Main menu


+44 (0)151 600 3000


+44 (0)161 836 8800


+44 (0)1772 823 921

Search form

Search form


Private Client

Determining Business Property Relief
Tuesday 14th November 2017

Business Property Relief (BPR) is an important relief from Inheritance Tax (IHT). BPR can enable an individual to leave his or her business, shareholding in a company or partnership interest, to an individual or trust without incurring a charge to IHT. For entrepreneurs and business owners, the availability of the relief can represent a central part of tax mitigation in their estate planning. 

However, not all business interests attract BPR. In order to do so, the business must have been carried on for gain (operated to generate profit or for a commercial purpose) and must not, either wholly or mainly, be concerned with one of the prohibited activities of 1- dealing in securities, stock or shares, 2- dealing in land or buildings, or 3- making or holding investments. (Please note that there are other requirements for BPR but these do not concern the nature of a business and thus have been disregarded in this commentary).

In some circumstances the legislation is clear. For example the purpose of a buy-to-let property holding company is to make or hold investments and will therefore not attract BPR. However, in other circumstances the position is not as straightforward. A line of case law has developed in respect of businesses where the making or holding of investments is certainly a business purpose, and the Tribunal has been tasked with determining whether that purpose is ‘wholly or mainly’ the concern of the business.

Take the example of the recent case of The Personal Representatives of Vigne v CRR [2017]. The Deceased ran a horse livery business on land that she had inherited from her late husband. The business provided what is known in equestrian circles as a ‘DIY livery’- where a horse would have the use of land and a stable but the owner would look after his or her horse. Whilst the business also provided additional services, including a daily check on the horse’s general health, it needed to be determined whether those services prevented the business from ‘wholly or mainly’ holding or making investments. The Tribunal argued that “… no properly informed observer could or would have said that the deceased was in the business of holding investments.” The Tribunal argued that the central question was whether the business ‘mainly’ held investments, and found that the level of services provided prevented the business from doing so.

The problem for those with business interests is that the Tribunal has taken different approaches in previous cases (particularly those on holiday lettings). Whilst the specific facts of a business are central in determining whether it would attract BPR, clarification of the approach is needed. For those with business interests, there is a significant IHT implication between which side of the investment line their business would fall. For Vigne, it remains to be seen whether HMRC will decide to appeal.


Thursday 9th November 2017

We are presently within an 8 – week ‘Call for Evidence’ raised by Sajid Javid, the Communities Secretary, for estate agents, lawyers and mortgage lenders to best advise the Government on making house buying “cheaper, faster and less stressful”. He is specifically looking for ideas on improving the conveyancing process in relation to ‘gazumping’, trust building, digital innovation and information gathering.

No one denies that the conveyancing process is, in places, flawed and outdated and in much need of improvement. A key area of concern being investigated in the ‘Call for Evidence’ is ‘gazumping’. Is this as big a problem as is being suggested? Is there a quick fix to it?

Gazumping occurs when a Seller of property, having already accepted an offer from Buyer 1, at an agreed price, then accepts a higher offer from Buyer 2, often when the process with Buyer 1 is well advanced but regardless proceeds to sell to Buyer 2.  For Buyer 1 the outcome is not only stressful but hits them in the pocket as Buyer 1 will have paid for a survey and more than likely for search results. Gazumping has been a source of major complaint in the conveyancing process for many years but it is not illegal. In England & Wales, a transaction only becomes legally binding between the parties once written contracts have been exchanged. Up to that point either the Buyer or Seller can withdraw from the transaction with impunity. In reality, gazumping is a moral decision for the Seller. If the Seller has agreed a price with Buyer 1 believing it to be the best price on offer but then Buyer 2 comes along offering more it is hard to see how a Seller can resist!

Research by Countrywide Estate Agents states that gazumping has increased from 2.4% to 3.6% from 2011 to 2017, and in a recent survey by eMove 36% of respondents said they had been ‘gazumped’ on a purchase compared to 13% in 2015. Gazumping arises when the market is moving up fast, there is an increase in demand but a shortage of desirable properties for sale.

