Category Archives: Inheritance tax

When did you last update your Will?

Over half of people have not updated their Will. That’s according to a recent online poll. The survey found that while people have started to recognise the importance of Wills when it comes to establishing their final wishes, the majority are still unaware of the need to review them.

However, life can change quickly, so it is recommended that you review your Will after any significant life event, or every five years.

When do you need to update your Will?

The poll shows that people are largely unaware of the impact legislative and domestic changes can have on the distribution of their estate.

For example, even where a Will already exists, most people don’t know that getting married automatically invalidates it.

Here are just some of the instances when you should check your Will:

  • The birth of a child or grandchild
  • When buying a home (or other property)
  • When getting married
  • If you inherit any money or property
  • If you get a divorce
  • If you remarry
  • If you sell a home (or other property)
  • If you start a second family
  • If you need care and assistance.

Each of these circumstances will have an impact on your Will and some could even nullify it. Likewise, increases (or decreases) in wealth also require a Will review as it is crucial to ensure it reflects your current financial situation. That’s why, even if everything else stays the same, it is important to review your Will at least once every five years.

Regulatory amendments, such as inheritance tax changes, should also prompt a review to make sure you are taking advantage of all available exemptions and allowances.

Updating your Will is easy

Efficient and regular planning will give both you and your family peace of mind, and minimise the amount of inheritance tax due. By speaking to one of our expert team and taking the time to update your Will, you can help to ensure that your wealth is passed on in-line with your wishes.

We can provide all the guidance you need to update your Will so that it accurately reflects your wishes. Call us on 01243 216900 or email us at info@legalmatters.co.uk.

Finding our posts interesting? Why not sign up to receive legalchatters, our regular news, views and update service straight to your mailbox. Or Follow Us on FaceBook.

Trusts vs Prenups

Some recent research indicated a rise in families using discretionary trusts instead of pre-nuptial agreements to protect family assets.

Typically, people think of pre-nuptial agreements as the standard approach for couples to take when considering marriage. They are designed to separate personal property and wealth accumulated prior to marriage and safeguard it in the event of a divorce.

However, although a court will take a prenup into consideration if a couple are divorcing, they are not legally binding in the UK.

Whilst courts tend to uphold them, there are many factors which can result in them not being upheld, perhaps if the court deems the agreement unfair, if the couple did not receive independent advice, for instance.

Equally, prenups still hold a certain stigma and couples and families can often feel uncomfortable discussing them.

On the other hand, discretionary trusts are viewed more as a planning tool and allow parents to protect family wealth and assets against a future divorce.

Typically, in this type of trust, the parents will set themselves up as trustees. As well as having full control over the assets, they can also decide who can benefit from the trust whilst maintaining discretion to make payments or transfer assets from the trust if they wish.

Each parent can put up to £325,000 into a discretionary trust during their lifetime. (This figure may be reduced if other gifts have been made). As long as the value of the gifts made and the value being put into the trust do not exceed £325,000 in the last seven years there will be no immediate inheritance tax to pay either. If the parents live for another seven years, these assets will not form part of the estate for inheritance tax purposes.

In light of these factors, discretionary trusts are certainly something that families should consider. Not only can it protect family wealth in the event of a divorce later on, it can also help to reduce a future inheritance tax bill.

Whilst they are complex, setting up a trust can be straightforward if you received the right advice. As well as minimising tax responsibilities a trust can also help to protect your assets in the future.

To find out how you could benefit from a prenup or a trust, give us a call at legalmatters on 01243 216900 or email us at info@legalmatters.co.uk for further details.

Enjoyed this post? Why not sign up to “legalchatters”, our free news, views and updates service direct to your mailbox. Or Like Us on FaceBook.

Could you be a royal legacy?

Most of us at some point have probably wondered about our family history. Sure, you may know about your grandparents’ roots and perhaps even a generation or two before that, but where does your family line start?

What sort of riches or scandal have your ancestors seen? It’s because of this curiosity about our family histories that shows like ‘Who Do You Think You Are?’ have become so popular, as have websites helping you to trace your family tree.

So could you have royal blood? According to a study from researchers at the University of California and the London School of Economics, your last name could be a good indicator of whether you are one of the top 1%.

The study looked at unique surnames among the richest – names like Atthill, Bunduck, Balfour, Bramston, Cheslyn, and Conyngham – and found that when it comes to social mobility, moving in and out of the upper classes takes centuries, not just generations.

