When a person dies “intestate” (i.e. dies without leaving a valid Will that disposes of the deceased’s estate), the distribution of that person’s assets (or “estate”) among surviving family members is governed by the intestacy rules. However, the intestacy rules, which date back to 1925, have not been comprehensively reviewed for more than 20 years and the Inheritance (Provision for Family and Dependants) Act 1975 has not been vigorously reviewed since it was enacted, although it does now cover cohabitants, civil partners and same-sex cohabitants.

The Law Commission’s recommendations are included in two draft Bills: The draft Inheritance and Trustees’ Powers Bill and the draft Inheritance (Cohabitants) Bill.

The draft Inheritance and Trustees’ Powers Bill includes provisions that would do the following:  

1. Ensure that the assets of a married couple or a couple in a civil partnership will pass on intestacy to the surviving spouse in all cases where there are no children or other descendants;

2. Amend the legal rules which currently disadvantage unmarried fathers when a child dies intestate;

3. Simplify the sharing of assets on intestacy where the deceased person was survived by a spouse and children or other descendants;

4. Protect children, who lose a parent, from the risk of losing an inheritance from that parent if they are adopted after the parent’s death;

5. Remove obstacles to family provision claims by dependants of the deceased and anyone treated by the deceased as a child of his or her family outside the context of a marriage or civil partnership;

6. Permit a claim for family provision in certain circumstances where the deceased died “domiciled” outside of England and Wales, but left property and family members or dependants in the UK; and

7. Give all trustees more flexible statutory powers over the trust’s income and capital (subject to any express provisions in the trust instrument.)

The draft Inheritance (Cohabitants) Bill gives certain unmarried partners who have lived together for five years the right to inherit on each other’s death in the event that one of them dies intestate. In instances where the couple have a child together, this entitlement to inherit would accrue after just two years’ cohabitation, provided that the child was living with the couple when the deceased died. An application to the Court under the Inheritance (Provision for Family and Dependants) Act 1975 would therefore not be required.

This change, if implemented, would give unmarried couples similar rights to married couples in instances when one person dies without leaving a Will. With an estimated 2.3m unmarried couples living together (a figure expected to rise to 3.8m by 2033), the recommendations reflect the fact that cohabitation is much more prevalent in the UK than it was 25 years ago.

However, there is of course one easy solution to the problems of intestacy: make a Will and ensure that it is regularly updated.

This new Act repeals and consolidates all charity legislation: the Recreational Charities Act 1958, the Charities Act 1993 and many of the provisions of the Charities Act 2006. However, it does not change the law.

The reason for the consolidation is that charity legislation has long been criticised for being disparate and hard to understand; a new Act that consolidates charities legislation in one place was seen by the Government as a way of making charity law more accessible to the general public and third-sector organisations.

However, this is not the end of the story.

A review of the Charities Act 2006, led by Lord Hodgson, will also take place in 2012 and will consider substantive changes to the law. The review will look at a range of issues, including the definition of “charity” and the role and status of the Charity Commission as the sector’s regulator, and will consider whether the Act is still “fit for purpose” five years after it was passed. Click here for full details.

Any legislative change is likely to be some way off, with Lord Hodgson expected to complete his review by summer 2012 and then to submit a report on it to Parliament before the summer recess.

The Act received Royal Assent in July 2011 (click here for details) and preserves the succession rights of the descendants of a person who:

1. Disclaims (or rejects) an inheritance in an estate; or

2. Forfeits his succession rights by killing the deceased person.

The Act also amends the current law so that the children of a minor are able to inherit their parent’s interest in an intestate’s estate, where the parent died before the age of 18 without having married or formed a civil partnership.

The Act will not apply where a death occurs before the commencement of sections 1, 2 and 3 (i.e. before 1 February 2012.)

Full details of the Act are here.

