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A B C D E F G H I J K L M N O P R S T V W Y

Private Client

Opportunity to disclose tax non-compliance
Friday 7th September 2018

The Requirement to Correct (RTC) rule is a provision in the Finance (No 2) Act 2017 which requires individuals with undeclared UK tax liabilities with an offshore nature to disclose the non-compliance to HMRC. The RTC concerns UK Income Tax (IT), Capital Gains Tax (CGT) and Inheritance Tax (IHT) which was undeclared prior to 6 April 2017. An example would be a failure to declare a capital gain for UK CGT on the sale of a house situated in a different jurisdiction, such as a French holiday home.

The deadline for disclosure under the RTC is in less than four weeks’ time, on 30 September 2018. That is the date on which information will be exchanged between countries under the Common Reporting Standard (CRS). It is sensible that the deadline is on the same date as information sharing under the CRS should make offshore tax non-compliance more visible to HMRC. Tax payers have an incentive to disclose their non-compliance prior to that deadline, as increased penalties for non-compliance will be imposed thereafter.

Taxpayers making a disclosure under the RTC, and especially those with more complicated tax affairs, would be wise to obtain professional advice.

For more information on the topic please contact a member of our Private Client team.


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What happens if you don’t leave a valid Will?
Tuesday 4th September 2018

In an article published on 23 June 2018, Which Legal, part of the consumer group Which, found that 61% of people don’t have a Will in place.

A Will is a legal document which, amongst other things, sets out the beneficiaries who should inherit an individual’s assets on their death. For a husband and wife with two children together, their Wills might be straightforward, in leaving all assets to each other on the first death, and all assets to their children in equal shares on the second death. Their Wills might also appoint legal guardians for their minor children. People with significant wealth or more complicated personal circumstances, might have more complicated Wills. However, for those who do not have a Will in place, how would their assets pass?

If an individual does not leave a valid Will (and valid is important as a Will must be compliant with a number of requirements to be upheld in law) the intestacy provisions would determine how their assets would be distributed. The individuals who would benefit from the estate of the deceased are determined in accordance with a list of beneficiaries set out in the Administration of Estates Act 1925. If the deceased left a spouse and two children, the spouse would receive personal possessions, a fixed sum (currently to the value of £250,000) and the rest of the estate would be split into two equal shares. One share would be left to the surviving spouse, and the two children would take the other share (subject to certain requirements). If the deceased instead left no children and no spouse, then, if alive, his or her parents would inherit.

It is important to be aware that the intestacy provisions are prescriptive and therefore might not reflect the individuals whom the deceased would have chosen had he or she decided to make a Will. For example, with the second scenario mentioned above, the deceased might have preferred for his or her sister or brother to inherit, instead of his or her parents. This might have made more sense for Inheritance Tax (IHT) reasons. Also, there is a limitation in the rules which could be detrimental to a considerable number of couples. A cohabitee has no right to benefit under the intestacy rules, and instead would have to claim against the estate under the Inheritance (Provision for Family and Dependants) Act 1975. A claim would be much more stressful, expensive and time-consuming, than had the deceased decided to prepare a Will.

An individual might decide that he or she does not want to make a Will. It might be a subject which he or she would prefer not to consider, and this is understandable. However, that individual would be wise to make no presumptions and to consider, in the absence of a Will, who would benefit from his or her estate under the intestacy rules. Knowledge of those rules might persuade the individual to have a change of mind and prepare a Will.

For more advice or information on the topic, please contact a member of our Private Client team


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Supreme Court decision on removing life support
Friday 3rd August 2018

On Monday 30th July, the UK Supreme Court confirmed in a landmark case NHS Trust v Y 2018 UKSC 46 that doctors can turn off life support for an irreversibly unconscious patient only if families and doctors are in agreement, without having to apply to the Court of Protection.  Prior to this ruling, hospital practice was based on the 1993 decision in Airedale NHS Trust v Bland which recommended that reference should be made to the Court before doctors withdrew clinically assisted nutrition and hydration.

