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Inheritance Tax planning

What is the transferable nil rate band in Inheritance Tax and how can you claim it?

When someone dies, the first £325,000 of their estate is exempt from Inheritance Tax (IHT). If they don’t use all of this allowance, it can be transferred to their spouse’s or civil partner’s estate in due course. This is known as the transferable nil rate band.

This increases the exempt amount for the partner’s estate when they die, meaning they could have a potential IHT threshold of up to £650,000.

The relevant dates

The transfer of the nil rate band can be applied for if the remaining spouse or civil partner died on or after 9 October 2007.

In respect of civil partnerships, the transferable nil rate band can be claimed only if the first partner died on or after 5 December 2005, the date that the Civil Partnership Act became law.

How much nil rate band is transferable?

Where the first spouse or partner to die leaves all of their assets to the remaining spouse or civil partner, no IHT is payable, so the entire £325,000 can be passed to the remaining spouse, subject to the deduction of any non-exempt gifts made during the previous seven years.

How to apply to transfer the nil rate band

Two forms need to be sent to HM Revenue & Customs (HMRC). The first is the standard IHT form, while the second is the application to transfer the unused allowance. There are two options for this second form.

Form IHT217 Claim to Transfer Unused Nil Rate Bank for Excepted Estates

This form should be used when the estate of the first person to die is an excepted estate, ie. IHT was not payable, for example where the estate is worth less than £325,000 or where the assets are left to charity.

Form IHT402 Claim to Transfer Unused Nil Rate Band

Where some of the £325,000 IHT allowance was used by the estate of the first spouse to die, then only the remaining balance can be transferred to benefit the second estate. Other financial information will need to be included on the form, for example gifts made within the last seven years and pension details.

Both forms need to be signed by the estate Executor or Administrator and sent to HMRC together with the main IHT form, IHT400.

A probate lawyer will be able to work out the correct figures to be included on the form, which isn’t always straightforward, for example in the case of disposal of cash or assets by the deceased prior to their death or where gifts are made to charities, which could potentially reduce IHT liability.

To speak to one of our probate specialists, call legalmatters on 01243 216900 or email us at info@legalmatters.co.uk.

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Starting a family

Why you should make a Will when you start a family…

When you’re expecting a baby there’s a long list of things to do to get ready. Making a Will isn’t usually at the top of the list, and for many people it isn’t even something they think about at all. But in reality, it’s an important job that could seriously impact your family’s future.

Nobody wants to think about a situation in which children lose their parents, but covering every eventuality means that once you have children you can relax and enjoy life safe in the knowledge that you have drawn up plans for their future care should the worst happen.

When parents don’t make a Will

If anything happens to you and you haven’t made a Will, then those left behind will not necessarily know what your wishes were with regard to your children’s upbringing.

The authorities will have the right to place your children with the guardian they decide upon, and there could be a delay in finalising this, which could be even more unsettling for all involved.

Failing to plan and talk things over with family members could also cause disagreement between them.

As far as financial provision is concerned, this will be governed by the Rules of Intestacy, and you will have lost the opportunity to appoint your choice of trustees to look after the money you leave and decide how it should best be spent.

Writing your Will when you’re a parent

Writing a Will allows you to clearly set out who you would like to care for your children should you die. You can also make financial provision for your children, choosing the age at which you would like them to inherit any money you leave them. For example, you may decide that you don’t want them to be given a large sum of money at 18, and that you would prefer them to inherit it when they are older and more settled in life.

You will appoint trustees to administer the money until that time and leave instructions for how they can use it for your children as they grow up, for example a private education or money towards the purchase of a home.

The trustees will also be able to pay money to your children’s guardian, for everyday expenditure such as food, clothing and school expenses.

Appointing trustees

Choose people whom you trust implicitly and whom you believe are capable of carrying out your wishes as well as looking after the money that you leave. This fund will eventually be inherited by your children so it is important that it is properly managed.

If you would like to talk to one of our expert wills and trusts lawyers, call legalmatters on 01243 216900 or email us at info@legalmatters.co.uk.

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Client Testimonial

Client Testimonial…

When you lose someone you love it is always a difficult time. Having to deal with the paperwork involved in administering an estate after a death – and when you’re grieving – can be extremely upsetting.

That’s why at legalmatters we will always try to make the process as pain-free as possible for you – and why we’re always delighted to hear from a client when we’ve helped a family or an individual through such a stressful time. So thank you Jane for your kind words.

“Thank you and Megan, and all in the office staff for making my journey – sorting my dad’s estate through yourself and legalmatters – a professional, reassuring and stress free time. It’s been a pleasure and I would highly recommend you to friends.”