In its recent second annual report on the competitiveness of the UK tax system, the Institute of Directors (IoD) has suggested that capital gains tax and inheritance tax should be merged in order to help simplify the UK tax system (much in the same way as the integration of income tax and national insurance would do.) The IoD suggests that capital gains tax should be charged on those assets held at death above a fixed and “reasonably generous” (but unspecified) threshold, and that inheritance tax could then be abolished. Its full proposals are here (see page 26.)

This is not the first time that the IoD has put forward suggestions to change the tax system – in 2007, an IoD discussion paper called for the abolition of capital gains tax and inheritance tax – and it is an idea that has been mooted by others for some time.

Following on from Spain’s possible prosecution at the hands of the European Commission for discriminating against non-residents, the Commission has now referred the Netherlands to the European Court of Justice (ECJ) for discriminatory rules on inheritance and gift duties, after it failed to amend its laws following a formal request in September 2010. Under Dutch legislation, country estates located in the Netherlands are fully or partially exempt from succession and gift duties if they are open to the public, while inheritance or gifts of country estates in other European Economic Area (EEA) States are taxed on 100 per cent of their market value. The Commission considers the difference in tax treatment to be contrary to the free movement of capital.

It is interesting, though, that UK inheritance tax laws in this area could themselves be potentially discriminatory. The UK offers a conditional exemption tax incentive (which is not limited to land in the UK) to historic houses that are open to the general public. Inheritance tax and/or capital gains tax is not paid when the qualifying property (or historic item, such as a painting or sculpture) passes to a new owner on death or is gifted. However, according to HM Revenue and Customs’ (HMRC) memorandum on ‘Capital Taxation and the National Heritage’, in order to obtain the exemption, the new owner must agree to look after the item/property, keep it in the UK if it is moveable, and allow “reasonable” public access to it. HMRC’s stipulation that public access to the property should be “reasonable” means that the relief cannot realistically be given to property or land outside the UK.

Not that the Government will be overly concerned about this.

With the EU currently threatening to sue the UK over its recently-signed tax agreement with Switzerland unless the Chancellor renegotiates it, the Government has more pressing things to worry about.

In March 2011, the Office of Tax Simplification (OTS) published its interim report on the simplification of the tax treatment of small businesses. In it, the OTS recommended that the income tax and NICs regimes should be amalgamated and that the Government should begin work towards this objective by the end of 2011.

Following the Government’s call for evidence on the matter in July 2011, it became obvious that there was a real desire for reform, with the majority of respondents stating that there are potential gains to be made from aligning income tax and NICs. Respondents recommended that (1) the system for calculating NICs should be altered to reflect how income tax is calculated, and that (2) the same employee earnings should be made subject to the calculations for both taxes.

However, any reform will take time (and will only happen if the benefits outweigh the costs of making the change.)

The Government intends to work with stakeholders over the next few months, with a view to identifying high level options for reform by Budget 2012. Even if this happens, the Government has predicted that, due to the number of consultations on reform that would have to take place and the need to give employers sufficient time to prepare for a new tax system, any reform would probably not take place until 2017. Also, it appears that any reform will focus on alignment, simplification or operational integration rather than a complete merger of the two regimes.

In the past, governments have steered away from merging or integrating income tax and NICs, so it is surprising that reform is now a real possibility. However, the Government has accepted that there could be winners and losers even if there is just an integration of income tax and NICs, so it will need to fully investigate the impact any reform could have on individuals before deciding to proceed.

The Government has also published a discussion paper that outlines its proposals for simplifying the administration of personal taxes, by making tax information more accessible to taxpayers. It believes that online and mobile technology can help to improve taxpayer awareness of their tax liabilities. The discussion paper looks at systems in other countries, where taxpayers are able to access (and input) their own tax information online throughout the tax year. HM Treasury’s view is that a system that encourages greater taxpayer engagement also encourages greater taxpayer compliance.

Interesting times…

In its coalition agreement, published in July 2010, the Government stated that there was an urgent need to reform the social care system, so that individuals and carers had more control over care. Consequently, the Government set up a Commission on the funding of long-term care, led by the economist Andrew Dilnot, which investigated alternatives for funding long-term care.

