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.
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 firstname.lastname@example.org to find out more.
Unfortunately fellas, it is a proven statistic that ladies are winning in the longevity stakes, compared to their hairier counterparts.
Figures published by the Office for National Statistics have the average female’s life expectancy coming in at 88.3 years, with the chaps not far behind at a nevertheless none too shabby 85.6 years.
Reasons for this difference are down to a variety of factors; socio economic, geographic and last but not least, being unbelievably stubborn (presumably). In addition, recent data from the ONS also uncovered that different jobs can also affect people’s life expectancy, and not just for the obvious reasons (needless to say, supervillains and Road Runner pest control operatives don’t fare too well).
The study concluded that for both sexes, if you work in a higher managerial position or in a professional occupation, such as a doctor or architect, you can expect to add an additional 365+ days onto your life. If on the other hand you work in what is classed as a ‘routine occupation’ (such as a lorry driver, bar staff or labourer) then statistically, you can shave off just over a year.
More men and women from professional jobs are likely to make their magic 100th birthday than those not working in the professions. Indeed, men are a whopping 3 times more likely to reach this milestone, compared with their non-professional male counterparts.
Since the mid-1980s when this 30-year study commenced, life expectancy across all jobs has been steadily increasing. This is brilliant news. Against all the odds, and in the face of constant nuclear and cold war threats, hairspray related holes in the ozone layer and a diet consisting almost entirely of microwavable meals, e-numbers and Findus Crispy Pancakes, we made it out the other side. Well done everyone!
Naturally, the longer you live, the more risk you have of developing various illnesses. Nearly 60% of those aged 80 or over have a disability. The leading cause of disability, ahead of stroke, heart disease and some cancers, is dementia.
And therein lies the poignant issue; whilst a long life in certainly something to be applauded, surely a happy, healthy and fulfilled life is what we all strive for?
Obviously, none of us can predict the future. For every base jumping, bomb disposal expert who dies peacefully in their sleep well into their 90s, you will have a sensible, cautious, risk assessor who gets hit by a bus at 26. We are only on this beautiful planet for such a short amount of time but being in a job you dislike is certainly one way to make the days feel longer. Life is, quite frankly, too short. So follow your bliss to make the years happy ones, regardless of what job you are in. It’s not particularly realistic to think about changing your job to try to affect the statistics, but it is worth planning ahead.
Whatever your vocation, everyone should have a Will in place, and one which is reviewed from time to time to reflect changing circumstances. Given that the chances are increasing of developing an illness which might affect mental capacity, everyone should have a Lasting Power of Attorney (LPA) set up too.
Legalmatters will definitely be receiving a telegram from the Queen (or presumably the King by then) congratulating us on our centenary. A heady mixture of the best clients in the land and a steady stream of cake, means job satisfaction levels are through the roof and eternal life is surely on the cards.
But if loving your job really is the key to a longer life, surely you can’t get better than the recently advertised ‘International Gin Taster’ as a key to eternal youth? Legalmatters imagines that the successful ‘gintern’ may well live forever (if indeed, their liver can keep up). Chin chin.
Whenever we spot a new wrinkle or grey hair, we often pause for a moment and consider how the years are rolling by. Most of us at some point will also worry about how our health might deteriorate in our later years.
In a recent study by a national law firm, 75% of respondents said they worried about getting older and 70% were specifically concerned about developing dementia. Surprisingly, despite these worries, only 5% had made plans to deal with such an eventuality.
When someone develops an illness such as dementia, or is involved in an accident that takes away their capacity to make decisions for themselves, someone else needs to make decisions for them. But nobody has the automatic right to do so. Neither your partner nor your children nor your closest friends and relatives can, unless you have specifically given them permission in advance in the form of a Lasting Power of Attorney (LPA).
An LPA can only be made while you have the mental capacity to do so. If you lose capacity to make your own decisions and there is no LPA in place, your loved ones will need to apply to the Court of Protection to appoint a deputy to make your decisions for you. They can apply to be appointed as your deputy, but it will be the court that makes this decision rather than you.
