What has a Sodiers injury's got to with Inheritance tax?

Surprisingly there is a connection. Excellent and interesting article in the Telegraph regarding the fact that the government is appealing against 2awards to soldiers.

Power of Financial Planning

 

So, what is Financial Planning, who is it for, and why do we think that it is important?

The funny thing is that the finance part of it is not the most crucial element. The most important element is the planning side. And plans are pretty useful things. All great achievements have plans behind them - all great businesses have their business plans, all great explorers have their expeditions mapped out, all successful generals have their stratagems and a great financial future is no exception. Of course, you can have a great financial future without putting in place a plan, but we feel that putting in place the plan increases the likelihood of securing that great future.

What we at Capital seek to do when we first meet with you is to help to elucidate those things that matter most to you in your life, the goals that you have, when you want to achieve them and how much they cost. This is the discovery stage of our process.

We then create your own bespoke plan. Our expertise on the finance side of things then comes into play in the review of your existing situation, the creation of the plan and its subsequent implementation. All your investments, pensions, insurances, mortgages and tax planning will now begin to work in harmony and will be aligned with your goals. This is the planning and implementation stage of our process.

Just as businesses continually review their business plans to ensure that targets are met and that its performance is up to scratch, so you and your Financial Planner should continue to monitor the plan over the years to make sure that all is on track to meet your goals and make appropriate adjustments as circumstances or goals change. This is the monitoring stage of our process and we hope that our relationship with anyone we work with will evolve into a fruitful long term partnership.

In terms of who Financial Planning is for - we feel that everyone can benefit from Financial Planning - not just the rich, and that there is no time like the present to begin your Financial Planning - the sooner the better. You can build a Financial Plan on your own or work with a Financial Planner to help you. The important step is to begin to focus on what it is that matters to you in life and incorporate those desires into a plan. If you don't create a plan, you run the risk of drifting through life and not seeing your most important goals realised.

We think that the benefits of good Financial Planning may include the following:

• Giving you the freedom not to worry about financial matters
• Giving you a better quality of life by allowing you to concentrate on the things that are important to you
• Increasing or preserving your wealth and reducing your tax
• Permitting you to have a much clearer view of your future
• Creating a greater level of interest and knowledge in financial matters
• Educating and empowering you to feel in control of your life

And what have we been able to do for our clients? Well, take one of our clients, a partner at a City law firm, as an example. When he came to us, we helped him and his wife to formulate their goals, which included:

• Early retirement
• Maintaining their existing standard of living throughout their lifetime
• Ability to provide for their children's education and to help them onto the property ladder
• Not being a financial burden on their family in the future
• A review of their existing financial arrangements

We were able to:

• Provide peace of mind that retirement could be taken at age 55, with a higher standard of living than currently enjoyed
• Increase the budgeted amount to be provided to the children for help on the property ladder
• Reduce tax bills
• Create more tax efficient income in retirement
• Give peace of mind that they would not be a burden on their family in the future

So ask yourself this question: have you in the last few years reviewed your existing situation and thought of your plans for the future, plus how best to achieve these? If not then perhaps it is time to start investing in "you" by taking time out to create your own Financial Plan.

Alan Smith
Director
Capital Asset Management
27 Great Queen Street
London
WC2B 5BB

Tel - 0207 831 9108
Fax - 0207 242 7169

email: alan@camfinancial.co.uk
web: www.camfinancial.co.uk

Inheritance Tax (IHT)

IHT is primarily a tax levied on an individual's estate on death. It also applies to certain lifetime transfers and to other transfers made within seven years prior to death.

IHT is payable on an individual's death by the personal representatives of the deceased's estate. The estate includes all personal property, for example a house and its effects as well as cash, stocks and shares etc.

If the deceased was domiciled or deemed to be domiciled in the UK, IHT will apply to all of that person's taxable property wherever it is situated.

However, if the deceased was domiciled abroad, then the tax only applies to property situated in the UK.

