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Who could be the single largest beneficiary of your estate?

Posted on July 1, 2013 by - Uncategorized

We can help you identify the source of a wealth leak. Contact us to implement a robust protection strategy

Providing all is going to plan, it can be immensely satisfying building up assets and increasing your personal wealth but, as you know, life can throw you a problem when youíre least expecting it. Thatís why we believe that the implementation of a robust wealth protection strategy is as important as a wealth creation strategy. (more…)

Mind the pension gap

Posted on July 1, 2013 by - Uncategorized

Laying the foundation to rebuild the UKís retirement savings system

In May this year, the Queen announced the Pensions Bill, a vital reform that lays the foundation to rebuild the UKís retirement savings system and simplify the State Pension for millions of todayís workers, allowing them to plan their retirement with more certainty. (more…)

Planning for the worst-case scenario

Posted on July 1, 2013 by - Uncategorized

Families are under-protected and under-prepared

As one in five UK adults fears for job security, Scottish Widows warns of implications of single income reliance and leaving protection until the first rung of the property ladder. Research from Scottish Widows shows that over half (52 per cent) of the UK population with at least one wage earner in the household is reliant on a single income in order to make ends meet for their family.

With 15 million UK adults currently failing to save, and a further one in five Britons who expect their financial priorities to change concerned about their job security, families could be risking their livelihood by failing to protect themselves financially.

Unable to work
The fifth Scottish Widows Protection Report, based on research among more than 5,000 UK adults, shows that despite three quarters of the population living in a one or two income household and 84 per cent being aware of income protection, only 5 per cent of the population have taken it out to protect their salary should they be unable to work. When asked about other types of protection, the report revealed that 89 per cent of adults do not have critical illness cover and 63 per cent do not have life insurance.

Although the findings reveal that many Britons are not planning for the worst-case scenario, the report showed that 16 per cent of the population has experienced a critical illness, with nearly half of people who fell ill forced either to change their lifestyle dramatically or make a number of small changes in order to survive financially. Worryingly, only 5 per cent of those who fell ill had any kind of protection policy in place to help act as a buffer for this substantial shift in wellbeing.

Financial behaviour
Despite a backdrop of continued economic and unemployment uncertainty, the report indicates that families are leaving themselves under-protected and under-prepared, with
56 per cent of people not in retirement saying that if they were to lose their main income they would only be financially secure in the short term (under six months) or ‘not at all’.

The report showed that the main reason behind people taking out protection, such as life insurance, critical illness and income protection, is at the point of purchasing a property, yet with the number of private renters increasing by nearly a quarter since 2008[1], and 61 per cent of renters saying they do not ever expect to buy a home[2], this shift in home ownership trends has worrying implications for the financial security of future generations.

Worst-case scenario
No one likes to think about the unexpected happening to them, and it is clear that this
tendency to ignore the worst-case scenario is preventing families from preparing for the future and protecting their livelihoods. The value of protection is to provide peace of mind and to know that, should the worst happen, then you or your family have a financial safety net. ν

[1] ONS English Housing Survey, 2008-12
[2] Castle Trust Analysis of ONS English Housing Survey
The fifth annual Consumer Protection Report from financial provider Scottish Widows takes an in-depth look at the habits and attitudes of the UK adult population in order to analyse their protection provision.
The survey was carried out online by YouGov, who interviewed a total of 5,086 adults between 4-9 January 2013. The figures have been weighted and are representative of all UK adults (aged 18+).

Investors get more tax savvy with their money

Posted on July 1, 2013 by - Uncategorized

Strategies to save tax and invest more tax-efficiently in 2013/14

Taxation can be a complicated area of personal finance and you can easily miss opportunities to reduce the amount of tax you pay, or save and invest tax-efficiently. Your job, your savings and your familyís circumstances can all have an impact on the amount of income tax you pay each year.

A s taxation rules change it’s important to take professional advice to ensure you do not pay more than you have to, so that you can enjoy more money as a family.