This recent ruling will have an impact upon thousands of people each year.  Until now, family members were embroiled in costly and lengthy proceedings at the Court of Protection in cases involving vulnerable patients and the withdrawal of clinically assisted nutrition and hydration.  Families can still, however, challenge a doctor’s decision to remove food and water on certain grounds.

This case highlights that it is important for everybody to have an up to date Will in place together with a Lasting Power of Attorney for Health and Welfare.  If you would like further information about how this decision may affect you or would like advice on Wills, Advance Decisions and Lasting Powers of Attorney, please get in touch with a member of our Private Client Team.


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Charitable Giving in Wills
Friday 9th March 2018

I am fortunate to work with clients who tend to be very wealthy.  This gives them an opportunity to make a significant difference to the lives of others without having much of an impact on their own financial comfort and security.

Many of my clients regularly give money to charity during their lifetime - some more strategically than others - but many will be missing out on a huge opportunity to give via their Wills. 

If you make a gift to charity in your Will, the value of the gift will pass free from inheritance tax (IHT).  However, if you give 10% of the taxable part of your estate to charity (after deducting an IHT-free allowances and certain reliefs), the rate of IHT payable on your remaining estate reduces from 40% to 36%.  This may seem a little abstract but let’s have a look at how that works in practice:

Bob (a bachelor) has an estate worth £2m.  He wants to leave his estate to his nieces and nephews, and after IHT is paid (£670,000) his family will receive £1,330,000.  The taxable part of Bob’s estate after his IHT-free allowance of £325k is £1.675m.  If he leaves 10% of this (£167,500) to charity then the lower 36% rate of IHT becomes payable on the rest of his estate so the IHT bill reduces to £542,700 and his family get £1,289,800 instead – only £40,200 less and a massive £167,500 has gone to charity!

I have found that by simply alerting clients to this relief, many then choose to include a gift of 10% of their estate to charity in their Will.  Recently, a client worth £20m, who had never even considered charitable giving via his Will has chosen to leave 10% to charity meaning that the best part of £2m will ultimately go to charity that wouldn’t otherwise have done so.

Clearly, this is only a small part of the planning picture, but I’m sure you’ll agree, a hugely worthwhile part!


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OPG refund scheme announced – did you make an LPA between 1 April 2013 and 31 March 2017?
Tuesday 6th February 2018

Usually we can expect fees to rise but The Ministry of Justice have recently announced that the OPG fee refund scheme has now been launched.

Background

Many people make LPA's to ensure that their affairs, both in respect of financial matters and their personal welfare, can be effectively managed on their behalf in the event that they become incapacitated.

Anyone who made an application to the Office of the Public Guardian (OPG) since April 2013 in connection with a Lasting Power of Attorney or an Enduring Power of Attorney, made in England and Wales, may now be able to claim a partial refund of the application fee paid. The exact amount depends on when the registration was made and how many were established. There is also an entitlement to interest on the refund due.

The OPG originally charged £110 to register each type until April 2017 when it cut the fee to £82 after building up a surplus due to a higher number of applications than originally anticipated.

Who is able to make a claim?

If you are made the power of attorney (the donor) or if you are an attorney appointed then you may be eligible to apply for a refund.

The refund will be made only to the Donor.

How much will I get back?

If you make a successful claim then depending on when the application was made, you could receive a refund of between £45 and £54 in respect of each application.

The relevant dates and amounts you may be able to claim are

When you paid the fee

Refund for each power of attorney

April to September 2013

£54

October 2013 to March 2014

£34

April 2014 to March 2015

£37

April 2015 to March 2016

£38

April 2016 to March 2017

£45

 

Full Details of the scheme and how to make a claim for a refund can be found at :

https://www.gov.uk/power-of-attorney-refund

The application takes around ten minutes to complete and claims can be made online or by telephone (if the Donor has died it must be done by telephone) 0300 456 0300 (choose option 6).