IHT on death is due and payable within six months of the end of the month in which death occurred although Probate will not be granted until the estimated IHT liability on the estate is paid. Any IHT due on land and buildings (including an individual's own home) can be paid by instalments over a period of up to 10 years or until the property is sold, if earlier. Late payments may trigger interest charges.

Inheritance tax is currently payable at a flat rate of 40% on the value of the estate that exceeds the Nil Rate Band, which is subject to annual indexation. Below the value of the Nil Rate Band, the tax is at a flat rate of 0%.

Tax Year	 Nil Rate Band	 Tax Rate
2008/2009	 £312,000		 40%
2009/2010	 £325,000		 40%
2010/2011	 £350,000		 40%

Please note that on the death of the second 'partner' any used Nil Rate Band available from the death of the first 'partner' is available as a percentage of the then Nil Rate Band.

Inheritance Tax Exemptions

A range of exemptions and reliefs is available within IHT legislation. The main ones are summarised below.

Transfers between spouses before or on death are exempt from IHT provided that the recipient spouse is domiciled in the UK. For a non-domiciled spouse, the exemption is limited to £55,000. However, if everything passes to the survivor on the death of the first spouse, IHT will be levied on the whole estate (excluding any nil rate band exemptions) on the death of the survivor including any gifts or inheritance received, unless action is taken to avoid this.

Lifetime transfers of up to £3,000 per tax year are exempt from IHT. Both husband and wife are entitled to separate annual exemptions. Where the full £3,000 exemption is not used in one year, it may be carried forward to the next provided that that year's exemption is first used.

Outright gifts of up to £250 in total, to each of any number of people each year are exempt from IHT provided that the total of such gifts made at any time in the same tax year to the person concerned does not exceed £250.

Lifetime gifts made regularly out of income each year are exempt from IHT provided that they do not affect the donor's usual standard of living. There is no upper limit on the amount that can qualify for exemption.

Gifts made in consideration of a marriage are exempt as follows:

Donor		Amount
Parent		Up to £5,000
Grandparent	Up to £2,500
Others		Up to £1,000

Lifetime gifts for the upbringing of children and the support of dependent relatives are free of IHT liability. Also exempt are gifts and bequests:

• To charities
• To political parties
• To universities
• For national purposes
•  For public benefit

Inheritance Tax Reliefs

Business relief
Relief from Inheritance Tax which is due on a transfer of relevant business property.
Types of property on which business relief may be available. These include:

• a business
• an interest in a business, such as a partner
• unquoted shares which are not listed on a recognised stock exchange
• shares or securities which give the transferor control of a business
• land, buildings, plant or machinery used wholly or mainly in the business or partnership

Agricultural relief
Relief from Inheritance Tax which is due on the transfer of agricultural property. The relief applies to the agricultural value of the asset only.

Woodlands relief
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 trees and underwood (but not the underlying land) excluded from the deceased's estate. If the timber is later disposed of its value at the time will be subject to inheritance tax.

Gifting your Assets
There are two types of gifts or transfers that can be made during your lifetime:

• those immediately chargeable to IHT (or would be if not covered by an exemption), which are known as chargeable lifetime transfers;
•  those that are exempt from IHT unless you die within 7 years of the gift, (known as Potentially exempt transfers or PETS).

A running total is kept of chargeable lifetime transfers and no tax is payable on these or your wealth at death until you exceed the IHT threshold the Nil Rate Band.

ALL GOES TO YOUR SPOUSE - NOT!

 

WILLS - Last Will & Testament

This is a general guide and in some respects over-simplifies matters - but we want you to read it and understand at least the basics rather than writing a detailed technical manual!

A professional Will aims to ensure that your Estate benefits those you may wish to benefit in the most tax efficient way.  Even a basic pair of Wills for married couples can save tax - and a lot of grief for the surviving partner.