In fact, on average upper-class families took between 300 and 450 years before their descendants dropped into the middle classes.

Fascinatingly, of the people who died between 1999 and 2012, if they had one of the 181 rare surnames of wealthy families in the mid-19th century, they were generally three times wealthier than the rest.

Whether you come from generations of wealth or are completely self-made, it is vital that you take steps early on to ensure that you pass it on to your family members as seamlessly as possible.

That may mean considering your likely inheritance tax liabilities, but you will also need to write a Will.

After all, writing a Will is the best possible tool at your disposal to ensure that your assets are divided precisely as you wish after you pass away. If you don’t, you may be exposing your family to unnecessary heartache at an already difficult time.

For help and advice on writing your Will, get in touch with us at legalmatters by calling us on 01243 216900 or emailing us at info@legalmatters.co.uk for further details.

Enjoyed this post? Why not sign up to “legalchatters”, our free news, views and updates service direct to your mailbox. Or Like Us on FaceBook.

What can legacy giving do for your tax bill?

Who are you going to leave money to in your Will? Your spouse or partner is probably first in line, any children or extended members of the family may pop up here and there too.

But what about charity?

Thousands of people every year choose to leave a gift to charity in their Will, whether it’s a fixed amount, a fixed percentage of their estate or even just what’s left after other gifts have been handed out to their surviving loved ones.

It doesn’t have to be a charity that you’ve been particularly involved with during your life either – you can leave money to any registered charity.

There’s another bonus to doing this, besides simply helping a good cause. Legacy giving – where you leave money to a charity – can also reduce your inheritance tax bill.

With inheritance tax, you – or rather your estate – is charged a rate of 40% on every £1 that the estate is valued above the nil rate threshold, which currently stands at £325,000 (though couples essentially enjoy a £650,000 threshold).

However, when you leave money to charity, it won’t count towards the value of the rest of your estate, giving you the opportunity to reduce the value of your estate below that threshold, ensuring no further tax is payable.

Even if your estate is still valued about the threshold, charitable giving can help reduce your tax bill. If you leave 10% of your net estate to charity, then the inheritance tax charged on the remainder of your estate falls from 40% to 36%, a reduction which could see the estate save thousands of pounds in tax.

Many of us regularly give to charitable causes while we’re alive. To do so after your death will not only help support good causes with some of your estate, but for your beneficiaries there are tax benefits that can come with it. Obviously, you should discuss this carefully with your loved ones and your will writer when drafting your Will.

It’s important for you to be clear when drawing up legal documents. Legalmatters can help, we’re always happy to discuss your needs or answer your questions. Call us today on 01243 216900 or email us at info@legalmatters.co.uk for further details.

Enjoyed this post? Why not sign up to “legalchatters”, our free news, views and updates service direct to your mailbox.

Grandparents and gifting options…

Many grandparents are intending to gift their grandchildren financially, with recent research from Saga suggesting that more than £37bn has passed from grandparents to their grandchildren.

Part of this is down to the fact that older people are worried about their grandchildren’s future. The increase in cost of houses, cars and the day to day necessities mean they’re likely to suffer financially and be much worse off than those of generations gone by.

So how could you go about helping out your younger relatives?

Skipping a generation

According to the research, around 14% of parents are skipping a generation and are instead looking to leave assets to their grandchildren.

Making use of a gift allowance

In certain scenarios, grandparents are choosing to give money without causing a tax event such as a £3,000 annual gift allowance. This can cover financial gifts which can be passed over each year, free of Inheritance Tax. Additionally, grandparents can also give away up to £250 to any number of people each year.

Putting it in a trust

With a discretionary trust, it is up to the trustees to determine how and when any potential beneficiaries may be able to access the cash. You can appoint yourself as the trustee, so that you have final say over where the money goes, or you can go for an independent trustee. What’s more, the money within the trust is classed as separate from your estate, so it’s free of Inheritance Tax.

There are also bare trusts, which mean the grandchildren would be completely entitled to whatever is in the trust once they reach 18. Unlike the discretionary trust, the beneficiaries are fixed, so once the trust is declared it is not possible to add (or remove) beneficiaries.

It’s important that you consider where and to whom you want your assets to go to – a comprehensive will is the only place where you can formally set this out.

Don’t keep putting it off. Speak to legalmatters today to make sure that your final wishes are carried out. Call us on 01243 216900 or email us at info@legalmatters.co.uk

For more like this, Follow Us on Facebook or sign up to “legalchatters”, our news, views and updates service direct to your mailbox, coming in early 2018.