 

For further details about making Lasting Powers of Attorney please contact Brabners Private Client team.


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The High Court upholds the Banks v Goodfellow test for testamentary capacity
Friday 26th January 2018

An individual should not make a Will if he or she does not have the requisite mental capacity to understand and determine the contents of that Will. In cases where a client is elderly, or has a medical condition such as Alzheimer’s disease, it is important for practitioners to ensure that the client satisfies the correct legal test. In these circumstances the client’s ‘testamentary capacity’ should be considered.

The Mental Capacity Act 2005 (MCA) codified existing common law principles to provide a statutory mental capacity test. The MCA sets out 5 principles to be followed, including a presumption that a person has capacity unless it is proven otherwise. The test, from section 2(1) of the MCA, is that “…a person lacks capacity… if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain.” The MCA is used in wide-ranging circumstances where mental capacity is tested in practice.

However, it is important to note that the MCA is not the correct legal test for testamentary capacity. The correct test for determining whether a client can make a Will, comes from the common law, from the long-established case of Banks v Goodfellow (1870). In the recent case of James v James and others [2018] the High Court held that the Banks v Goodfellow test prevails over the MCA and should be used instead in determining testamentary capacity. This decision is useful for practitioner’s as the MCA itself makes reference to such common law tests but is not decisive on the point. This decision provides a re-statement of the High Court decision in Walker v Badmin [2014].

In short, the Banks v Goodfellow test provides that the client must understand the nature and effects of making a Will, understand the extent of his or her property that is being disposed of, comprehend potential claims against the Will, and that no disorder or delusion shall impact the client’s decision. Practitioners should ensure that the test is considered and applied comprehensively, especially where a client’s mental capacity has been questioned.   

 


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So you think you need a simple will? Why a simple will might not be the best option for you
Tuesday 23rd January 2018

A simple will is one which leaves assets outright and does not use trusts or complicated provisions. In a family unit of spouses or civil partners and children, a simple will would leave all assets to the surviving spouse or civil partner outright on the first death, and divide all assets between the children in equal shares outright on the second death. It might contain other provisions such as funeral wishes, guardianship provisions, and legacies of money or other assets, but to be simple the overall structure would be uncomplicated. 

A large number of clients will approach a will meeting believing that their assets and will wishes are simple enough to warrant a simple will. However, after discussing their assets, beneficiaries and concerns in more detail, it often becomes apparent that they would benefit from a will structure that has a greater degree of complexity. It is important to be aware of the disadvantages of a simple will, and the advantages that more complicated provisions could provide, in determining whether a simple will is the correct option for you.

There are a number of issues which evidence the disadvantages of a simple will. With each we have provided a brief discussion of how more complicated provisions could provide an effective solution:

1- Children being disinherited

Karen and James were married for 30 years and have two children, Alex and Ben. James also had a child from a previously relationship, Jonathan, who James and Karen were close to when James was alive. James had intended for his assets to ultimately be divided between Alex, Ben and Jonathan in equal shares. However, James died leaving all of his assets to Karen. After James’ death, Karen’s relationship with Jonathan deteriorated and Karen decided to change her Will to leave all assets, including those which she inherited from James, to her children Alex and Ben, with no provision for Jonathan.

A solution would have been a flexible life interest trust. This provision would have enabled Karen to benefit from James’ assets and receive income from them, but as she would not own those assets, she could not cut out Jonathan from benefitting from them. James would have known that Alex, Ben and Jonathan would ultimately benefit in equal shares. Also, assets would have still passed between Karen and James on the first death without a charge to Inheritance Tax (IHT).