Roughly one million homes are bought & sold each year. That means, according to Countrywide’s research, that some 36,000 transactions may be subject to gazumping. For those gazumped the experience is painful and more than likely makes them think twice about buying a property altogether. It calls the whole conveyancing process into question.

One radical suggestion in the ‘Call for Evidence’ is to move the point at which an agreed sale becomes legally binding. The Government is hinting at the introduction of ‘lock-in agreements’. Given that the process needs to be ‘cheaper, faster & less stressful’ it is not clear how adding that further layer to it assists with that ambition? What about the Buyer? Should the Buyer not have to demonstrate an ability to proceed with the purchase at the point of offer?

I agree with the principle of ‘lock-in agreements’ but let us make the process simpler. Legislate that before a Buyer can make an offer on a purchase the Buyer must evidence that he has the necessary financial arrangements in place to proceed. Once the Seller has seen that evidence and has accepted the Buyer’s offer (whether directly or through an estate agent) then, for a set period of time (I suggest 4 weeks), the Seller cannot entertain another (higher) offer, market the Property or frustrate the Buyer’s efforts in arranging a survey, a mortgage and instructing a conveyancer. If necessary, the offer & acceptance can be protected by registering an Agreed Notice against the Seller’s title (which would be removed automatically once contracts were formally exchanged or when the 4 week period had expired).

In 2010, the Office of Fair Trading stated that roughly 20% of property sales fall through between acceptance of the offer and when exchange of contracts should have taken place. Not all those failures will be the result of gazumping but unless some imposition is placed on Sellers and Buyers to behave reasonably with each other, then ‘gazumping’ will remain a problem.  


The Case for Charitable Legacies
Wednesday 1st November 2017

It is not uncommon for an individual to leave a charitable legacy in his or her Will. People often leave token amounts to charities or numerous charities which promote causes close to their hearts. However, it is uncommon, apart perhaps from those with a considerable wealth and philanthropic nature, to leave a legacy to charity which represents a substantial percentage of their estate. It is understandable that people want to ensure that their families or friends are provided for first, and will often consider charities as a second option, or in fact no option at all.

However, for people who expect their estates to incur an Inheritance Tax (IHT) liability, it is worthwhile giving further thought to charities, and understanding the benefits of more generous charitable legacies.

The Charity Exemption

Gifts, made during lifetime or on death, to qualifying charities and registered clubs that are established in the UK or the European Union are currently exempt from IHT. For that reason, charitable legacies do not incur an IHT liability. This is known as the charity exemption.

Reduced Rate of Inheritance Tax

However, whilst the charity exemption is generally well-known and often utilised, it is much less well-known, and less considered in estate planning, that charitable legacies can reduce the overall amount of IHT that is paid on non-exempt assets. If 10% an individual’s net estate is left to charity on death, the rate of IHT payable on all assets in his or her estate (not already exempt from IHT) is reduced from 40% to 36%. At first glance this IHT saving might not seem a convincing promotion of more generous charitable legacies- especially for those less minded to benefit charities. However, when the charitable exemption is also taken in to account, and the calculations are considered, the argument in favour of more generous charitable legacies becomes much more convincing.

With a simplified example, and assuming that no reliefs or exemptions other than the charity exemption applies, suppose that John’s net estate is worth £1 million. John has a full Nil Rate Band (NRB) available on death of £325,000. If John left no charitable legacies, £270,000 in IHT would be paid, and John’s beneficiaries would receive £730,000. However, if John left 10% to the RNLI (a qualifying charity) £218,700 in IHT would be paid, John’s beneficiaries would receive £713,800, and the RNLI would receive £67,500.

A comparison of these scenarios might be surprising to someone who is not used to the reduce rate of IHT. By leaving a charitable legacy of 10% of his net estate to the RNLI, John’s beneficiaries will receive £16,200 less. However, £51,300 less IHT will be paid and the RNLI will benefit from £67,500. To put these numbers in to perspective, this equates to John’s beneficiaries receiving just 2.21% less from John’s estate, but 19% less IHT will be paid overall.

A 10% charitable legacy would never increase the amount which an individual’s beneficiaries would receive. However, the reduce rate of IHT should promote an overall advantage, as the majority of people would prefer for charities to benefit than extra IHT being paid to HMRC.  