After launching a call for evidence on ideas for a future social care funding system in December 2010, the Commission published its report containing the following recommendations:

1. Capping individuals’ lifetime contributions towards their care costs – which are currently potentially unlimited – to between £25,000 and £50,000, but ideally around £35,000. After the cap is reached, individuals would be eligible for full state support;

2. Means-tested support should continue, but the asset threshold, above which people are liable for their full residential care costs, should increase from £23,250 to £100,000;

3. Individuals should contribute a standard amount of between £7,000 and £10,000 to cover their living costs;

4. National eligibility criteria for social care service entitlement should be standardised, and a more objective eligibility and assessment framework should be developed by the Government;

5. Carers should be supported by improved assessments, which aim to ensure that the impact on the carer is manageable and sustainable;

6. The Government should run an awareness campaign to help people understand the system and to encourage people to plan for later life;

7. Those individuals who have entered adulthood with a care and support need should immediately be eligible for free state support, rather than being subjected to a means test; and

8. Local authorities should have sufficient government funding in order to implement these reforms.

The Dilnot Commission estimates that its proposals – based on a cap of £35,000 – would cost the State around £1.7bn per year. It believes that the combination of a cap on contributions and the higher means-tested threshold would ensure that individuals going into residential care would not have to spend more than 30 per cent of their assets on their care costs. Currently, some people can lose over 90 per cent of their assets.

The Government plans to consult on social care reform before publishing a progress report and White Paper in spring 2012.

Whilst the report is welcome and the Health Secretary, Andrew Lansley, described it as an “immensely valuable contribution”, we are in an era of public sector spending cuts and the Government will be aware of the significant costs (and year-on-year increases) of reforming the system and supporting an ageing population. Consequently, major change may still be some years away.

For the foreseeable future, individuals must consider the financial implications of meeting their care home costs and ensure that they protect their assets through careful tax and estate planning. If you would like to discuss your options, please contact me at iain.donaldson@mablaw.com.

Inheritance and gift tax in Spain are regulated at both state level and at the level of autonomous communities (i.e. local level.) Spain has 17 autonomous communities (or “Comunidades Autonomas”) and each has a territorial basis, their own government and Parliament, and broad legislative and executive powers. This legislation grants Spanish residents a number of tax benefits that, in practice, allow them to pay much lower taxes than non-residents. Consequently, Spain has been referred to the European Court of Justice on the grounds that this practice goes against the principle of free movement of people and capital within the EU, and breaches the Treaty on the Functioning of the European Union.

This is not the first time that Spain has been in trouble over this issue. In May 2010 and February 2011, the European Commission requested Spain to amend its legislation so that it complied with EU rules on inheritance and gift tax provisions. However, although Spain “tweaked” its laws, no satisfactory amendments have yet been made.

It remains to be seen how Spain will respond to the threat of legal action, and whether it will now satisfactorily change its inheritance and gift tax laws. According to the European Commission, approximately 95 per cent of infringement cases are resolved before they reach the European Court of Justice, so we shall wait and see…

The aim of the review is to:

* Understand how the Act is operating in practice;

* Assess how effective it is; and

* Determine whether the legal and regulatory framework for charities in England and Wales is fit for purpose, now and in the future, and whether further improvements could be made.

The Charities Act 2006 made a number of changes to the legal framework for charities, but Parliament agreed that the Act should be reviewed after it had been in force for five years, so it could assess whether it was an effective piece of legislation.  