Individual Savings Accounts (ISAs)
This 2013/14 tax year you can invest up to £11,520 in Cash and Stocks & Shares ISAs (the tax year runs from 6 April 2013 to 5 April 2014). You can invest the full amount (up to £11,520) in a Stocks & Shares ISA or up to £5,760 in a Cash ISA with the balance (within your overall limit) in a Stocks & Shares ISA.

There is no capital gains tax and no further income tax to pay within an ISA. If you are married (or in a registered civil partnership), ensure that you both consider using your ISA allowances. Even if one of you is a non-taxpayer it still often makes sense to make use of this spouse’s ISA.

Junior ISA
For eligible children, this tax year you can invest up to £3,720 in a Cash or Stocks & Shares Junior ISA (the tax year runs from 6 April 2013 to 5 April 2014). Those children with a Child Trust Fund (born 1 September 2002 to 2 January 2011) are not eligible for a Junior ISA and these accounts can also be topped up to £3,720 a year (a Child Trust Fund year runs from the child’s birthday, not the tax year).

Pensions
There has been a considerable simplification of the contribution rules in recent years. The Annual Allowance, the upper cap on total contributions that can be made to your pensions in one year and benefit from tax relief, is £50,000 for 2013/14 and will reduce to £40,000 from April 2014.

Personal contributions also have to be within 100 per cent of your relevant UK earnings (broadly, earnings from employment or self-employment) to obtain tax relief. Non-earners can still contribute and benefit from tax relief up to a maximum limit of £3,600 gross per annum. Tax relief on personal contributions is available at the basic rate (20 per cent) for all investors and at the highest marginal rate for higher rate and additional rate taxpayers.

It’s important to make the full use of your pension allowance. This is still one of the most tax-efficient ways to save for retirement and the new Annual Allowance and Carry Forward rules are potentially highly beneficial. The ability to Carry Forward the unused Annual Allowance from the last three years potentially enables a significant increase or substantial catch-up of contributions.

Even if you have no earnings or you don’t pay tax, anyone under 75 can still invest £2,880 in a pension and the taxman will top up their contribution to £3,600. Contributions made on behalf of a child also benefit from tax relief. For married couples, building up income in both names may be one of the most tax-efficient ways of generating income in retirement. If you maximise the current personal allowance, the amount of taxable income you’re allowed to receive each year tax free is £9,440.

This could mean that married couples can still receive income from pensions, savings and investments of £18,880 a year tax free.

Any tax reliefs referred to are those currently applying, but levels and the bases of, as well as reliefs from, taxation are subject to change. Their value depends on the individual circumstances of the investor. Within an ISA all gains will be free of capital gains tax and a tax credit will be reclaimed on income from fixed interest investments.

Planning to enjoy your retirement years

Posted on July 1, 2013 by - Uncategorized

Talk to us about the new pension opportunities

One way of looking at planning for retirement is to think about the number of paydays you have before you retire, and the number you hope to have afterwards. Imagine you start your pension planning when youíre age 20, and you plan to retire when youíre age 65. You have 540 paydays between starting your pension plan and retiring to achieve financial independence.

Take action to fund for your retirement
In the 2013/14 tax year the additional rate of tax on earnings over £150,000p.a. has been reduced from 50 per cent and replaced by a new lower rate of 45 per cent. While this means that the highest rate of tax relief available on pension contributions has reduced, it is still important to take action to fund for your retirement.

Carry Forward of unused reliefs
You may be able to contribute in excess of the Annual Allowance of £50,000 for the 2013/14 tax year (this will reduce to £40,000 from April 2014) and receive tax relief at up to 45 per cent using Carry Forward if you have contributed less than £50,000 in any of the previous three tax years. As this is a potentially complex area, particularly where Defined Benefit schemes are concerned, professional advice should be sought.

