHT
charges as it does not directly own UK situated assets.<span style="mso-spacerun: yes;"> </span>As a result, many non-doms have no
understanding of what periodic charges are and when they apply.<span style="mso-spacerun: yes;"> </span>However, if the Government’s proposals in
their August Further Consultation come to pass, ignorance of IHT periodic
charges could cost non-doms and their offshore trusts.</span><a name='more'></a><br />
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">With the proposed move towards transparency, for IHT purposes,
of offshore structures owning UK real estate from April 2017, non-doms owning
UK residential property where a trust is involved in the structure will
suddenly find, in many cases for the first time, that the periodic charges to
IHT will start to bite on their trust.<span style="mso-spacerun: yes;">
</span>Advisers need to help their non-dom clients to prepare for this change
and to consider whether any reorganisation of the trust structure needs to take
place before April 2017, while the trust’s shares in offshore companies owning
UK residential property remain ‘excluded property’ for IHT purposes.</span></div>
<br />
<div style="margin: 6pt 0cm;">
<a href="https://www.blogger.com/null" name="_CurrentPage"></a><span style="font-family: Arial;">If a ten year anniversary charge
falls on or after 6 April 2017, the charge will take into account (among other
things):</span></div>
<br />
<ul style="direction: ltr; list-style-type: disc;">
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 6pt; mso-add-space: auto; mso-list: l0 level1 lfo1;">
the settlor’s history of chargeable transfers in
the seven years prior to the trust commencing (note that anyone adding property
to a trust could constitute a settlor for UK tax purposes);</div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
the value of any property (other than excluded
property, which has remained excluded property throughout) in a related
settlement (i.e. a settlement created on the same day by the same settlor) on
the day that the settlement was created; and</div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 6pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
the value of transfers giving rise to an exit
charge in the previous ten years.</div>
</li>
</ul>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Fortunately, due to a change in the law enacted in the
Finance (No. 2) Act 2015, excluded property held in an offshore trust which has
always been excluded property will no longer be taken into account when
calculating the ten year anniversary charge due on relevant property.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">The charge is, at most, 6%.<span style="mso-spacerun: yes;">
</span>The rules of the calculation differ if the trust was created before
March 1974 or there have been additions to the trust since its creation.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Trustees of trusts created in years ending -7 (after 6 April
in that year) and -8 should continue to monitor developments carefully, as they
will have to get to grips with the new regime and reporting requirements almost
immediately. <span style="mso-spacerun: yes;"> </span>Trying to gather the
necessary information, some of which may be very historic, may prove to be time
consuming.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">IHT periodic charges only apply to settlements for IHT
purposes – offshore companies are not subject to periodic charges.<span style="mso-spacerun: yes;"> </span>Ensuring that offshore trusts do not
indirectly or directly hold UK residential property after 5 April 2017 will
prevent periodic charges applying.<span style="mso-spacerun: yes;"> </span></span></div>
</div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-53050130570321141322016-10-20T08:33:00.003+01:002016-10-20T08:33:38.930+01:00Charitable giving in Wills: charity must be governed by UK law to secure IHT exemption
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">The UK Inheritance Tax (<b style="mso-bidi-font-weight: normal;">IHT</b>)
saving is probably the last reason why anyone would deliberately choose to
leave assets to charity in their Will.<span style="mso-spacerun: yes;">
</span>However, it is the case that leaving assets to charity is very IHT
efficient, for two key reasons.<span style="mso-spacerun: yes;">
</span>Qualifying gifts are 100% IHT exempt – the charity will not have any IHT
deducted from what is left to them.<span style="mso-spacerun: yes;"> </span>In
addition, from April 2012, the estate of anyone leaving at least 10% of their net
estate to charity benefits from a reduced IHT rate of 36%.<span style="mso-spacerun: yes;"> </span>The recent Court of Appeal case of <i style="mso-bidi-font-style: normal;">Routier & Anor</i> v <i style="mso-bidi-font-style: normal;">HMRC</i> ([2016] EWCA Civ 938) is a
reminder, though, that, where the Will contains a foreign element, it is
dangerous to assume that the IHT charity exemption</span><a href="https://www.blogger.com/null" name="_CurrentPage"></a><span style="font-family: Arial;">
will be automatic.</span><a name='more'></a><br />
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Although Beryl Coulter was domiciled in Jersey on her death,
she had over £1,800,000 worth of her assets in the UK.<span style="mso-spacerun: yes;"> </span>UK situated assets held by non-doms are
subject to IHT.<span style="mso-spacerun: yes;"> </span>Mrs Coulter left these
assets, and others, to a trust in her Will whose purpose was to construct homes