Your Will may contain Trusts to protect children or "vulnerable" beneficiaries, or to stop creditors or unscrupulous in-laws from getting your hard earned money.  It will take into account your circumstances and your legal obligations (some of which you may not like, but it can be disastrous to ignore them) and it may allow flexibility to avoid double tax charges.  If we write it, we will offer you the option of regular Reviews to ensure everything is and remains appropriate.  A Will may be worse than useless after 30 years, if it has not been reviewed in all that long time. How long do you need to think back until you come across major changes in your family – deaths, births, marriages, divorces, lottery wins (!) All of these and many more issues require Reviews.

Will Writing is a complex art and it is most unlikely an online Will or a Will Form from a stationers will do your family any favours.  Solicitors earn a fortune every year from people who have economised by doing cheap DIY Wills.

EVERYONE HAS A WILL, WHETHER THEY KNOW IT OR NOT.
But it just deals with your assets - not who should look after your children, nor does it allow you to look after anyone or make sure everyone is fairly dealt with, it certainly won't give an unmarried partner anything, no children who are not your birth children or legally adopted. It will be arbitary and unfair!

If you do not "write" one yourself, the Government will do it for you, and it will almost certainly cause problems for those left behind. If you are a homeowner, it is probable that your widow will have to sell the family home (or dramatically increase the mortgage) before the estate can be paid out. You cannot write your own Will until you are 18, unless you are on "active military service."

What happens if you have no Will?

This brief section is CRUCIAL - please read it!

If you die without a will your belongings are distributed according to a set of rules laid down by Parliament.

Please note that this is a generalisation of complex rules.

IF YOU ARE MARRIED/ civil registered... (if not, skip to the next section)

 

1. 1. Is your estate worth more than £125,000? YES: Go to step 2. NO: Everything goes to the spouse (For deaths from February 2009, this increases to £250,000)
2. Do you have children? YES: First £125,000 goes to the spouse, plus life interest (see note at foot) in 50% of the rest. The balance goes to the children at 8    NO CHILDREN? Go to 3.
3. Do you have parents, brothers & sisters? First £200,000 goes to the spouse, plus 50% of the rest. The balance goes to the parents, or brothers and sisters if parents are dead.     If NONE SURVIVING, everything goes to the spouse (From February 2009, this increases to £450,000)

IF YOU ARE NOT MARRIED...

Do you have living...     
1. Children?    Shared equally amongst children If NO: Go to 2.
        
2. Parents?    Shared equally between parents     If NO: Go to 3.
        
3. Brothers & Sisters?     Shared equally between brothers & sisters If NO: Go to 4.
        
4. Grandparents?    Shared equally between grandparents  If NO: Go to 5.
        
5. Uncles & Aunts?    Shared equally between uncles and aunts  If NO:    Go to 6.
        
6. None of the above?    Everything goes to the Crown     

(Note: Life Interest Trusts give the income only from the Trust who has the lifetime interest - which often means nothing - and they are very restrictive.)

Article by www.AWPP.co.uk who offer a free educational on Legal and Financial Planning course from their website.

 

 

 

 

PROBLEMS with Wills

With rising property prices (overall!), more and more peoples Estates are exceeding £300,000 and becoming liable for 40% Inheritance Tax on the balance, which must be paid BEFORE the Estate can be settled.

1. Common Law partners and non-family members get nothing unless they have a legitimate claim which they pursue through the Courts.
2. You partner may have to sell the home to pay off beneficiaries, or worse - their creditors.
3. You have no control over the distribution of your Estate, nor do you have the opportunity to plan to reduce or avoid tax.
4. Delays may arise in obtaining Probate & the distribution of the estate due to uncertainty.