Choosing someone to act as your attorney

Signing a Lasting Power of Attorney (LPA) document authorises someone to deal with matters on your behalf, should you become unable to do so yourself.

There are two types of LPAs, one covering property and financial affairs and one covering health and welfare.

It is possible to ask your attorney to deal with your property and financial matters while you are still capable, for example if you have limited mobility and find it difficult to get to your bank. Your health and welfare matters can only be dealt with by your attorney once you can no longer make decisions for yourself.

You can choose to sign only one type of LPA if you wish.

Who should you appoint?

You should choose someone whom you trust implicitly, as they will potentially have a great deal of say over your life and financial affairs.

Your attorney needs to be aged 18 or over and in respect of a financial and property LPA you cannot appoint anyone who has been declared bankrupt or who is subject to a debt relief order.

If you do not feel that you have a family member or close friend who can act on your behalf, it is possible to appoint a professional such as a solicitor, who will charge a fee to deal with your affairs and who will be under a duty to act in your best interests.

Once your LPA is registered with the Office of the Public Guardian (OPG), your attorney will be supervised by them. This could include a visit to you or contact to ensure your attorney is acting effectively. After the first year it is likely that the supervision will be fairly minimal.

What your attorney needs to know

You should ensure that your attorney is happy to be appointed, and that they know what responsibilities this will entail. For example, they will be required to submit an annual report to the OPG explaining the reasoning behind the decisions they have made on your behalf and why they believe the decisions were in your best interests, as well as submitting financial details such as bank statements.

Give your attorney as much information up front as you can, letting them know what you will expect them to do for you and the scope of what they will be dealing with.

Let them think it through carefully and without pressure so that they can make the right decision. If they do choose to act, then discuss your wishes with them so that when the time comes, they will know how you would like them to proceed.

It is a good idea to have a second-choice attorney in place, in case your first-choice is unable or unwilling to act when you finally need them to.

If you would like to discuss appointing an attorney, call legalmatters on 01243 216900 or email us at info@legalmatters.co.uk.

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UK Inheritance Tax

What Inheritance Tax liability do non-domiciled residents have in the UK?

When someone is classed as being domiciled outside of the UK, Inheritance Tax will only be payable on their UK assets.

A person’s domicile is usually their home or permanent place of residence.

However some people may claim the place that their father was born as their domicile, or if their parents were unmarried, then the place of their mother’s birth.

Even if someone was born, educated and works in the UK, it is still possible for them to be a so-called ‘non-dom’, ie. not domiciled in the UK. There are rules requiring an annual remittance to be paid to HMRC each year from the seventh year of residency onwards, but by way of benefit non-doms can avoid paying tax on foreign income or gains, provided the money is not brought to the UK.

Inheritance Tax benefits for non-doms

This benefit also extends to UK Inheritance Tax liability. Property outside of the UK can be excluded when calculating Inheritance Tax liability if the deceased was classed as a non-dom at the time of their death. For those classed as domiciled in the UK, Inheritance Tax is payable on all assets, wherever in the world they may be situated.

Property excluded from Inheritance Tax payments

  • Property situated overseas
  • Property situated overseas and held in trust where the settlor was not domiciled in the UK
  • Foreign currency bank accounts
  • British government securities, national savings and War savings certificates

How to benefit from non-dom status

If you have non-dom status, then by setting up an excluded property trust such as a discretionary off-shore trust can protect your assets from UK Inheritance Tax.

This can be beneficial for those who may have lived in the UK for more than 15 out of the previous 20 years, as it will mean that they are considered as UK-domiciled.

By setting up an excluded property trust, assets will not attract Inheritance Tax even if the settlor then acquires UK domicile.

To talk to one of our experts about tax planning, call legalmatters on 01243 216900 or email us at info@legalmatters.co.uk.

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Life interest in your Will

Leaving someone a life interest in your Will

When making a Will, it is possible to leave someone a life interest in your property or assets.

It may be more prudent in certain circumstances to leave your spouse or partner a life interest in your assets rather than giving them outright ownership.

In particular this can be advantageous if you want to make sure any children you have receive something in the future.

Possible problems in leaving assets outright

Married couples often make duplicate Wills, leaving everything to each other and then after both their deaths, to their children.

The problem with this is that after the death of the first parent, unforeseen circumstances could mean that either the Will becomes invalid or the money in the estate is spent before it can be inherited.

For example, if the remaining parent remarries, any previous Will automatically becomes invalid. If the parent fails to make a new Will, their assets will pass under the Rules of Intestacy, with the majority of the estate going to the new spouse, who is then free to leave it elsewhere in their own Will. Even if they intend to honour an intention to pass the money to the children, it may be spent, for example on care home fees.