It costs £82 to register an LPA with the Office of the Public Guardian.
On the other hand, the costs for setting up a deputy via the Court of Protection are more expensive. The application fee is £400 for each type of deputyship: health/welfare and property/financial affairs. An appeal, if required, is another £400 and if the court decides a hearing is required, that’s a further £500. In addition, there is an assessment fee of £100 for new deputies and an annual supervision fee.
No-one likes to consider what may befall them in the future. It’s a much easier job to plan for though if done in advance. The financial and emotional cost for your family to deal with it after the event can be significant. Perhaps most importantly of all, LPAs allow the individual concerned to document their wishes around what happens to them at a later date and decide who will make those decisions on their behalf.
For help preparing an LPA, please call legalmatters on 01243 216900 or email us at email@example.com.
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 firstname.lastname@example.org to find out more.
As Game of Thrones season 7 is fully underway, the shenanigans of the inhabitants of Westeros are attracting viewers in record breaking numbers. Whether or not this fictional romp of dragons, zombies and war is your cup of tea, once you remove the fantasy element, you are left with the very bread and butter of a private client practitioner’s workload; family relationships, wealth and death. A tenuous link? Perhaps, but undoubtedly these universal themes are very much at the heart of both worlds.
Admittedly, the level of death is a little more frequent and varied than the average probate practitioner’s workload. Her Majesty’s Courts and Tribunal Services have a difficult enough job processing paperwork without having entire family dynasties wiped out in one fell swoop (one can only imagine the Oath drafting…)
But on a serious note, the programme highlights that death will not always present itself in the chronological order of a family tree. Even despite the wealth of information in the public domain, we are still faced with clients who do not have a Will as they believe their wealth will automatically be inherited by their children on their death. The Intestacy Rules will only go so far in handing down your estate to your lineal descendants but, of course, there is so much more to a Will then simply enshrining this course of events.
Warring offspring? Dubious marriage choices? Unruly illegitimate children? All in a day’s work in the Seven Kingdoms yet in the real world, these issues are just as much cause for concern for our clients today. If you are worried about protecting the family wealth (however big or small) correct estate planning can prepare for such eventualities and ring fence funds for your intended recipients without the worry of funds falling into the wrong hands.
Indeed, so many of the show’s main conflict points could have been easily avoided and managed had the characters’ legal affairs been put in order.
Had the ‘Mad King’ been furnished with a fully registered Lasting Power of Attorney, then his appointed attorneys could have stepped it at the first sight of faltering capacity and a much cheerier (and less bloody) outcome could have been achieved by all.
A Lannister always pays their debts, and loans and gifts are indeed an excellent form of estate planning if done in the right way. A flexible family trust is a great way of allowing for loans and repayments to be made to and from the family pot of money. Running out of blood descendants? A trust also allows for the person setting it up (the ‘settlor’) to add friends or charities into the mix.
There is certainly a stark solution for making provision for ‘blended families’ (with children born from different relationships) in a straightforward manner, without having to lose your head.
Whatever your family situation, legalmatters will find the right solution for you to ensure that your death does not leave any nasty surprises for those left behind.
An appropriate, professionally prepared and properly executed Will can provide security for your family, during an already emotional time. There is a time and a place for drama and conflict, and your death shouldn’t be one of them. Make a Will, make your wishes clear, because goodness only knows transferring the ownership of a dragon is an administrative nightmare at the best of times!
With dementia continuing to rise, the importance of Lasting Powers of Attorney (LPA) cannot be overstated. An LPA can be a vital tool, giving a friend, loved one or solicitor the power to make decisions on your behalf should you reach a position where you are unable to.
Safeguards are built into them to ensure they are used appropriately, but there are steps you can take to ensure things do not go wrong.
Choose the right attorney
If you want to prevent any future issues with an LPA, then choosing the right attorney at the outset is crucial. There are many duties involved in acting as an attorney for someone, so you need to pick someone responsible and organised, as well as someone who knows you well and can be trusted to act in your best interests.