OTHER PROBLEMS WITH WILLS

1.  Incorrect witnessing.
2. Witnessed by a potential beneficiary who will automatically lose their inheritance.
3. Papers attached to the Will or worse, evidence that papers had been attached.
4. Notes made on the Will.
5. Guardians appointed for children are no longer appropriate.
6. Executors are no longer appropriate or do not have access to professional advice
7.  Will is damaged, lost or stolen - sometimes by someone who would benefit more under an earlier Will or if there were no Will (or at least, no Will to be found).
8. You have married or divorced since making your Will.
9. The people named in your Will have died, moved, changed name, emigrated or fallen out with you. This can make it very difficult and time consuming for your Executor to track everyone down.
10. Inappropriate or ludicrously expensive professional executors.
11. ONE OF THE WORST mistakes is leaving a specific property, car or block of shares to someone, then selling it. The beneficiary is thereby DISINHERITED and gets nothing. Worse still, this can happen if the shares are taken over by another company and cease to be obviously the gift that has been given!

The above list is by no means exhaustive, and are extracted from the Peace of Mind Service offered by www.WillCustodian.co.uk

A free eCourse on Legal and Financial Planning is available at www.APWW.co.uk

Executors - a cushy job?   

    
WARNING: Without some simple, no-cost precautions, much of your estate could line the pockets of people you don't even know!

"Think your family is safe because you have a Will  and an Executor? Think again!"

Most of the more than 70 percent of the public who have never written a Will think of it as a document for outlining what they want done with their basic assets. But in many cases, if this was all it was, instructions could be written in just a few sentences. Possessions can generally be considered with far less emotion than personal relationships.

And one very personal relationship is always formalised in a Will: the appointment of an executor. A Will is also used to formalise the appointment of guardians when there are (or may be in future) children who need protecting.

Naturally, a great deal of consideration goes into the appointment of guardians.

It would be a careless person who would not get an okay in advance from prospective guardians. After all, we're leaving them, totally and irreversibly, in control of our kids. Often, a majority of the Will is given over to giving detailed authority to the executor to ensure that they have the necessary powers can carry out all the tasks needed. If they do not, they can be in serious and expensive trouble.

Is your executor the right person for a difficult job?

Why is it, then, that so many executors don't learn of their appointment until after the death of the person for whom they are supposed to act? Why are so many ill prepared, confused and utterly stressed? Could it be that most of us have only a vague idea of the role of executor? And, consequently, many merely look for someone who is inexpensive (read spouse?) and completely trustworthy (read spouse again, maybe)?  You may be surprised to learn that 70% of estates end up being dealt with by solicitors, as the family executors can’t cope, so they run to the solicitor who helped them buy their house, or pick one out of the Yellow Pages.  Little consideration is given to cost, experience or speed of service – but at least they will normally be a bit cheaper than a bank!

If cheap and honest were the only criteria, selection could be quite simple. But an executor also needs to be highly organised and efficient; be able to take charge - but with compassion; be bright enough to absorb a wealth of detail accurately and quickly; and be comfortable with financial dealings (knowledgeable would be better) at all levels appropriate to the estate.

Your executor has total control of your finances the moment you die and, as a result, almost total influence over your family's financial well being until your estate is settled. He or she needs to get the job done quickly and accurately so your family can get on with their lives.

If you have a business, your executor may have total control over that. Without the necessary powers in your Will, it may be that the only action he can take is to pay out redundancy money to employees as he/she has no power to help the business keep running or to sell it off as a going concern.

For many of us, our executor is our spouse. Frequently, everything goes to him or her anyway, and most of us feel our spouse will do whatever is right by the family. Why else curse a husband or wife with such a thankless task? But the truth is that, if the many administrative details are not looked after quickly and properly, there might be no cash for groceries no matter how much money is in your bank account.

If you were to hire someone for a meaningful job, would you not interview several applicants before hiring one of them? Would you not make sure they have everything they need to carry out the tasks of the job? So, does your executor have the right qualifications?

A quick checklist will tell if you have the right executor, if you have never been an executor yourself, you may not realise how tough a job it is.

Let's take a quick look at some of the things your executor must do. This may help you to decide who should have the job, or if professional help (perhaps in the form of a co-executor) will be needed.