The review’s Terms of Reference include 14 specific issues that need to be considered, which were brought to the attention of the Government by the charity sector, lawyers and other interested parties. These include the following:

1. The definition of “charity” and the changes made by the Act in relation to the public benefit requirement;

2. The licensing regime for public charitable collections – are the Act’s provisions workable and do they represent value for money?;

3. UK cross-border issues;

4. Self-regulation of fundraising (as delivered by the Fundraising Standards Board (FRSB));

5. The success of the First-tier Tribunal (Charity), particularly the range of Charity Commission decisions that are appealable to, or reviewable by, the Tribunal;

6. Measures to reduce bureaucracy on charities;

7. The objectives, functions and structure of the Charity Commission, including relevant recommendations from its strategic review;

8. Measures to facilitate social investment or “mixed purpose” investment by, and into, charities;

9. The operation of the charity merger provisions in the Act;

10. Exempt charities, including the policy approach to the regulation of exempt charities;

11. The transparency and accountability of the charity sector, including current accounting and reporting/audit procedures;

12. Thresholds for registration of charities, including the £5,000 general registration threshold and the £100,000 registration threshold for excepted charities;

13. The effectiveness of organisational forms available to charities, including the Charitable Incorporated Organisation; and

14. Methods of supporting and encouraging individuals to volunteer as trustees, recognising concerns about trustee liability.

Full details are here.

Lord Hodgson is to publish a call for evidence from charities and other stakeholders in due course. He aims to complete his review before summer 2012, and a report will then be laid before Parliament.

These changes could affect all commercial property owner-occupiers and investors.

HMRC intends to do the following:

1. Require all taxpayers to claim capital allowances within one or two years of when the money was spent, or no capital allowances claim will ever be allowed for any current or future owner. This will apply to all new construction expenditure (e.g. new-builds, extensions, refurbishments, etc) as well as purchases of second-hand property. Historic expenditure made before April 2012 is also likely to be subject to the new rules.

2. Require the buyer and seller of a second-hand building including fixtures to submit a formal ‘Record of Agreement’, showing how much of the purchase price is attributable to the fixtures (and notify this to HMRC within one or two years.)

If these changes do go ahead, buyers of plant and machinery fixtures will need to ensure that they notify HMRC of the expenditure within the required time limit in order to claim capital allowances. Also, the buyer and the seller will have to agree on the sale value of the fixtures within the requisite time period if the buyer is to be able to claim capital allowances in relation to the fixtures.

Draft legislation will be included in the Finance Bill 2012, with the changes expected to take effect from April 2012.

As a matter of urgency, if you have not yet claimed for fixtures, or believe that capital allowances might have been under-claimed, please contact either me at david.marsden@mablaw.com, or our property tax specialist Shimon Shaw at shimon.shaw@mablaw.com, as any additional claim should be made before the rules change in April 2012.

We now hear that the Chancellor has ordered an investigation into how much the tax brings into the national coffers. HMRC has been told to report back by January.

This shows us the power of the people (well, a very select group of the people) to get the Government to take action.  Or does it?  The Chancellor has done nothing but buy himself some time here. 

Time to think has to be a good thing, and it is commendable that there hasn’t been another knee jerk reaction of “yes” or “no”.  What is glaringly obvious, to me, is that whilst economists may be in a position to opine as to how measures such as the 50% rate of tax affect the economy, this is only part of the picture.

The other part is politics; and it is the politicians who are responsible for making changes.  The damage which could be done in being seen to favour the rich at a time when unemployment is high and growth is flat lining means that the merits of the 50% rate are of secondary importance to “how it looks”. 

Just listen to the news and take note of how often you hear the phrase “send a message”.  Policy seems to be more about messages sent than the merit of the measure. 

I fully expect that when the Revenue report back on this next year, the results will not show a strong case for the 50% rate.  I’ve helped enough clients to shape their affairs to reduce the impact of the 50% rate to form my own view on the matter. 

Whatever the outcome of this review, my personal opinion of this is that it won’t matter.  It’s the politicians that shape the policy.  Call me cynical if you will, but the bottom line is that any changes made by politicians are going to be based more on politics than economics

The Bill was introduced into Parliament as a Private Members’ Bill, so its passage into law was uncertain. However, because the Bill more or less implemented the recommendations of the Law Commission, it was supported by the Government – a luxury most Private Members’ Bills do not receive. 

When I discussed this legislation back in February, the Act was only a Bill and at the time there was no guarantee that it would become law. Full details of it are here. As it turned out, the Bill received few amendments during its parliamentary progress and received Royal Assent relatively quickly.