Annual and Lifetime Allowance reducing
As of 6 April 2014, the Annual Allowance for retirement funding is reducing to £40,000, while the Lifetime Allowance is reducing from its current £1.5m ceiling to £1.25m. The Annual Allowance reduction represents a significant opportunity to fund a higher level of pension contributions prior to this reduction. The reduction in the Lifetime Allowance means that professional advice is even more important to ensure that you are optimising your retirement planning and are benefiting from the latest Lifetime Allowance protection opportunities.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax reliefs depends on individual circumstances. The value of a pension will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

Paying Inheritance Tax

Posted on July 1, 2013 by - Uncategorized

Reflecting an accurate open market value

The personal representative (the person nominated to handle the affairs of the deceased person) arranges to pay any Inheritance Tax that is due. You usually nominate the personal representative in your will (you can nominate more than one), in which case they are known as the executor. If you die without leaving a will a court can nominate the personal representative, in which case they are known as the administrator.

If you have been nominated as someone’s personal representative you have to value all of the assets that the deceased person owned. This valuation must accurately reflect what the assets would reasonably fetch in the open market at the date of death.

In most cases, if an estate owes Inheritance Tax, you must usually pay it within six months after the death or interest will be charged. In some cases, you can pay by instalments once a year over ten years. The due date differs if Inheritance Tax is due on a trust.

Forms you need to complete

If the estate is unlikely to be subject to Inheritance Tax (an excepted estate)
If the estate is likely to be subject to Inheritance Tax
In this case you complete form IHT400 plus any relevant supplementary forms (these are indicated on the IHT400).

You also complete:

form IHT421 ëProbate summary’ if the deceased person lived in England, Wales or Northern Ireland
probate application form PA1 if the deceased lived in England or Wales
form C1 Inventory if the deceased lived in Scotland

(In Northern Ireland you only complete a probate application form at interview.)

The due date for Inheritance Tax is six months after the end of the month in which the deceased died. You must pay Inheritance Tax before you can get the grant of probate (or confirmation in Scotland).

If you’re paying Inheritance Tax by instalments, the first instalment is due six months after the death on the due date. The second instalment is due 12 months after that.

If someone gives you a gift and doesn’t survive for seven years after making it and the gift is liable to Inheritance Tax, the payment on the gift is also due six months after the death on the due date.

If the value of the assets being transferred exceeds the current Inheritance Tax threshold £325,000, Inheritance Tax can be due:

on transfers into a trust
on transfers out of a trust
every ten years after the original transfer into trust
The due date depends on when the assets
are transferred
For transfers made between 6 April and 1 October, the due date is 30 April in the following year
For transfers made between 30 September one year and 6 April the next, the due date is six months after the end of the month in which the transfer was made

If you don’t pay Inheritance Tax in full by the due date, HM Revenue & Customs (HMRC) will charge interest on the amount outstanding, whatever your reason for not paying by the due date. It also charges interest if you pay by annual instalments.

If Inheritance Tax is due, you have 12 months from the end of the month in which the death occurred to send in a full Inheritance Tax account, this includes form IHT400, any supplementary pages and papers relating to probate (or confirmation in Scotland).

Unless you have a reasonable excuse for not delivering a full and accurate account within 12 months, you may have to pay a penalty in addition to any interest you owe.

Wealth preservation

Posted on July 1, 2013 by - Uncategorized

Making the most of different solutions

Decreasing term assurance
Decreasing term assurance can be arranged to cover a potential Inheritance Tax liability and used as a Gift Inter Vivos policy (a gift given during the life of the grantor who no longer has any rights to the property and can not get it back without the permission of the party it was gifted to). This is a type of decreasing term plan that actually reduces at the same rate as the chargeable Inheritance Tax on an estate as a result of a Potentially Exempt Transfer (PET).

For example, if you gift part of your estate away before death, then that part is classed as a PET, meaning that for a period of seven years there could be tax due on the transfer. This amount of tax reduces by a set amount each year for seven years.

The Gift Inter Vivos plan is designed to follow that reduction to ensure sufficient money is available to meet the bill if the person who gifted the estate dies before the end of the seven-year period.

Such policies should be written in an appropriate trust, so that the proceeds fall outside your estate.

Business and agricultural property
Business and agricultural property are exempt from Inheritance Tax.