1) Prepare your final tax returns. Your executor will have the ability and the authority to hire tax advisers and to pay them from the estate.

2) Get approval from the tax people to distribute assets. This may not be given until the final tax bill has been paid. Protect those who look to you for support by having at least some of your cash in separate bank/savings accounts. It will be immediately available to them when you die.

3) Arrange your funeral as stipulated in your will. (Your executor should know your wishes in advance; your will may not be opened until after the funeral.)  Bear in mind we can arrange pre-paid funerals which can include pretty much total organisation (and payment) in advance thus relieving those left behind of financial and personal stress and giving a very easy answer to friends and relatives who (inevitably) want different arrangements!

4) Find all the bits, pieces, documents, insurance policies and "stuff" that are part of the tangible evidence of your life and preserve them for those you wish to be their new caretakers. Our Peace of Mind Service goes a long way to helping to keep key contacts and other items up to date, and we would be quite happy to store an inventory for you. As you know, we positively encourage "ethical wills" - at their simplest a letter to those left behind.

5) Pay all outstanding bills. Have a single place for keeping them, known to your executor and immediate family. Let there not be any surprises.

6) Make partial distributions or arrange loans so immediate family can get by until the estate is distributed.

7) Buy or sell estate assets, including investments. Though there are generally legal restrictions on the types of investments that can be made, you may wish to stipulate further limits in your will. Deposit accounts are often ideal for the short term. In the case of a spouse who is also an executor, it is unwise for many to make financial decisions that could have far-reaching consequences at a time when they are far from "together". There's time for that later.

8) Hire professional help, such as lawyers and accountants (though SWW Trust Corporation can deal with most things) and financial advisers (if you don't have one, we know sympathetic ones in virtually every part of the UK).

9) Act as trustee for young beneficiaries. The executor may make decisions, for instance, that influence how much money (if any) is available for education. Many Wills (accidentally or otherwise) set up Trusts which may last for 20 or even 79 years - what price your family executor for dealing with complicated tax and investment considerations on their own?  Even the experts have to call in specialists quite often!

10) Obtain the Grant of Probate on your estate. Some jointly-held assets such as property or bank accounts do not go through probate, avoiding probate fees.  But speak to us about this as sometimes the savings on probate fees can be dramatically outweighed by extra Inheritance Tax.

11) An executor rarely has an easy task even when your affairs are well organised; it can be near hopeless when they're a mess. For all this work a professional executor is entitled to compensation, usually in the range of 3% to 5% plus VAT. Many firms have quite high minimum fees and others charge entirely according to the value of the estate. One bank would charge £18,750 for an estate comprising solely of a bank account with £300,000. The work would take them less than 2 hours!  Solicitors commonly charge £150 to £250 an hour plus VAT and plus what is called a "value element" of up to 1.5% of the whole value of the estate, plus VAT.

Our probate service (SWW Trust Corporation supplied this article - see www.SWWtrust.co.uk) just charges for the hours it puts in at a rate substantially below those mentioned above - with no "bunce" value element.  You can agree a fixed fee if you prefer.  They are also happy to just help with the difficult bits - in a recent simple case, the estate was around £200,000 and we did most of the work, and charged just £750. Your friendly bank would have done another hour or two's work and charged over £11,000. A low charging solicitor might have charged just £3,000. But we work with your family executors, only taking over if they want us too.

 

Who looks after YOU?            

Vital - LASTING POWERS OF ATTORNEY (LPAs)
(Scottish Law is different, but this still makes useful background reading) - and why everyone over 18 should have two.

Everyone cheerfully assumes that someone else will be able to look after their healthcare and financial affairs if they become too ill to do so.  Car accident, serious illness, sheer old age can all take away your mental capability to deal with such matters  instantly.

The bad news is that no one - not your husband, wife or parents - has that authority (if you are over 18) and an application to Court and ongoing Court supervision (at cost) is the alternative to sound Legal Planning.