You may want to select more than one attorney – this will make abuse of the powers associated with an LPA much harder.
If you do choose more than one attorney, you can set out whether they need to act together or separately for certain issues.
Informing loved ones
One important safeguard is the fact that the ‘donor’ (the person handing over their powers to their attorney) can name up to five people who must be informed before the LPA is registered. It’s important to do this – these loved ones can then step in and dispute the registration, should they believe that the donor was put under undue pressure or the attorney is set to behave in an inappropriate way.
It’s a good idea to speak to your friends and loved ones who aren’t named on the document in advance of organising an LPA too. You can explain why you are doing it and how you want the powers to be used – this can help reduce the chances of fraud and should also reduce the chances of conflict between family members later on.
Another safeguard is the ability for donors to have certain guidance for the attorney written into the LPA. For example, this may suggest that they meet a couple of times a year to go through bank details and discuss financial arrangements for the next six months. This should also make it harder for any fraud to take place.
Organising an LPA can give you peace of mind that you will have someone you trust making decisions for you, should you lose the ability to do so.
Choosing the right attorney, and getting the right LPA in place, can take some time, but it is time well spent.
If you’re struggling to choose an LPA or would like advice on how to appoint one, call us on 01243 216900 or email us at email@example.com.
How we look after older people requiring care is at the top of the national agenda at the moment, as the Government grapples with the care funding crisis.
More people than ever before need care in their old age, with dementia a growing problem. According to the Alzheimer’s Society, there are now 850,000 people in the UK living with dementia, and that’s only set to grow.
With so many people reaching the stage where they can no longer make decisions for themselves, an increasingly useful option is a Lasting Power of Attorney (LPA). An LPA is where you appoint someone as your ‘attorney’ to make decisions on your behalf, should you reach the stage where you can no longer do so.
The different types of LPA
There are two main types of LPA. The first is the LPA for financial decisions. This will cover things like buying and selling property, paying the mortgage, investing money and arranging repairs for your property.
There is also an LPA which covers health and care decisions. This allows your attorney to make decisions about things like where you should live and your medical care.
You can set up separate LPAs to cover these two areas, or a single LPA to cover them both if you wish.
Is one LPA enough?
Choosing a person to be your attorney can be difficult. You need to find someone who you trust to always act in your best interests, but who can also be relied upon to deal with the responsibility and administration that comes with the role.
Generally, people will choose a loved one, like their spouse or child. However, you can also appoint a professional, like a solicitor.
In fact, you can select more than one attorney – a main one, and a replacement. The replacement attorney can step in and make decisions for you if the original attorney is unable. As an example, you might name your partner as your attorney and your child as the replacement. This way, should your partner end up in a position where they are no longer able to make decisions on your behalf, perhaps because of their own health issues, your child can take over the responsibility.
With dementia such a significant problem across the UK, it is essential to put plans in place on how to deal with it should you develop issues. That should extend beyond an LPA and include a comprehensive Will. By putting a Will in place, can guarantee that your assets are divided exactly as you wish.
“If you’re unsure about what you need to do and whether you should be appointing an LPA, please call us on 01243 216900 or email us at firstname.lastname@example.org.
At breakfast this morning, a woman said to her husband: “My memory is getting really poor, I went upstairs yesterday to get something and by the time I got to the top of the stairs I had forgotten what I was going for.”
The husband said: “How bad is your memory?”
She responded: “Sorry, what were we talking about?”
Old jokes are always the best, but early signs of a loss of memory are an uncomfortable reminder of the aging process and certainly no joke. Some of us will inevitably get dementia or other debilitating conditions that could result in the loss of mental capacity.
Do you know you what happens if you or your partner becomes unable to make decisions for themselves due to old-age memory issues or dementia? Potentially you can find yourself in a position where you cannot pay for services or make decisions, without lawyers and something called the Court of Protection) being involved. It’s an expensive and long-winded process. That is, unless you have written a legal document called a Lasting Power of Attorney (LPA) in advance of your loss of mental capacity.