HM Revenue and Customs wins landmark tax avoidance case
Friday 20th October 2017

The Government has issued a press release informing that HM Revenue and Customs (HMRC) has won a landmark tax avoidance case.  

The First-tier Tribunal decision was made against the tax consultancy firm Root2. Root2 operated a tax planning scheme which extracted profits from owner-managed companies as winnings from betting on the stock market. The scheme attempted to ensure that these winnings were tax free and not classed as taxable employment income.

HMRC brought a case under the disclosure of tax avoidance schemes (DOTAS) regime. The purpose of the regime is to place a legal self-assessment obligation on promoters (providers of tax planning services), here Root2, to report to HMRC certain unordinary arrangements which promote potential tax avoidance. Whilst tax planning is lawful, DOTAS provides a means through which HMRC can become aware of tax planning arrangements, to determine and challenge those which promote abusive tax avoidance. In failing to abide by the DOTAS rules and report the scheme to HMRC, it is probable that Root2 will now incur considerable disclosure penalties. Root2 does not have a right of appeal against the decision.

The decision provides a clear warning to promoters to be aware of their obligations under the DOTAS regime. 


The Residence Nil Rate Band and NHS Pensions – An Unintended Consequence?
Thursday 19th October 2017

For those whose estates will be subject to inheritance tax (IHT), the introduction of the new Residence Nil Rate Band (RNRB) is very welcome, if a little complicated.  If you haven’t heard of the RNRB, this is how it works:

·         if you own a property which has at some point been your residence; and

·         (in simplistic terms) you leave it to a direct descendant; then

·         your estate will benefit from an additional IHT allowance of £100k.  This will incrementally rise to £175k by April 6 2020

There are also provisions to allow transfers of the RNRB between one spouse and another, so a couple who are married or in a civil partnership, who leave their home to direct descendants, could benefit from a combined Nil Rate Band (NRB) and RNRB of up to £1m (£325k NRB each plus £175k RNRB each).

However, if a person’s estate is above £2m, the RNRB will taper by £1 for each £2 the person’s estate is above £2m (the taper threshold).

The rules are recognised by most professionals (and indeed those who drafted the legislation) as being horribly complex, containing all sorts of loopholes and anomalies.

However, one group likely to suffer is those employed by the NHS who have NHS pensions.  Under rules relating to NHS pensions, the scheme member can nominate their pension death benefit (the lump sum) to anyone they wish in the event of their death.  Under the NHS scheme rules, the pension trustees are obliged to follow this nomination (i.e. they do not have any discretion).  Under current IHT legislation, this means that the value of the lump sum will be subject to IHT (if their estate is valuable enough).  However, it will also impact upon the availability of the RNRB and it is doubtful this was considered by the draftsmen.

Case Study

Bob is a consultant surgeon who is only a few short years away from retirement.  He and his wife divorced some time ago, and he leaves his estate to his children in his Will.  He has taken advice, and implemented careful measures to keep his estate within the £2m taper threshold as he wants to benefit in full from the RNRB.  Bob unexpectedly dies in May 2020 having nominated his NHS pension death benefits to his children.  His estate is worth exactly £2m (excluding his lump sum death benefit).

However, the lump sum death benefit payable from Bob’s NHS pension is £220,000.  This therefore not only forms part of his estate for IHT purposes (so is subject to IHT of £88,000) but to rub salt into the wound, it reduces his available RNRB from £175k to £65k (as his estate is now £2.22 million) and that means an additional £44,000 of IHT will be payable due to the loss of £110k of his RNRB; £132k of IHT against a pension lump sum of £220k (an effective 60% tax rate).


It seems little can be done to address this, but knowledge of the anomaly may well have caused him to adjust his estate planning strategy and find other ways to reduce his assets to below the taper threshold.


Does a cheque that has not cleared bind an estate?
Friday 6th October 2017

Suppose that prior to his or her death the deceased signed and delivered a cheque to an individual, but before being cleared the deceased died and as a result his or her bank account was closed. Would the cheque bind the deceased’s estate? The answer would depend on the circumstances, and in particular whether there was a binding agreement between the deceased (or his or her estate) and the intended recipient.  