Similarly, if a new Will is written, any previous Will is superseded. This could mean that after the death of the first parent, the remaining parent is free to leave the whole estate elsewhere and not to the children.

Finally, if the remaining parent moves to a care home, then assets in the estate can be swallowed up in fees. At present the local authority will only step in to assist with payments when the patient’s total worth falls below £23,250.

How a life interest works

By leaving someone a life interest, you can be sure that ultimately your assets will pass to those you choose.

For example, you can leave your spouse a life interest in your home, which means they can live there as long as they want, but once they have died or left, your share will pass in accordance with your Will and cannot be given elsewhere.

This also prevents your share being used to pay their care home fees.

Similarly you can leave a life interest in other assets, including cash and shares. This allows your spouse access to money and interest for living expenses, but means that the money remaining after their death will go to your children, or whoever you have chosen.

If you would like to discuss whether leaving a life interest in your Will might be suitable for you, call legalmatters on 01243 216900 or email us at info@legalmatters.co.uk.

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Disagreements during Probate

Dealing with disagreement between executors in the administration of probate

The administration of the estate of a loved one can be a difficult job.

There are many decisions to be made at a time when people may be feeling overwhelmed and fraught. It is not uncommon for executors to fall out during this time, which is the last thing the deceased would have wanted.

People may feel that the other executor(s) are not acting in the most beneficial way, or that they are taking over or not sharing information.

Some of the administration tasks and problems that can arise

One of the main jobs after someone’s death is often to clear their property, dispose of their personal effects and put the house up for sale. Selling a home frequently causes friction, even in ordinary circumstances, and when it closely follows a death then emotions can run high.

There are also choices to be made over payments of expenses, who should be allowed to buy assets such as property or valuables, agreeing on valuations and closing or moving bank accounts. One executor may want to hold on to any property until the market improves, while another may want to sell straight away.

The process itself always takes a long time, which can be a source of frustration.

Maintaining a good relationship between executors

One of the key ways to maintain a good relationship between executors is to communicate as much as possible. If something has caused a delay, make sure everyone knows why and that it is unavoidable. If different valuations have been received, make sure the situation is talked through and try and take everyone’s point of view into account.

Stepping aside as an executor

If an executor does not want to act, it is possible to stand down before administration begins. They can either renounce the role permanently or ask for their power to be reserved, which could allow them to apply to court to become an executor at a later date.

If the relationship between executors breaks down completely, it is possible for one of them to apply to the court to have another removed, which the court might do if it believes this is in the best interests of the estate. There is then the option for a new appointment to be made.

Avoiding conflict in estate administration

It is possible to request a professional executor when drawing up your Will. This means that an expert probate lawyer will act as your executor. The advantage of this is that they are experienced in dealing with probate and will also act impartially. It can minimise delay and reassure everyone involved that the estate’s best interests are being observed.

To talk to one of our probate specialists, call legalmatters on 01243 216900 or email us at info@legalmatters.co.uk.

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Are you owed a refund after setting up a Lasting Power of Attorney?

Nearly two million people are due a refund after the Office of the Public Guardian (OPG) overcharged for registering a Lasting Power of Attorney (LPA).

An LPA gives someone the right to manage your affairs after you become incapable of doing so. You can execute an LPA in respect of your health and welfare and/or in respect of your property and financial affairs.

The Ministry of Justice has announced that the OPG overcharged those who registered an LPA between 1 April 2013 and 31 March 2017, and that they are entitled to a refund.

So far only 200,000 claims have been made out of 1.8 million who are qualified to do so.

Making a claim

Either a donor or an attorney can make the claim. They will need to supply the donor’s bank details, as the payment will be made to the donor. A copy of the LPA should also be included.

The claim form can be accessed via the government information page https://www.gov.uk/power-of-attorney-refund. In some cases, including where the donor does not have a bank account or the applicant is a court-appointed deputy, the claim will need to be made by phone by calling the helpline on 0300 456 0300, option 6. The deadline for claims is 1 February 2021.

How much will be refunded?

The amount of the refund will depend on when the LPA was registered, as fees paid differed over the time period in question.

Date Fee Paid                      Refund
April to Sept 2013                 £54
Oct 2013 to March 2014      £34
April 2014 to March 2015    £37
April 2015 to March 2016    £38
April 2016 to March 2017    £45

A claim can be made for each LPA registered. Interest will also be paid at a rate of 0.5 percent.

Who needs an LPA?

It is advisable for everyone to take the time to make an LPA, so that in the event they become unable to manage their affairs, either through illness, injury or incapacity, their chosen attorney can step in to help.