Business Property relief: To qualify, the property must be relevant business property and must have been owned by the transferor for the period of two years immediately preceding death. Where death occurred after 10 March 1992, relief is given by reducing the value of the asset by 100 per cent. Prior to 10 March 1992, the relief was 50 per cent.

Agricultural Property relief: Agricultural property is defined as agricultural land or pasture and includes woodland and any buildings used in connection with the intensive rearing of livestock or fish if the woodland or building is occupied with agricultural land or pasture and the occupation is ancillary to that of the agricultural land or pasture, and also includes such cottages, farm buildings and farmhouses, together with the land occupied with them as are of a character appropriate to the property. Where death occurred after 10 March 1992, relief is given by reducing the value of the property by 100 per cent (certain conditions apply). Prior to that date the relief was 50 per cent.

Woodlands relief: There is a specific relief for transfers of woodland on death. However, this has become less important since the introduction of 100 per cent relief for businesses that qualify as relevant business property.

Where an estate includes woodlands forming part of a business, business relief may be available if the ordinary conditions for that relief are satisfied.

When a woodland in the United Kingdom is transferred on death, the person who would be liable for the tax can elect to have the value of the timber ñ that is, the trees and underwood (but not the underlying land) ñ excluded from the deceased’s estate.

If the timber is later disposed of, its value at the time will be subject to Inheritance Tax. Relief is available if:

an election is made within two years of the death, though the Board of HM Revenue & Customs have discretion to accept late elections, and
the deceased was the beneficial owner of the woodlands for at least five years immediately before death or became beneficially entitled to it by gift
or inheritance.

The Pre-Owned Assets Tax
Pre-Owned Assets Tax (POAT), which came into effect on 6 April 2005, clamped down on arrangements whereby parents gifted property to children or other family members while continuing to live in the property without paying a full market rent.

POAT is charged at up to 40 per cent on the benefit to an individual continuing to live in a property that they have gifted but are not paying a full rent, and where the arrangement is not caught by the gift with reservation rules.

So anyone who has implemented such a scheme since March 1986 could fall within the POAT net and be liable to an income tax charge of up to 40 per cent of the annual market rental value of the property.

Alternatively, you can elect by 31 January following the end of the tax year in which the benefit first arises that the property remains in your estate.

Rental valuations of the property must be carried out every five years by an independent valuer.

A gift with reservation

Posted on July 1, 2013 by - Uncategorized

Getting the full benefit of a gift to the total exclusion of the donor

A gift with reservation is a gift that is not fully given away. Where gifts with reservation were made on or after 18 March 1986, you can include the assets as part of your estate but there is no seven year limit as there is for outright gifts. A gift may begin as a gift with reservation but some time later the reservation may cease.

In order for a gift to be effective for exemption from Inheritance Tax, the person receiving the gift must get the full benefit of the gift to the total exclusion of the donor. Otherwise, the gift is not a gift for Inheritance Tax purposes.

An outright gift
For example, if you give your house to your child but continue to live there rent free, that would be a gift with reservation. If, after two years, you start to pay a market rent for living in the house, the reservation ceases when you first pay the rent. The gift then becomes an outright gift at that point and the seven- year period runs from the date the reservation ceased. Or a gift may start as an outright gift and then become a gift with reservation.

Alternatively, if you give your house to your child and continue to live there but pay full market rent, there is no reservation. If over time you stop paying rent or the rent does not increase, so it is no longer market rent, a reservation will occur at the time the rent stops or ceases to be market rent.

The value of a gift for Inheritance Tax is the amount of the loss to your estate. If you make a cash gift, the loss is the same value as the gift. But this is not the case with all gifts

Giving away wealth

Posted on July 1, 2013 by - Uncategorized

Tax-efficiently passing on parts of your estate

There are some important exemptions that allow you to legally pass your estate on to others, both before and after your death, without it being subject to Inheritance Tax.