2- Business assets and IHT

Lee owned a successful business. Prior to his death his 100% shareholding was valued at £2 million. The business was a trading company and on death his shares passed free of IHT as the shares qualified for Business Property Relief (BPR). Lee left all assets to his wife Sandra outright, including his shareholding. Sandra had no involvement with the business during Lee’s lifetime, and therefore decided to sell the shares after Lee’s death. Although she wanted to benefit from the proceeds of sale of the shares, in selling those shares, Sandra turned an asset, which was exempt from IHT, in to cash, which, after available allowances are taken in to consideration, would be subject to a 40% IHT charge on Sandra’s subsequent death.

A solution would have been for Lee to leave his shareholding on a discretionary trust so that if the trustees, of which Sandra could have been one, decided to sell the shareholding, the proceeds of sale would have been held on trust and would not have formed part of Sandra’s own estate for IHT.

3- Premature death and asset protection

Ken and Roger had simple wills leaving all assets to their children Jacob and Laura in equal shares outright at 18. Ken and Roger died in an accident when Jacob was 18 and Laura 26. Ken and Roger’s combined net estate was worth £800,000. Jacob therefore inherited £400,000 at the age of 18. Jacob was not financially mature at that age and wasted a large amount of his inheritance. Laura was going through a divorce when she received her £400,000, and half of that sum was lost to her former husband via divorce proceedings.

A solution would have been to leave assets to a discretionary trust. Such a structure would have provided asset protection benefits as the trustees, chosen by Ken and Roger, could have considered the personal circumstances of Jacob and Laura prior to making distributions. With Jacob the trustees could have instructed an investment manager to manage the funds to increase the capital amount, and loan funds to Jacob or distribute his inheritance to him in stages or when he was older and more mature. With Laura, the trustees could have decided to hold her share on trust and distribute her share in full or in part once the divorce proceedings had concluded.

Some of these issues, such as those concerning Lee’s business assets, could warrant a simple will insufficient from the start. Others depend on events which could later occur, and therefore could be viewed as an insurance against the risk of unfortunate circumstances arising in the future. Whether a simple will is sufficient will often ultimately depend on a client’s view of such risks. However, it is important to take such risks in to consideration in determining whether a simple will is the correct option.   


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The importance of updating a Will when relationships change
Monday 22nd January 2018

Having a Will in place enables you to decide what will happen to your money, property and possessions after you die. It also allows for steps to be taken in estate planning to ensure that your executors do not pay more Inheritance Tax on your death than they need to. Wills are therefore a great tool for ensuring that your loved ones receive as much of their inheritance as possible.

However, the validity and efficacy of your Will can change dramatically depending on your relationship status.

Marriage and Civil Partnerships

Wills are automatically revoked upon marriage or civil partnership (CP). This is the case unless a Will is made in contemplation of the marriage or CP to a particular person. If you are in a relationship with someone who you believe you will marry or enter into a CP with, you need to make sure that your Will will not be automatically revoked when you marry or enter into a CP, or make a new Will as soon as possible after the marriage or CP has taken place.

If you do not have a Will, or if you marry or enter into a CP and do not make a new Will, the rules of intestacy will apply to your estate after you die. Your spouse or civil partner will keep all assets up to a value of £250,000 plus all of your personal possessions. Your spouse or civil partner is entitled to one half of the remaining estate and any children or remoter descendants being entitled to the other half.

It is therefore crucial to ensure that you have a Will in place after marriage or CP so that your estate passes in line with your wishes. This is especially important in the case of remarriage.

Take the following example. Mr C’s estate was worth £250,000. He made a Will in favour of his daughters from his first marriage, but he later remarried and did not make a new Will. Mr C passed away, and all of his estate passed to his new wife. His daughters received nothing despite his assurances and intention to provide for them.

Separation

It follows that in light of a separation from your spouse or civil partner, unless you want your ex-partner to receive the bulk of your estate, you need to make sure that you have a Will in place, especially if the relationship has ended on bad terms. You will also need to ensure that your assets are not held in joint names.  

Divorce and Dissolution

If you die before your divorce or dissolution is finalised, the divorce process halts and the petition dies with your death. It may be the case that the spouse you were divorcing receives everything left to them by a Will made in happier times. If you are going through the divorce or dissolution process and have not yet updated your Will, you may want to consider doing so.