Importance of business succession planning…

You’ve spent years building up your business, but have you given any thought to what will happen when you die?

Do you have an exit plan, and if not, how do you go about building one?

First of all you must decide what you want to happen.

Do you want it to be sold? If that’s your goal then how do you make it as healthy and profitable as possible to get the best price when the time comes to sell?

If you have children, do you want them to take over your business, are they able to and do they want to? If you have more than one child, do you want all your children involved; should they own it and someone else manage it?

If you are handing the business on, then you still want it to be in good shape but you also need to think about who will take it over, what training they might need and whether you need to mentor them.

It’s obviously very important to have a Will in place which will detail how you want the business to be passed on and to protect it from inheritance tax. Your business assets may qualify for relief from inheritance tax or there may be things that you can do to reduce the impact of the tax.

For instance, did you know that business relief for inheritance tax reduces the value of a business or its assets for inheritance tax purposes when you die?

The proceeds could one day become taxable for your beneficiaries, so it may well be wise to establish a Business Property Relief Trust which will ensure that the relief is protected.

If you’d rather your family receive money than the responsibility of taking over your company, then have you considered a share purchase agreement? This allows surviving business owners to buy your shares when you die.

To find out more about the different approaches to ensuring your business is protected for your beneficiaries, contact legalmatters. Call us on 01243 216900 or email us at info@legalmatters.co.uk to discuss your particular situation.

Don’t make inheritance tax taxing…

Whenever Brits are polled on their most hated tax, without fail, one tax in particular always finishes top – inheritance tax. As a nation, we want to leave as much as we can after death to our loved ones and the thought of the taxman taking a slice evidently gets our goat.

Here are some simple and efficient ways to reduce your inheritance tax liability and to ensure you leave as little as possible to the taxman.

Making a Will

Did you know that failing to write a Will generally means you will end up paying more inheritance tax? Without a Will in place, your estate will be doled out according to the rules of intestacy, and chances are the taxman will help himself to a healthy chunk of it.

Did you also know that one simple way to reduce your inheritance tax via your Will is to leave some to charity, as these gifts are free of tax?

Understand the thresholds

Inheritance tax is charged on estates once they pass £325,000 in value, at a rate of 40% on everything above that value. However, couples are able to pass their allowance over in full to their partner – in other words, couples have a £650,000 allowance overall. If their combined estate ends up being worth less than that, there will be no tax to pay.

There is also a new additional element to bear in mind here. The ‘main residence’ allowance allows you to pass on your family home to a direct descendent, with an additional tax-free allowance included. For this year it stands at £100,000 and will increase each year until 2020/21 when it hits £175,000. As this allowance applies per person, it will mean a total tax-free allowance of £1 million for couples.

Gifts

Even if you give something away, the taxman will still class it as being part of your estate if you die within seven years of making the gift. It’s a way of preventing people from handing over their home on their deathbed and avoiding the duty. Live longer than seven years and there’s no tax to pay.

However, there are certain gift allowances anyway which are free of tax. Everyone has a £3,000 limit each year, and what’s more this limit carries over to the following year if you don’t use it, to a maximum of £6,000.

On top of that you can give away £250 to each of any number of people every year, while further allowances are in place for wedding gifts to family members, friends and even political parties.

Write your life insurance policy in Trust

Lastly, it’s a good idea to write your life insurance policy in Trust, as this essentially separates it from the rest of your estate.

Usually your life insurance payout will be added to the value of your estate before it is paid out to your loved ones, meaning they have to wait a while in order to receive anything and then may have to pay tax on that payout too.

But writing it in Trust means it is viewed as being outside of your estate, ensuring that your loved ones get every penny and likely get the money quicker to boot.

If you need some help in making the most of your allowances, writing a Will, setting up Lasting Powers of Attorney or Trusts, then speak to a member of the team at legalmatters on 01243 216900 or email us at info@legalmatters.co.uk to find out more.

Business Property Relief; none of your business

Tax. Famously one of life’s inevitabilities, it is a necessary evil that can’t be avoided (just ask Al Capone).

Rightly or wrongly, inheritance tax is often named as one of the UK’s most hated taxes. Thankfully, with the introduction of the Residential Nil Rate Band earlier this year, we are in a much more fortunate position than we have been previously. Theoretically, a married couple can now leave up to £1 million pounds to their descendants without paying a penny to HMRC, but is there anything else you can do to avoid your estate going to the tax man? If you have a business interest or run your own company then indeed there is. So sit down at the back and pay attention.