The Act will amend the law in relation to who may inherit a beneficiary’s interest which is forfeited under the Forfeiture Act 1982. The forfeiture rule prevents a person from acquiring a benefit from unlawfully killing another person.

To summarise, the Act reforms the law of succession in the following two ways:

1. If a person either disclaims an inheritance or is disqualified from receiving an inheritance by the forfeiture rule, the inheritance rights of that person’s descendants will be maintained; and

2. The children of a minor (i.e. an individual under the age of 18) will be able to inherit their parent’s interest in an intestate person’s estate where that parent died before the age of 18 and was unmarried or had not entered a civil partnership.

For full details of the changes and further background information , please click here.

At the time of writing, there is no date for when the Act will come into force.

This pseudo-tax known as the, Art Resale Levy, (or droit de suite in French) means that sellers will have to pay royalties on works by European artists who have died in the past 70 years, including Pablo Picasso, Henri Matisse and Francis Bacon. Cash is payable to the artist’s heirs each time a work is resold.

The tax already exists in mainland Europe and is due in Britain from January, applying to all works priced above (EURO)1,000 (£900) and on a sliding scale of 0.25 per cent to 4 per cent. 

There will be intellectual property implications of this, if the directive is brought into force in UK.

On the other hand, so the argument goes, why shouldn’t the family reap some of the benefits (in particular when success is mostly posthumous)?

For a more detailed review of the tax’s history and the UK’s derogation until 2012, I suggest an article in the FT, which can be found here (although please note that the FT is subscription only), and for the view of the art lobbyists (LAPADA), click here: LAPADA, and follow the links at the bottom of the page.

There will be scope for planning to avoid this levy if the UK is not be able to extend the derogation beyond 2012, and if you are interested in discussing this with a solicitor, please call 01923 20 20 20 and ask for the Wealth Management Department.

The changes affect Employer Annual Returns and starter and leaver PAYE forms.  From April, employers with fewer than 50 employees must now send starter and leaver forms – P45s, P46s and similar pension information – online to HMRC.  

Further, all employers who send their Employer Annual Return to HMRC after the 19 May filing deadline will now receive a late-filing penalty.  Previously, an extra-statutory concession gave employers extra time before HMRC charged a penalty, but this has been withdrawn.

From this year, employers will be liable to a penalty if they file their annual return on paper. Last year, no penalty was charged for employers with five or fewer employees. But these transitional arrangements have now ended. HMRC will also be issuing PAYE penalties this spring for the first time in two key areas:

• Penalty notices will be sent out in April to employers with 50 or more employees who have not filed starter and leaver forms online to HMRC. The first penalties will apply for the three month period to 5 April 2011, with further penalties being issued on a quarterly basis.
• From May this year, HMRC will start sending out penalties for late payment of PAYE. Employers will be liable for a penalty if they haven’t made PAYE payments on time, and in full, from April 2010. The amount of the penalty will depend on the amounts paid late and the total number of late payments made. Penalties will be charged after the tax year-end.

Employers must file an Employer Annual Return (EAR) – a P14 for each employee and a P35 summary sheet – by 19 May. They must do this online (with some very limited exceptions, for example, people who employ their own carer and those with religious objections). If an employer has not previously sent their return online, they must act now by registering for HMRC’s online service. 

HMRC has published a list of common errors to avoid on its website.

There are a number of ways that employers can send employee starter and leaver details online. They can use commercial software, HMRC’s free Online Return and Forms – PAYE Service, HMRC’s Basic PAYE Tools (formerly Employer CD-ROM) or an agent can do it for them online. To avoid unnecessary administration work for employers and HMRC, employers should not send paper starter and leaver forms to HMRC where they have already filed online or intend to do so.

But here is some good news.