In the absence of an LPA, application would need to be made to the court, which could be an expensive and time-consuming process. This could also mean that you might not have your first choice of attorney acting for you.

You can execute an LPA, then keep it until such time as it is needed, at which point it is registered with the OPG.

If you would like to talk to one of our expert lawyers about drawing up an LPA, call legalmatters on 01243 216900 or email us at info@legalmatters.co.uk.

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Going on holiday

Making a Will before you go on holiday

While no-one really wants another task to do before they go away on holiday, it really is a good idea to make sure you have a valid Will in place before you travel.

Taking a trip will always involve a small risk, and many people take out insurance just in case something happens. Think of a Will in the same way; it probably won’t be needed, but once you have it in place, you can forget about it and enjoy your break.

Increased risk level on holiday

When we’re away, we often try activities we wouldn’t at home, and they may well be things we’re not proficient at. While there is rarely a problem, very occasionally things can go wrong.

Some countries have lower road safety levels than the UK, meaning a higher risk of an accident while travelling. Some places face regular natural disasters such as flooding, subsidence, earthquakes or tsunamis.

There are diseases in some countries that can on occasion be fatal or a risk of injury or poisoning from the local wildlife, and medical care might be of a lower standard than you would wish.

While these are not common occurrences, insurance companies understand that the risks do exist. It makes sense to put a Will in place, in the same way that we might arrange an insurance policy.

Why you should make sure you have a Will

If you die intestate, ie. without a valid Will in place, your money and assets such as your home and personal possessions will pass under the Rules of Intestacy, to particular members of your family. You may have wished to leave your money elsewhere, or in different proportions, but without a Will, no-one will be able to carry out your wishes.

You can also include requests about your funeral, what should happen if you die overseas and details regarding care of any minor children if you have them. This can cover not only who you would like to become their legal guardian, but also financial provision.

It is always a good idea to have a Will in place, even if you aren’t planning any travelling. This applies to every age group, not just older generations. If you have any assets, then it makes sense to make your wishes clear, so that they can go to those you choose.

While no-one enjoys thinking about writing their Will, once it is in place there is usually a sense of relief, knowing that your wishes have been recorded and will be carried out should anything happen to you. In the meantime you are free to relax and enjoy life, including any trips you have planned.

If you would like to talk to someone about writing your Will, speak to one of our team at legalmatters on 01243 216900 or email us at info@legalmatters.co.uk.

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Why you shouldn’t try and draft your own Power of Attorney

Giving someone the power to deal with your affairs can be a good idea, but if the document isn’t drafted carefully it can lead to expensive financial and administrative problems.

A Lasting Power of Attorney is the document which gives someone the authority to deal with financial affairs on behalf of another. It is often signed by older people in anticipation of the time when they may become unable to deal with matters by themselves. It must be executed while the donor is still mentally capable of understanding the authorisation they are giving.

Problems can arise if the document isn’t carefully drafted, clearly and unambiguously setting out exactly what the donor wants the attorney to do for them. There are many decisions to be made, including the following:

How many attorneys?

More than one attorney can be appointed. The document needs to state whether they are able to act jointly and severally or just jointly. If they are only able to act jointly, then every attorney will need to be a party to each individual transaction, for example signing a cheque or authorising a financial transaction.

There is also the option to name replacement attorneys who would step in if one of the original attorneys died. Again, their role will depend on whether the original attorneys were acting jointly or jointly and severally. If the original attorneys had to act jointly, then on the death of any one of them, all of them would be forced to stand down and the replacement(s) would step in.

When can the Power of Attorney be used?

The donor can choose to allow the Power of Attorney to be used before they become incapacitated, for example, to facilitate dealing with banks where mobility is an issue. Alternatively, they may want to manage their own affairs until such time as they are mentally unable to.

Restrictions

The Power of Attorney can cover all financial affairs, or it can contain restrictions, for example, not permitting sale of a house or large cash gifts. It is important that any restrictions are clearly drafted, with no ambiguity.

Other Powers of Attorney

The donor may also have drawn up a personal welfare Power of Attorney to deal with health and welfare matters. If different attorneys are named on that document, financial attorneys may need to cooperate with them to find the best way forward for the donor.

Having a Power of Attorney document professionally drafted by experts is well worth the expense. If a document contains errors or is poorly worded it could end up being contested or being declared invalid. In that case, any legal action or application to the Court of Protection to appoint a deputy would be expensive and could result in the donor’s affairs not being administered as they would have chosen.

If you would like to speak to a lawyer who specialises in drawing up Powers of Attorney, ring us on 01243 216900 or email us at info@legalmatters.co.uk.

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