Exempt beneficiaries
You can give things away to certain people and organisations without having to pay any Inheritance Tax. These gifts, which are exempt whether you make them during your lifetime or in your will, include gifts to:

your husband, wife or civil partner, even if you’re legally separated (but not if you’ve divorced or the registered civil partnership has dissolved), as long as you both have a permanent home in the UK

UK charities
some national institutions, including national museums, universities and the National Trust
UK political parties

But, bear in mind that gifts to your unmarried partner or a partner with whom you’ve not formed a registered civil partnership aren’t exempt.

Exempt gifts
Some gifts are exempt from Inheritance Tax because of the type of gift or the reason for making it. These include:

Wedding gifts/civil partnership ceremony gifts
Wedding or registered civil partnership ceremony gifts (to either of the couple) are exempt from Inheritance Tax up to certain amounts:
parents can each give £5,000
grandparents and other relatives can each give £2,500
anyone else can give £1,000

You have to make the gift on or shortly before the date of the wedding or civil partnership ceremony. If it is called off and you still make the gift, this exemption won’t apply.

Small gifts
You can make small gifts, up to the value of
£250, to as many people as you like in any one tax year (6 April to the following 5 April) without them being liable for Inheritance Tax.

But you can’t give a larger sum ñ £500, for example ñ and claim exemption for the first £250. And you can’t use this exemption with any other exemption when giving to the same person. In other words, you can’t combine a ësmall gifts exemption’ with a ëwedding/registered civil partnership ceremony gift exemption’ and give one of your children £5,250 when they get married or form a registered civil partnership.

Annual exemption
You can give away £3,000 in each tax year without paying Inheritance Tax. You can carry forward all or any part of the £3,000 exemption you don’t use to the next year but no further. This means you could give away up to £6,000 in any one year if you hadn’t used any of your exemption from the year before.

You can’t use your annual exemption and your small gifts exemption together to give someone £3,250. But you can use your annual exemption with any other exemption, such as the wedding/registered civil partnership ceremony gift exemption. So, if one of your children marries or forms a civil partnership you can give them £5,000 under the wedding/registered civil partnership gift exemption and £3,000 under the annual exemption, a total of £8,000.

Gifts that are part of your normal expenditure
Any gifts you make out of your after-tax income
(but not your capital) are exempt from Inheritance Tax if they’re part of your regular expenditure.

This includes:

monthly or other regular payments to someone, including gifts for Christmas, birthdays or wedding/civil partnership anniversaries
regular premiums on a life insurance policy (for you or someone else)

It’s a good idea to keep a record of your after-tax income and your normal expenditure, including gifts you make regularly. This will show that the gifts are regular and that you have enough income to cover them and your usual day-to-day expenditure without having to draw on your capital.

Maintenance gifts
You can also make Inheritance Tax-free maintenance payments to:

your husband or wife
your ex-spouse or former registered civil partner
relatives who are dependent on you because of old age or infirmity
your children (including adopted children and step-children) who are under 18 or in full-time education

Potentially exempt transfers
If you, as an individual, make a gift and it isn’t covered by an exemption, it is known as a potentially exempt transfer (PET). A PET is only free of Inheritance Tax if you live for seven years after you make the gift.

Trust in your future

Posted on July 1, 2013 by - Uncategorized

Helping you control and protect family assets

One of the most effective ways you can manage your estate planning is through setting up a trust. The structures into which you can transfer your assets can have lasting consequences for you and your family and it is crucial that you choose the right ones. The right structures can protect assets and give your family lasting benefits.

A trust is a legal arrangement where one or more trustees are made legally responsible for assets. The assets – such as land, money, buildings, shares or even antiques – are placed in trust for the benefit of one or more beneficiaries.

The trustees are responsible for managing the trust and carrying out the wishes of the person who has put the assets into trust (the settlor). The settlorís wishes for the trust are usually written in their will or given in a legal document called the trust deed.