Stamp duty on property (SDLT) has to be one of the most hated taxes out there.  It is a tax on mobility and, like VAT, is imposed on cash which in most cases has already been taxed.  Not only that but it makes moving house a lot more expensive.  Hence the spread of stamp duty planning in recent years, even to transactions which in the past would never have been considered for this.

So a ray of sunshine in the doom and gloom is welcome.

An SDLT case was heard in the Tax Chamber of the First-tier Tribunal towards the end of last year.  Deputy Judge Charles Hellier heard arguments over a scheme used to avoid SDLT on the £65.1m purchase of a property in London’s Regent Street in October 2006.  The SDLT scheme in question involved a subsale of the property to a partnership resulting in no SDLT being payable.

This was the first occasion a court or tribunal has considered an SDLT scheme and its importance lies in the attitude of tribunal to the technical arguments SDLT schemes rely on.

And the winner was…..the taxpayer.

The judgement has not yet been published but watch this space as this article will be followed by an examination of the tribunal’s approach and a consideration of how this will impact on future schemes.

Skilled workers from overseas who do not take home big salaries will have to satisfy strict criteria.  Fewer than 21,000 a year will be let in because of a new cap on the number of people coming to the UK for employment.

Applicants will need a “certificate of sponsorship” from a UK employer and they will be given points according to the rarity of their skills, for example scientists will be ranked highly. Employers filling a vacancy that attracts a salary of £150,000 or more will not be subject to the limit on the number of certificates that may be allocated.

For more information on this change, the press release can be seen here.

Looking at the bigger picture, the Government is sending out mixed messages.  On one hand, this will be welcomed by business leaders who are concerned about a brain drain from the UK.  This is clearly intended to encourage skilled immigration and to support both the knowledge based economy as well as the City.  On the other hand, HM Treasury have raised tax to 50% on the highest earners with hints from the Chancellor that the beneficial tax regime in the UK for resident non-domiciliaries (who will be the ones most interested in the above announcement) may be restricted. In an increasingly mobile global society, there are simply too many other choices and, put simply, tax is a large part of the equation when choosing where to live.

The Government needs to have a clear policy to increase the skill set (and therefore the wealth) of the UK through targeted and consistent measures.  It is not enough to simply fiddle with immigration quotas.

I don’t act for any sports leagues.  That’s not to say I wouldn’t be interested, if someone from the FA, for example, reads this.

However, I know that stories about sports are always of interest (hence the fact that the slightly esoteric question of proper taxation of image rights is now familiar territory to a large part of the general public), so here we go.  Here we go.  Here we go.  Sorry.

HMRC have issued a notice clarifying their view of the VAT treatment of commercially operated sports leagues in response to enquiries from a number of organisations that run football leagues.

Background

Typically, a sports league provider will do most or all of the following:

• organise a league
• allocate fixtures to teams in the league 
• provide pitches for teams to play on (some league providers own pitches, others rent them from other parties) 
• provide referees
• determine results
• keep and publish scores and league tables
• award trophies to winning teams 

Payments for such supplies are collected in a variety of ways. For example, the sports league provider may charge a one off ‘admin fee’ to teams plus a ‘match fee’ for each game that is played.

Taxation

Some leagues have put it to HMRC that the essential nature of their supplies is one of pitch hire.  This relies on a series of VAT cases which rule that when you have provide one main service and there are added services ancillary to this, the VAT treatment is that of the main supply.  Following this, the leagues would not have to charge VAT.

Unsurprisingly, HMRC disagree with this and I suspect that most fans would too.  The supplies made by sports league providers consist of a bundle of elements, which are integral to each other.  HMRC consider that it cannot be said that there is one principal element to which all others are ancillary.

So what is that main supply?  In HMRC’s view, the overarching supply is of participation in a sports league, not a supply of land, and therefore subject to VAT at 20%.

Conclusion

It seems that by raising this as a question, the leagues have forced HMRC to go public with their views.  Rather an own goal, I’d say.  Sorry, again.

HMRC will target 50,000 SME’s a year looking at business records going back over the last 6 years.  There is a legal obligation to keep adequate records, and failure to do so can give rise to fines of up to £3,000.  This is a change of practice from HMRC who historically have rarely imposed these penalties.