for elderly residents of a Jersey parish, or in default to Jersey Hospice Care.<span style="mso-spacerun: yes;"> </span>The trust was governed by Jersey law.<span style="mso-spacerun: yes;"> </span>The executors applied for IHT exemption on
the basis that the funds were being held on a trust for charitable purposes
only.</span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">The Court of Appeal upheld the lower court’s decision that
the will trust was not entitled to any IHT exemption.<span style="mso-spacerun: yes;"> </span>It was not in dispute that the will trust’s
purposes were charitable as a matter of English law and that it did not matter
that the purposes were to be carried out outside the UK.<span style="mso-spacerun: yes;"> </span>However, the problem was that past case law
had construed tax legislation to mean that, for an outright gift to charity to
benefit from the IHT exemption, the charity had to be governed by some part of
the UK and to be subject to the jurisdiction of the UK courts.<span style="mso-spacerun: yes;"> </span>The novel point in this case was that the
funds were left to a charitable trust, rather than to a named charity outright,
so was the law different?<span style="mso-spacerun: yes;"> </span>It was held
that there should be no distinction.<span style="mso-spacerun: yes;"> </span>The
court was of the view that it would be ‘incongruous’ for a UK court to have to determine
whether the purposes of a charity governed by a foreign law (and thus subject
to a foreign court) were charitable purposes as a matter of UK law.<span style="mso-spacerun: yes;"> </span>As the trust was governed by Jersey law, the
IHT exemption was not available.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">Accordingly, if a Will creates a charitable trust, it must
be governed by UK law as one of the preconditions to securing the IHT charity exemption.<span style="mso-spacerun: yes;"> </span>It is worth noting that Mrs Coulter would
have achieved this outcome if she had made a UK Will to deal with her UK assets
and whose terms, including any trusts, were expressed to be governed by English
law.<span style="mso-spacerun: yes;"> </span>This case tends to support the
general rule of thumb that non-doms should make UK Wills to deal with their UK
situated assets. </span></div>
<br />
<div style="margin: 6pt 0cm;">
<span style="font-family: Arial;">However, the appeal is not over yet, as the court is to
review whether the ruling breaches EU legislation requiring free movement of
capital between Member States and third countries.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span></span></div>
</div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.comtag:blogger.com,1999:blog-4672873646009260020.post-14477739611523498602016-10-06T09:50:00.000+01:002016-10-06T09:50:06.149+01:00Long term UK resident non-doms set to lose remittance basis of taxation
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Anyone who does not regard
England as their permanent home (non-dom) but who has been resident in the UK
for at least 15 out of the past 20 income tax years will wake up to a very
different UK tax regime on 6 April 2017, according to a further consultation
issued by the Government on 19 August.<span style="mso-spacerun: yes;"> </span></span><a name='more'></a> <br />
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Currently anyone claiming non-dom
status but who is resident in the UK can choose not to be taxed to UK tax on
their non-UK situated (i.e. foreign) income and gains in the tax year in which
they arise, if those foreign income and gains can be kept outside of the UK or
not used to enjoy a benefit in the UK.<span style="mso-spacerun: yes;">
</span>This is the favourable remittance basis of taxation offered by the UK to
all non-doms, although anyone resident in the UK for at least seven out of the previous
nine income tax years has to pay the remittance basis charge in order to access
the remittance basis.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Under current rules, access to
the remittance basis can continue indefinitely for non-doms, as long as a
non-dom does not acquire an actual UK domicile.<span style="mso-spacerun: yes;">
</span>However, under the new rules proposed by the Government, once the 15/20
year rule applies to a non-dom, the remittance basis is no longer available.<span style="mso-spacerun: yes;"> </span>To be precise, a non-dom will be deemed
domiciled for all UK tax purposes – Income Tax (IT), Capital Gains Tax (CGT) and
Inheritance Tax (IHT) once the 15/20 year rule is met.<span style="mso-spacerun: yes;"> </span>This means that a non-dom will be subject to
UK income tax and capital gains tax on their worldwide income and gains from
directly held assets, on an arising basis – i.e. the year in which that income
or those gains arise – starting from 6 April 2017.<span style="mso-spacerun: yes;"> </span>Therefore many long term resident non-doms
will find their UK tax bill increases in the next tax year, if they remain
resident in the UK and do nothing.</span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Unfortunately none of the above
and the planning ideas in the rest of this note apply to anyone born in the UK
with a UK domicile of origin (broadly, to British parents), who has acquired a foreign
domicile of choice whilst living abroad and has returned to the UK and taken up
UK residency again. </span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<b style="mso-bidi-font-weight: normal;"><span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Transitional sweeteners - some light relief?</span></b></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Rebasing</span></i></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">It would be harsh indeed if a