The Citizens Advice Bureau website says:
“You should make an LPA if you have been diagnosed with, or think you might develop, an illness which might prevent you from making decisions for yourself at some time in the future.
“The kinds of illness which might prevent you from making decisions for yourself include:
- mental health problems
- brain injury
- alcohol or drug misuse
- the side-effects of medical treatment
- any other illness or disability.
“You must make an LPA whilst you are still capable of making decisions for yourself. This is called having mental capacity”
At legalmatters, we are experts in writing Lasting Powers of Attorney and talking you through the pitfalls. Whilst no one wants to think about the potential of problems in later life, writing an LPA could save you and your family considerable cost and grief in the not too distant future.
Call us today on 01243 216900 or email us at email@example.com for a no obligation discussion about these issues.
More than 850,000 people are living with dementia in the UK today, according to the Alzheimer’s Society. That problem is only set to grow in the coming years, with thousands of people every day reaching the stage where they are unable to make decisions for themselves.
One option for those entering later life, who are concerned about the prospect of developing dementia, is to consider appointing someone to become a lasting power of attorney (LPA). An LPA allows your ‘attorney’ – the person you appoint – to make those decisions on your behalf when you reach the stage where you are unable to.
You can appoint an LPA to cover your property and finances, your health and care, or both.
It’s important to think carefully about who you want to appoint as your ‘attorney’, as they will need to make many important and occasionally difficult decisions.
Most people appoint a loved one, whether that’s a partner, a close friend, a child, or even a grandchild. However, you can also choose a professional, such as a solicitor, for the role.
When choosing who to pick, consider what you are asking of them. It will need to be someone that you trust to always act in your best interests, and who you can rely on. There will be many responsibilities as your LPA, so you need someone who is reliable and can be relied on to meet their duties.
If you pick a professional, you know that you will be able to rely on them to meet their responsibilities. You will likely have to pay for their services though.
If you pick a friend or family member, it’s likely they will know you well and will understand your needs. It will be difficult for them to make decisions at times though, as they will be having to deal with the emotional impact of the situation.
You can appoint a replacement attorney if you wish, who can make decisions for you should your original LPA be unable to fulfil the role. You are able to combine both a family friend and a professional if you choose.
Dementia is a growing problem across the country, so putting plans in place is crucial. That should extend beyond an LPA and include a comprehensive will. By putting a will in place, you ensure that your assets are divided among your loved ones exactly as you wish.
We can help you with this. Please call us on 01243 216900 or email us at firstname.lastname@example.org.
Dementia is a growing problem in the UK. According to the Alzheimer’s Society, there are currently 850,000 people with dementia, and that number is set to reach one million by 2025.
At some point, many people with dementia will reach the stage where they are unable to make decisions for themselves. As a result, it is very important that somebody is nominated to have lasting power of attorney (LPA).
An LPA allows that person – known legally as your ‘attorney’ – to make decisions on your behalf if you are no longer in a position to make them yourself. There are two types of LPA – a property and finances LPA and a health and care LPA. You don’t have to make both at the same time.
Choosing the right person to act on your behalf can be very difficult, so it pays to take your time and not rush the decision. They will have to be over 18, and if making financial and property decisions, cannot have been declared bankrupt.
You will need to appoint someone that you trust, who you believe knows you well and will act in your best interests. You also need to find someone who is reliable, and who has the necessary skills to take on the responsibility. There is little point picking someone who knows you well, but who will be unreliable in meeting their obligations. Your attorney needs to be someone that you can always rely on.
Most people pick a family member, such as their partner or child, but you can appoint a professional, such as a solicitor if you prefer. Bear in mind that they may charge for their time.
You should also consider picking a replacement attorney. This is the person you wish to make decisions on your behalf should the first attorney no longer be able to or is unwilling to carry out the role. So, if you pick your partner for example, you may choose to select someone younger such as one of your children as the replacement attorney.
For help with this, call us on 01243 216900 or email us at email@example.com.