Overtly raising taxes at the moment is political death.  So HM Treasury have to look elsewhere for money.  This seems to be a case of rummaging down the back of the sofa for those extra bits of revenue.  However, for most SMEs – £3,000 is not small change.  Businesses need to ensure that they keep all relevant documentation in addition to their accounts, such as till rolls, cheque stubs, paying-in-slips, cash receipts, etc.

If you want to speak to a solicitor or accountant about your obligations please contact us.

We also offer a business healthcheck  service, which includes a review of your business documentation and compliance.  If you are interested in this please contact our corporate team.

The exemption had meant that businesses in England with an empty property with a rateable value below £18,000 did not have to pay business rates. The government intends to lower the threshold from £18,000 to £2,600. Also, the government does not intend to re-introduce a 50% relief, and small firms will not be able to claim Small Business Rate Relief on the property.

The FSB have written to local government minister, Bob Neill, to protest that the changes could potentially put some small firms out of business. If the cuts cannot be avoided, the FSB claims, it would be better to provide per cent relief or at least to allow a business to claim Small Business Rate Relief on their empty property.

The press release can be viewed here.

So, why are there so many disputes over wills?

Well, there are probably a number of reasons:

1. The recession. In a difficult economic climate, beneficiaries may be relying on an inheritance to ease financial pressures or even to clear their debts. If that inheritance proves to be less than they were expecting (or less than they believed was rightfully theirs), the disgruntled beneficiary may decide to take legal action to try and secure a bigger share of the deceased’s estate. The impact of the recession has also meant that many estates have significantly reduced in value - for example, due to falling house prices or diminishing share values - which can again leave beneficiaries receiving less than they expected. Disappointment can breed resentment and, in turn, one beneficiary can turn against another in order to receive a bigger ‘share of the pot’;

2. Family structures. Many 21^st century families are complex (especially when compared to those of even twenty years ago.) In many cases, families have become much bigger due to multiple marriages, divorces, births inside or outside of wedlock – all of which increases the number of potential beneficiaries. Also, to add further complications, any person who was financially dependent on the deceased at the time of his/her death, whether it be a child born out of wedlock, a cohabitee, or a mistress, may have a valid claim to part of the estate. This can create huge resentment (and emotional hurt) amongst other family members, particularly if they weren’t even aware of a mistress or child’s existence, and there are numerous court cases to prove how far beneficiaries will go to defend (and claim) what they believe is rightly theirs;

3. Outdated laws. The inheritance and intestacy laws were created in the 1920s and 1970s, when family structures were very different. Although there have been some changes over the years, the intestacy laws date back to 1925 and reflect the social conditions and attitudes of a very different Britain. The Inheritance (Provision for Family and Dependants) Act 1975 has not been comprehensively reviewed since its enactment, although it now covers cohabitants, civil partners and same-sex cohabitants. There is no doubt that the law has fallen behind the times and doesn’t fully reflect the society it operates within, and consequently it has been responsible in part for the rise in claims. However this is now being addressed. Earlier in the year, the Law Commission published a consultation paper that reviewed the rules on intestacy and family provision claims on death, making provisional proposals for changes to the law that aim to reflect the reasonable expectations of those who have been bereaved. A report and draft bill are due to be published in 2011; 

4. Do-it-yourself wills. The growing popularity of DIY wills has increased the risk of disputes. Individuals who do not seek professional advice when writing a will, or who use unregulated will-writing companies, run the risk of creating invalid wills (and dying intestate), or leaving their will open to a legal challenge; and

5. Dying intestate. According to a study by the National Centre for Social Research, which was conducted to provide the Law Commission with up-to-date information on public attitudes on inheritance laws, only one-third of people may have written a will. If someone dies without making a valid will, there is an order of entitlement under the intestacy rules, which dictates how a deceased’s property is distributed; however, if fair provision is deemed not to have been made, claims can be brought against the estate. A properly-drawn up, up-to-date will can help reduce any claims made against your estate.