What if the cheque was intended by the deceased as a gift (therefore with no prior binding agreement)? If the cheque was intended as a gift, HMRC probate guidance states that “…gifts by cheque are not completed until the cheque itself is cleared since until that time payment under that instrument can be revoked.” This guidance is supported by the case of Curnock (personal representative of Curnock deceased) v Inland Revenue Commissioners [2003] which concerned the same scenario as described above. Therefore, if the cheque was intended as a gift, the gift has not been made as the cheque did not clear.

But would the cheque itself represent an agreement and create a debt owed by the deceased, and subsequently owed by his or her Personal Representatives (PRs) from the deceased’s estate? In Curnock, the Court held that the cheque did not represent a debt in the deceased’s estate because s5(5) of the Inheritance Tax Act 1984 provides that a liability incurred by the transferor should be taken into account only to the extent that it was incurred for a consideration for money or money’s worth. A gift is not incurred for a consideration and thus a debt cannot result from a failed cheque that was intended as a gift.

What if the cheque was intended to discharge a pre-existing debt under a binding agreement? If the deceased had a pre-existing debt, and the cheque was to discharge that debt and was therefore not a gift, the PRs would assume that debt, and the obligation to discharge it, on the death of the deceased. The un-cleared cheque would have failed to discharge the debt and resultantly the responsibility for doing so would rest with the deceased’s PRs. 

For more information on the topic, please contact Joshua Eaton


HMRC’s Trust Registration Service - Extension of First Year Deadline
Monday 25th September 2017

In September 2017 Trusts and Estates Newsletter, HMRC has announced that it has extended the first year deadline for trust registration via the new online Trust Registration Service (TRS).

The TRS was launched by HMRC in July 2017 for individual trustees (and personal representatives of complex estates), and replaced the 41G paper form which was withdrawn last May. The TRS is the means through which trusts are to be registered and information regarding beneficial ownership is to be provided. HMRC states that “the new service will provide a single online service for trusts to comply with their registration obligations, will improve the processes around the administration of trusts, and allow HMRC to collect, hold and retrieve up to date information in a central electronic register.” The TRS is HMRC’s attempt to use technology to stream-line the administration of trusts.

For the first year of registration, HMRC has extended the deadline for the provision of information from 5 October to 5 December 2017 (of the year after an income or capital gains tax liability first arises).

The service is not currently available to agents, but HMRC have confirmed that agents will be able to use the service to register trusts on behalf of trustees from October.


In Defence of LPAs
Thursday 14th September 2017

Former Senior Judge Denzil Lush caused a stir recently with comments he made to the BBC about powers of attorney. He stated that people should be far more aware of the risks and vowed never to sign one himself.

A Lasting Powers of Attorney (LPA) is a legal document, which allows you to appoint a trusted friend or relative to help make decisions on your behalf when you mentally or physically unable. There are two types of LPA, covering financial decisions and health and care decisions.

Mr Lush was the senior judge in the Court of Protection, which looks after the interests of people who do not have the capacity to look after themselves. He adjudicated in 6,000 power of attorney cases and warned that LPAs can have a detrimental effect on family relationships.

While Mr Lush is correct in that powers of attorney are open to abuse, and of course safeguarding vulnerable people must be a priority, by his nature as a judge he is exposed to only the worst situations that arise.

The BBC reported that last year, almost 650,000 applications were made to register LPAs and there are 2.5m currently registered. In the vast majority of cases, LPAs work exactly as they should. As legal professionals working in this area, we see the benefits of LPAs in action every day.

Making an LPA ensures that the person who you choose, rather than a stranger, is able to make decisions for you and makes things easier for your relatives and friends in the future.

If you do not have an LPA in place and lose mental capacity in the future your loved ones will not have legal authority to manage your affairs and would need to make a costly and time consuming application to the Court of Protection to be appointed to make decisions on your behalf.

We always recommend seeking expert legal advice when making an LPA, especially where there are assets such as businesses or overseas properties.