After a divorce or separation from a civil partner, any gifts to your spouse or civil partner in your Will will lapse. If your spouse or civil partner was appointed as your executor, that appointment will fail. If he or she was appointed as sole executor, this presents significant complications for your estate as you will no longer have an executor to deal with probate.

It is therefore important to ensure that your Will remains up-to-date with your relationship status, along with any other significant events that may occur in your lifetime. 


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Why DIY Wills should be avoided
Monday 8th January 2018

As a proud private client solicitor, I am bound to say that all clients should have their Will drafted by someone appropriately qualified to take on the job in hand. However, there is the temptation for many to save their pennies and “have a go” at preparing their own Will. Whilst credit ought to be given for those acknowledging that they should put a Will in place in the first instance, I would venture to suggest that the DIY Will makers may not have considered all relevant matters.

As part of my New Year’s Resolution to remind clients of the importance of taking advice when making a Will, I thought I would start by flagging the dangers of DIY Wills:

  • Who will be responsible for checking that a DIY Will has been executed correctly in accordance with the requirements of Wills Act 1837 ? An invalid Will means that the estate passes under the Intestacy rules prescribed by the government. These rules may not represent the deceased’s wishes on the division of his estate. Furthermore in some circumstances for married couples it can create an immediate IHT liability which could have been avoided.
  • The home-made Will is revoked if the DIY will maker marries in the future unless the Will is specifically made in contemplation of that marriage
  • Does the Will cover the UK estate only or is it intended to cover the deceased’s worldwide estate? Great care is needed in this area to avoid Wills being revoked unintentionally and to ensure the Will is recognised in that foreign jurisdiction
  • Generally, no advice is taken on the Inheritance Tax efficiency of a DIY Will. Given the range of tax reliefs, it is important that your Will is drafted correctly so as to capture all available allowances to reduce your estate’s liability to IHT. This issue is more relevant than ever following the introduction of the Residence Nil Rate Band in April 2017.
  • Having your Will drafted by a professional means you can also receive advice on any potential claim against your estate by a disgruntled beneficiary who feels they have not received reasonable provision based on the division of your estate in your Will. Whilst we can never prevent such claims being made against your estate, a professional can advise on how to mitigate against such claims given the recent case law in this area that have hit the headlines.

2017 witnessed significant changes in this area of law through the introduction of the Residence Nil Rate band and the first ever Supreme Court decision in a contentious probate matter which I hope reinforces the importance of clients taking professional advice when making a Will. In many cases which this firm has been instructed on, the reality is that what one saves in a DIY Will pales into insignificance compared to the heavy price paid by the estate and its beneficiaries in either an avoidable IHT liability or through the courts in an unpleasant family dispute.


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Inheritance Tax Reliefs - Are there stormy seas ahead for AIM shares?
Wednesday 6th December 2017

As most people are aware the Government currently grants Business Relief at 100%, or in a few cases at 50%, for qualifying assets on lifetime gifts or on death.

When Inheritance was introduced in 1984 these reliefs were 50% and 30% respectively, but were then extended to their current rates in the spring budget of 1992.

Many people see the justification of these reliefs applying to family owned trading businesses, where there is a high level of risk and personal involvement. However with increasing pressures on taxation revenue, the rate of relief available to Aim shares and similar investment opportunities are likely to come under scrutiny.

There is now a far larger market in terms of capitalisation; greater sophistication from investment managers in diversifying AIM portfolios and minimising downside risks; a strong recent history of share price performance; improved levels of trading and liquidity in the stocks; and flows of money into this market with the sole intention of capturing the taxation benefits.

It would be a fairly easy step for a chancellor of any political hue, to downgrade AIM shares from 100% to 50% relief and which is unlikely to prejudice their future political ambition in the eyes of most of the electorate.


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