The purpose of a trust
Trusts may be set up for a number of reasons,
for example:

to control and protect family assets
when someone is too young to handle their affairs
when someone canít handle their affairs because they are incapacitated
to pass on money or property while you are still alive
to pass on money or assets when you die under the terms of your will – known as a will trust
under the rules of inheritance that apply when someone dies without leaving a valid will (England and Wales only)

There are several types of UK family trusts and each type of trust may be taxed differently. There are other types of non-family trusts. These are set up for many reasons – for example, to operate as a charity, or to provide a means for employers to create a pension scheme for their staff.

What is trust property?
A trust property is a phrase often used for the assets held in a trust. It can include:

money
investments
land or buildings
other assets, such as paintings, furniture or jewellery – sometimes referred to as chattels

The cash and investments held in a trust are also called the trust capital or fund. This capital or fund may produce income, such as interest on savings or dividends on shares. The land and buildings may produce rental income. Assets may also be sold producing gains for the trust. The way income is taxed depends on the type of income and the type of trust.

What is a settlor?
A settlor is a person who has put assets into the trust. This is known as settling property. Assets are normally put into the trust when itís created, but they can also be added at a later date. The settlor decides how the assets in the trust and any income received from it should be used. This is usually set out in the trust deed.

In some trusts, the settlor can also benefit from the assets theyíve put in. These types of trust are known as settlor-interested trusts and they have their own tax rules.

The role of the trustees
Trustees are the legal owners of the assets held in a trust. Their role is to:

deal with trust assets in line with the trust deed
manage the trust on a day-to-day basis and pay any tax due on the income or chargeable gains of the trust
decide how to invest the trustís assets and/or how the assets in the trust are to be used – although this must always be in line with the trust deed

The trust can continue even though the trustees might change. However, there must be at least one trustee. Often there will be a minimum of two trustees: one trustee may be a professional familiar with trusts – a lawyer, for example – while the other may be a family member or relative.

What is a beneficiary?
A beneficiary is anyone who benefits from the assets held in the trust. There can be one or more beneficiaries, such as a whole family or a defined group of people, and each may benefit from the trust in a different way.

For example, a beneficiary may benefit from:

the income only – for example, they might get income from letting a house or flat held in a trust
the capital only – for example, they might get shares held on trust when they reach a certain age
both the income and capital of the trust - for example, they might be entitled to the trust income and have a discretionary interest in trust capital

If youíre a beneficiary you may have extra tax to pay or be entitled to claim some back depending on your overall income.

Trust law in Scotland
The treatment of trusts for tax purposes is the same throughout the United Kingdom. However, Scottish law on trusts and the terms used in relation to trusts in Scotland are different from the laws of England and Wales, as well as Northern Ireland.

When you might have to pay Inheritance Tax on
your trust

There are four main situations when Inheritance Tax may be due on trusts:

when assets are transferred – or settled – into a trust
when a trust reaches a ten-year anniversary of when it was set up
when assets are transferred out of a trust or the trust comes to an end
when someone dies and a trust is involved when sorting out their estate

The right type of trust
Ensure you donít more tax than is necessary
There are now three main types of trusts.

Bare (Absolute) trusts
With a bare trust you name the beneficiaries at outset and these canít be changed. The assets, both income and capital, are immediately owned and can be taken by the beneficiary at age 18 (16 in Scotland).

Interest in possession trusts
With this type of trust, the beneficiaries have a right to all the income from the trust, but not necessarily the capital. Sometimes, a different beneficiary will get the capital ñ say on the death of the income beneficiary. Theyíre often set up under the terms of a will to allow a spouse to benefit from the income during their lifetime but with the capital being owned by their children. The capital is distributed on the remaining parentís death.

Discretionary trusts
Here the trustees decide what happens to the income and capital throughout the lifetime of the trust and how it is paid out. There is usually a wide range of beneficiaries, but no specific beneficiary has the right to income from the trust.

Some trusts will now have to pay an Inheritance Tax charge when they are set up, at 10 yearly intervals and even when assets are distributed. The right type of trust in conjunction with your overall financial planning could help minimise the amount of Inheritance Tax payable. This is a highly complex area and you should obtain professional advice to ensure the right type of trust is set up for your particular circumstances.