If you have owned a business for at least two years prior to your death, your executors will be able to claim Business Property Relief (BPR) on certain business assets. Good news, huh? It gets better. Qualifying assets can obtain relief of up to 100%. That means that even if the assets are worth £1 billion, you can give them away without paying a penny in tax.

You can get 100% business relief on a business or interest in a business, or shares in an unlisted company, while 50% relief is available on:

  • shares controlling more than 50% of the voting rights in a listed company;
  • land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled; and
  • land, buildings or machinery used in the business and held in a Trust that it has the right to benefit from.

It’s important to be aware that you can’t claim business relief if the asset is not needed for future use in the business.

What’s more, business assets can actually be given away while the owner is still alive and qualify for business relief. However, certain criteria need to be met – for example, the recipient must keep them as a going concern until the death of the donor.

Despite the booming buy-to-let industry, it should also be clarified that rental property does not qualify for the relief, as it does not meet the criteria of ‘trading’. A business which only generates investment income will not attract BPR, so this excludes:

  • A residential or commercial property letting business
  • A property dealing businesses
  • A serviced office business.

Some business activities are borderline: whether they will qualify for relief depends on the nature of services provided, typically these include holiday businesses, property management and caravan parks – where there is letting, holidays and caravan sales.

Business property relief can make a huge difference to the eventual inheritance tax bill of your loved ones and can also help with succession planning. But it requires careful planning in order to ensure it is available when you need it. Dictating exactly what happens to your assets after you die is incredibly important, whether you own a business or not, and a Will is the best way to do that. It is a terrific way to reduce the uncertainty and upset your loved ones face after you pass away.

If you own a business, or are interested in becoming a business owner, and would like advice on how to include this within your Will, talk to legalmatters. Check your eligibility and ensure that what HMRC is entitled to, is none of your business.

How Pensions Have Changed

It’s just over two years since the pension reforms were introduced to give people more choice in accessing their pensions. One of the benefits it’s brought is that it is encouraging people to think more about their pensions when they’re younger.

According to research by Aegon, 15% of people have realised they need to plan more for their retirement. The number of people talking to an advisor has almost doubled in the last 12 months.

What is particularly good to hear is that since the reforms, 14% of working age people are saving more in their pension pot. As a result, there has been a big jump up since April 2015 in the average amount that people have saved, from £29,000 to £50,000.

Just as it’s important for people to seek advice on how to grow their pensions, the new freedoms mean that people should equally take advice to manage when and how much they take out at retirement.

There may be a temptation to withdraw a large sum and leave yourself with too little to enjoy in a long retirement. Before splashing out on a long, exotic holiday, it pays to take a moment to think about some of the costs you may need to prepare for now.

When planning for your future, you may need to consider funeral and possible future care costs, as well as any outstanding debts. If you have built up a large pot and plan to invest it, you will need solid financial advice to ensure you get the best return.

Figures from HMRC show that many people are taking advantage of the freedom to withdraw money from their pension pot after the age of 55. During the last year, an average of 164,000 people withdrew money each quarter. The average withdrawal per individual was nearly £9,900.

The beauty of the pension reforms is that people have more choice to decide what to do with their pension pot. There are 6 options once you get to age 55:

1. Leave the pot until a later date
2. Buy an annuity
3. Invest the pot to produce an income
4. Withdraw cash in chunks
5. Withdraw the whole pot in one go
6. A mix of the above

Many people are still following the traditional route of buying an annuity, but as the figures go to show, many are also enjoying their new-found freedom. But the choices you make at retirement may have a big implication on the inheritance tax your dependents will need to pay.

It is worth discussing this with both your financial advisor and your Will writer. It’s a complex area and in some situations, it may be advisable to set up a Trust.

For advice on planning your Will please contact legalmatters today on 01243 216900 or email us at info@legalmatters.co.uk.

The Forsyth Saga

Last Friday, news broke of the sad death of Sir Bruce Forsyth. The former Strictly Come Dancing host and all round National Treasure passed away at the age of 89, following a lengthy battle with illness. 

Reports in various national papers have since detailed the star’s alleged estate planning which, according to ‘a friend’, was done in an effort to “avoid it being gobbled up by the taxman”. By all accounts, Sir Bruce has left all of his £17million estate (didn’t he do well?) to his wife outright where it has then been widely reported that his widow Wilnelia will then “be able to transfer up to £650,000 to each relative tax free to avoid inheritance tax”.