WHAT IS A LASTING POWER OF ATTORNEY?  (LPA)

An LPA Property and Affairs allows one (or more) people to manage another person's financial affairs. They are typically used to help in case of mental incapacity due to accident, illness or old age. However they can be advance registered so it can be used at any time for example, if someone leaves the country and important matters may need attending to.

An LPA Personal Welfare appoints others to deal with Welfare issues but ONLY if you become incapable of doing so, and the LPA has been registered.  Such issues may include where you live, how you dress, who is allowed to see you, what you eat, your medical treatment etc etc.

WHAT HAPPENS IF YOU DON'T HAVE ONE?
If you become unable to manage your own affairs, the Court of Protection will have to be asked to appoint a Deputy to manage them for you. The legal expenses will be paid from your assets, and clearly the Deputy may have no knowledge or understanding of your family and personal circumstances. If a family member is appointed, it may not be the one you would have chosen.

This will be even more of a problem if you are UNMARRIED or in the process of divorce and expect the Deputy to look after your partner. If you appoint your own Attorney (or Attorneys), you can appoint people you know and trust. With our Professional Maintenance Service, you will be reminded to update your brief for your Attorney each year if your circumstances have changed.
If you have a partner you would like to be able to look after things for you (and vice versa), you each need an LPA (two, in fact). Further information on protecting children appears in a later chapter.

WHO SHOULD I APPOINT AS MY ATTORNEY?
Firstly, it is possible to appoint more than one Attorney (vital, really): these Attorneys can act either JOINTLY or JOINTLY and SEVERALLY. Say you have your three adult children as attorneys, if they are appointed JOINTLY, all of them must agree to every decision and they must act TOGETHER. If they are appointed JOINTLY and SEVERALLY, this means any of them can act by themselves. In most cases Jointly and Severally is likely to be appropriate, but Jointly can be very useful if your Attorneys are inexperienced in financial matters or not ideal choices!

It should be borne in mind that where Attorneys are appointed to act jointly (as distinct from "joint and severally") if one of the joint attorneys should die, or be unable to act, the Lasting Power of Attorney would become ineffective.   This is NOT the case with a joint and several appointments as the power of the remaining attorney is still valid.

We generally recommend your partner plus an older child or other appropriate, reliable and trustworthy person.

You can have different Attorneys for Finance and Welfare issues, and you can even appoint different ones to do different things.

Your choice of Attorney will need to be reviewed from time to time as circumstances change.

This is where www.WillCustodian.co.uk service helps, as it will not only advise you of any changes in the Law, but also remind you to re-consider your Legal Planning once a year.

 

If you sell an asset you may have to pay Capital Gains Tax (CGT). An asset is something that you own – such as shares or property. You may also have to pay CGT if you give away an asset.

HMRC has a comprehensive web site with information on allowances, rates and the position of former shareholders of Northern Rock.

They have fact sheets and guidance it is your best port of call if you are trying to understand your position.

However Capital Gains Tax and its allowances is a complex subject and we would always recommend you take professional advice before taking any steps based on your own understanding.  Reading te HMRC material will educate you and help you to better understand the recommendations of your professional adviser.  

It may be that you will need advice from both an Investment adviser as well as an accountant.

'Probate' is a term commonly used when talking about applying for the right to deal with a deceased person's affairs (called 'administering the estate').  The law is England and Wales is different to that of Scotland.

Is a grant of probate/representation always needed?

When a grant is needed

A grant is almost always needed when the person who dies leaves one or more of the following:

• * £5,000
• * stocks or shares
• * certain insurance policies
• * property or land held in their own name or as 'tenants in common'

In most cases above, the bank or relevant institution will need to see the grant before transferring control of the assets. However if the estate is small some organisations, such as insurance companies and building societies, may release the money to you at their discretion.)

 More information is available on the Direct Gov site

Information on the procedures and regulations in Scotland where you obtain a 'grant of confirmation'

 

This page is currently being updated.

 

You can read the section on Inheritance Tax Planning recently updated.