long term resident non-dom chose to realise an asset after 6 April 2017 and
found that gains relating to the pre 6 April 2017 period of his UK residency (which
could be significant if the asset has been held for many years) were all
taxable to CGT.<span style="mso-spacerun: yes;"> </span>So the Government
proposes to offer a rebasing election, to prevent pre-6 April 2017 gains from
being taxable.<span style="mso-spacerun: yes;"> </span>However, the conditions
for qualification are several:</span></div>
<br />
<ul style="direction: ltr; list-style-type: disc;">
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">The asset must be in
personal ownership – assets in a structure, such as a trust or company, are not
re-based.</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">The asset must have
been owned at 8 July 2015 (the date of the UK’s Summer Budget 2015, when these
changes were initially proposed in outline).</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">The non-dom must have
paid the remittance basis charge for at least one UK tax year before April
2017.</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">The non-dom must become
deemed domiciled under the new rules as at 6 April 2017 (i.e. the 15/20 rule
applies to them).</span></div>
</li>
<li style="color: black; font-family: "Arial","sans-serif"; font-style: normal; font-weight: normal;"><div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 0pt; margin-top: 0cm; mso-add-space: auto; mso-list: l0 level1 lfo1;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">The non-dom must not
have a UK domicile of origin.</span></div>
<div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-add-space: auto;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;"><br /></span></div>
</li>
</ul>
<div style="color: black; font-family: "Calibri","sans-serif"; font-style: normal; font-weight: normal; margin-bottom: 10pt; margin-top: 0cm; mso-add-space: auto;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">So if a person is going to become
deemed domiciled in a tax year after 2017/2018 under the new rules, this option
is not open to them and they may wish to consider taking deliberate steps to
bring about a re-basing by other means before 2017/2018, if they are likely to
become deemed domiciled under the new rules in the short to medium term.<span style="mso-spacerun: yes;"> </span>Some non-doms may wish to weigh up whether it
is worth paying the remittance basis charge in 2015/2016 or 2016/2017 for the
first time, if that will enable them to access the re-basing opportunity.</span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">Mixed fund amnesty</span></i></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">In addition, for all non-doms,
not just those who will become deemed domiciled on 6 April 2017, the Government
is offering a window of opportunity, in tax year 2017/2018, to reorganise
foreign assets which have become ‘mixed funds’ during the period of ownership,
meaning that the asset comprises a mixture of foreign income, gains and the
initial capital.<span style="mso-spacerun: yes;"> </span>For example, a portfolio
of investments which was held before UK residency commenced, and thus would
comprise ‘clean capital’ (capital capable of being remitted to the UK free of
tax), could have had dividends and gains on realised investments ploughed back
into the portfolio for reinvestment over the years.<span style="mso-spacerun: yes;"> </span>The portfolio is a mixed fund as the income
and gains have not been segregated from the initial capital.<span style="mso-spacerun: yes;"> </span>Remitting a mixed fund to the UK is
unattractive for UK tax purposes as the income element, which is taxed at the
highest rates, is deemed to be remitted first in any given tax year.<span style="mso-spacerun: yes;"> </span></span></div>
<br />
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;">However, if the necessary records
exist, the offshore mixed fund can be segregated into its constituent
components of clean capital, foreign income and gains, while it remains
offshore, by putting the different categories into separate accounts.<span style="mso-spacerun: yes;"> </span>A non-dom can then choose to remit only funds
from the clean capital account while UK resident, which will not trigger a UK
tax charge.<span style="mso-spacerun: yes;"> </span>In effect, this opportunity
will enable those eligible to boost their levels of clean capital, perhaps
sufficient to meet their living needs while their UK residency persists.<span style="mso-spacerun: yes;"> </span>But one of the key qualifying conditions is
that the asset must be in the form of a bank account, although assets not in
the form of cash currently which are liquidated and segregated can still take
advantage of this opportunity.<span style="mso-spacerun: yes;"> </span>Only
those with decent accounting records need apply but it is not clear from the
consultation just how scrupulous the records will need to be in order to take
advantage of this.<span style="mso-spacerun: yes;"> </span>If this could be of
interest, assessing the strength of those records is something that can be
usefully done now.<span style="mso-spacerun: yes;"> </span></span></div>
<div style="margin: 0cm 0cm 10pt;">
<span style="font-family: "Arial","sans-serif"; line-height: 115%; mso-ansi-language: EN-GB;"><span style="mso-spacerun: yes;"><em><span style="font-size: x-small;">A fuller version of this article, including some planning points for offshore structures created by non-doms, can be found on Fladgate's website</span></em></span></span></div>
</div>
Helena Luckhursthttp://www.blogger.com/profile/04949935681382175752noreply@blogger.com