Whilst is it true that legacies to spouses are free from inheritance tax by virtue of the spousal exemption, legalmatters shakes its head at the level of misinformation reported. Quite frankly it doesn’t even know where to start with dissecting what a flawed and short-sighted piece of alleged tax planning this represents, but here goes.

So what is the actual position (if indeed these were his wishes) and why might it be regarded as a potentially reckless and ineffective idea?

First of all, the tabloid press have been quoting the figure of £650,000 supposedly available for Wilnelia to generously distribute ‘to each relative’ once Sir Bruce’s legacy has been transferred. Each relative!?! If this was the case, then the majority of estate planners would be out of a job and considered, surplus to requirements.

It would appear that the press have confused the level of transferrable nil rate band available to the surviving spouse on death with what an individual is able to give away tax free during their lifetime. Whilst Wilnelia would indeed be able to benefit from her late husband’s inherited nil rate band of £325,000 to combine with her own on her death, her late husband’s nil rate band is not something that she would be free to make use of during her lifetime. The articles also totally disregard the newly established ‘residential nil rate band’ that this tax year alone would have increased the late entertainer’s tax free allowance by an additional £100,000 (but latterly would allow a combined nil rate band of £1,000,000 if left to lineal descendants).

Any legacy left to a spouse is free of tax by virtue of the spousal exemption. Wilnelia is, of course, free to make gifts to whoever she likes during her lifetime. As long as she were to live another 7 years following such gifts (of any monetary value) these would also be inheritance tax ‘free’. Quite honestly, she could gift the full £17 million equally amongst his 6 children (or whoever she so wishes) as soon as she had received the monies from probate, should she be so inclined, but therein lies the issue.

If indeed this is the arrangement, there is NOTHING obliging Wilnelia to carry out the ‘wishes’ of her late husband. Outright gifts by their very nature, leave the recipient free to do whatever they like with the legacy. Despite ‘wishes’ or ‘instructions’ from the deceased, there is nothing legally binding to see that these are fulfilled. The deceased is simply requesting the recipient to make distributions and is hoping that this will be carried out. Whilst this level of trust is admirable, the private client practitioner knows more than most that trusting your relatives to ‘do the right thing’ on your death is a dangerous assumption.

Let us assume that, despite having no legal obligations to do so, the recipient of the legacy has every honourable intention of making these posthumous gifts. They themselves would need to survive another 7 years which is always a risky proposition. What instead, if they were to lose mental capacity and unable to make such transfers? Michael Schumacher’s tragic accident and resultant circumstances have shown that age, wealth and level of fitness have nothing to do with a lack of mental capacity and inability to manage your own affairs. How can we be sure that Wilnelia shall live a long and untroubled life, free of illness and incapacity? Her ability to make gifts from her late husband’s fortune and to therefore share the wealth and to reduce her own liabilities to inheritance tax is dependent on her being mentally fit and well; certainly, any attorneys that she may have appointed won’t be able to undertake such tax planning ventures without court authority (another common misconception).

So what might Sir Bruce have done to make provision for his children and grandchildren (and indeed he could well have done, because we are commenting on the reporting, not on actual events)?

Lifetime gifting would have been the best starting point. If carried out wisely and cautiously, after careful advice and taking all needs of the parties into due consideration, then lifetime gifting is an excellent way of reducing your tax bill.

And what about the use of trusts? Despite trusts having their own particular tax regimes, they are immensely useful structures to protect and preserve assets against unknown circumstances. Tax shouldn’t necessarily always be the driver, particularly where significant wealth is concerned.

Finally, any charitable giving would have the double benefit of not only being exempt from IHT for the legacy itself, but it could also have reduced his IHT rate to 36% if he had left 10% or more of his total estate to charity. A Brucie bonus if you will.

For the papers to glibly report that Sir Bruce has ‘in one fell swoop’ cannily avoided inheritance tax and at the same time ensured that his wealth lands where he would wish is, in our humble opinion, grossly underestimating the risks and potential issues at hand and is in any event based on apparent mis-reporting of the facts.

Make sure that your wishes are adequately enshrined in the correct, binding, legal documents as the road to court is paved with good intentions. Nice to sue you, to sue you, nice. Speak to a member of the team at legalmatters on 01243 216900 or email us at info@legalmatters.co.uk to find out more.