For further information on powers of attorney, please take a look at the Private Client section of our website. If you would like to discuss making an LPA, I would be delighted to speak with you.


Mutual Wills: The impact of contractual agreement on testamentary freedom
Monday 21st August 2017

In the recent case of Legg v Burton, the High Court has deemed thirteen separate wills to be invalid, as mutual wills were made beforehand which on first death bound the survivor’s estate.

Mutual wills are wills that are made by two or more individuals who contractually agree not to revoke them or to circumvent their provisions, through for example, making lifetime gifts. If the first to die did not change his or her will, on the first death the survivor’s will becomes irrevocable. If the survivor decided to change his or her will, the changes would have legal effect, but would create a constructive trust over the property that is left to the survivor.

Mr and Mrs Clark made mirror wills in 2000. Between the date of death of her husband and her own death, Mrs Clark made thirteen separate wills with varying provisions. Mrs Clark’s daughters challenged these wills made after the first death, which were less favourable to them, on the basis that their mother’s 2000 will was mutual. Mrs Clark’s grandsons and a partner, who were the appointed executors in her last will and testament, argued that her 2000 will was not mutual. Their argument was founded on wording in the 2000 wills which provided that the trustees should ‘pay [the] residuary estate to [the Deceased] absolutely and beneficially and without any sort of trust obligation.’

His Honour Judge Paul Matthews held that this clause did not disagree with the wills being mutual, as the constructive trust arises outside of the mutual wills themselves. In deeming the wills to be mutual, the court relied upon credible witness evidence from the claimants which cited a clear understanding between Mr and Mrs Clark that their wills would be ‘set in stone’ and could not be amended. There was even recollection of a particular discussion, when after Mr Clark had said that he would not change his will, Mrs Clark shouted back to him ‘No I bloody won’t change it either…’. 

The judgement highlighted that the constructive trust arises on second death. It is imposed to the extent that the survivor’s will, through amendment, runs inconsistent with the contractual agreement as evidenced in the mutual wills.

For more information on the topic please contact Joshua Eaton or another member of our Private Client team


Essential wealth protection: Cohabitation agreements
Wednesday 16th August 2017

Cohabiting couples are the fastest growing family type in the UK – more than doubling from 1.5 million in 1996 to 3.3 million in 2016. There are several possible reasons for this and wealth protection is almost certainly amongst them.  However, is simply steering clear of the wedding aisle enough to protect your assets?

With the rise in cohabitation has come the rise in cohabitation disputes.  There is simply no legal protection or law specifically for dealing with the property of cohabitating couples who do not marry and ultimately separate.  Although attempts have been made, the Cohabitation Rights Bill 2016/17 has been abandoned and so the position remains that the best the courts can do is attempt to find an fair and equitable solution in the law and legal principles that apply to co-ownership and beneficial interests in property (known as TOLATA).  Often such legal applications are complex and the costs of pursuing claims can often far outweigh what a cohabitee is hoping to achieve.  For example, in the case of Seagrove v Sullivan in 2014 the parties made headlines when they were chastised by the courts spending £1.5 million on legal fees in a dispute over £500,000 worth of equity in the property they shared. 

Whilst it may seem unromantic, it is essential for cohabitees to consider their positions and clearly set out what is agreed in respect of their finances to avoid any later dispute if they are to separate.  We would always recommend that cohabitees protect their positions at the outset by entering in to a cohabitation agreement prior to moving in with their partner.  This is particularly the case if there are unequal contributions to the purchase price of a property, or one cohabitee is moving into a property solely owned by the other, or one cohabitee intends to fund the majority of renovations or material improvements to the property.

A cohabitation agreement is the document that defines the terms on how you live together financially; it can be as detailed as you wish and can range from:

  • specifying your shares in the property
  • what your respective financial responsibilities are (i.e. who pays what bills and when)
  • childcare arrangements and who will pay private school fees etc. 
  • how fittings/debts/joint bank accounts would be divided in the event of separation; and
  • if you will make/receive any financial provision for/from your partner if the relationship ends.

For further guidance on wealth protection, please follow the link below to register for our free “Expect the Unexpected” seminar in September below.