Matthew Arnold & Baldwin LLP is experienced in all matters relating to the preparation of wills. We offer quality tax, trusts and inheritance advice to ensure that your personal affairs are arranged as efficiently as possible, and that your assets are passed on to your heirs in the way you want them to be, thereby reducing the possibility of any unwanted claims against your estate. If you would like to discuss writing a will, or have any queries regarding anything I’ve discussed, please contact me at iain.donaldson@mablaw.com

The lower rate of corporation tax has a threshold of £300,000.  If you have two associated companies the threshold for each is reduced to £150,000.  If you have three, then the threshold reduces to £100,000 for each.  The same will apply to the upper threshold (£1.5m).

The case below shows how this rule can apply in quite unexpected ways.

Executive Benefit Services (UK) Limited v HMRC [2010] UKFTT 550 (TC).

The taxpayer company and its associated company had completely distinct businesses.  However, a shareholder of one was found to control both companies since he had become a loan creditor of the associated company for purely commercial reasons.  Essentially by virtue of lending the other company money (combines with a minority shareholding) he became entitled to the “greater part” of the company’s assets “available for distribution to participators”.

The First-tier Tribunal held that the associated company test applied irrespective of any tax avoidance motive in structuring a company’s financing and shareholdings. 

Conclusion

This is a good reminder of some of the mischief which can be caused by the associated companies rules. 

The facts here are clear that there was no tax avoidance motive, in fact the shareholder in question was clearly trying to help out his son (who was the owner of the second company).  The loan was interest-free with no fixed repayment date and with no other entitlements, such as voting control or a share of a distribution of profits in the event of a winding-up.  Despite all this, the tribunal held that the companies were associated and reduced the rate of tax for both companies accordingly.

This case is going to be of particular interest in these times when (as happened here) lenders are holding back the flow of credit and children are turning to the bank of Mum and Dad.  When Mum and Dad are themselves in business, they need to look very carefully at the position of both companies.

For more information please contact James Odds or Shimon Shaw on 01923 20 20 20.

The personal tax details for 2011/12 have now been released.  Some of the key points:

• The personal tax allowance will rise by £1000 to £7,475.
• The higher allowance for those aged 65-74 and aged 75 or more will both go up by £450 to £9,940 and £10,090 – though only if your income is less than £24,000 (up from £22,900 last year).  Over this the higher allowance tapers back down to the standard.
• Higher rate tax will begin to be paid on annual incomes above £42,475 which is £1,400 less than the limit this year (£43,875). Therefore higher rate tax payers will not gain from the £1k rise in the personal tax allowance.
• The 50% rate remains at £150,000 and the income at which the personal allowance begins to be clawed back remains at £100,000.  Anyone with an income between £100,000 and of £114,950 – when personal allowance disappears altogether – will be paying an effective marginal rate of tax of 60% on some of their income.

Tax returns for last year will be due in January.  If you need assitance in preparing your return, please contact James Odds on 01923 20 20 20.

All in all, over 1000 tax reliefs are under review. To view them all, please click here (it may take a minute or two to download the 64-page spreadsheet!)

Following the review, which ends on 30 November 2010, the OTS will evaluate the effectiveness and relevance of all the tax reliefs, and will then recommend which ones could be simplified or even repealed. According to HM Treasury, the OTS will recommend repealing those reliefs that are “largely historic, not frequently used, create distortions in the tax system or are complex for business or HM Revenue & Customs to administer.”

There is certainly a proliferation of some tax reliefs – for example, there are 43 different reliefs from personal capital gains tax; 89 reliefs from inheritance tax; 117 reliefs from various forms of stamp duty; and 225 reliefs from personal income tax. However, whilst a number of these reliefs are historic (such as the relief for trading losses to ‘black beer’, which is described as an “historic exemption from excise duty for a fermented beverage made from malt and molasses, often without hops” – number 247 in the spreadsheet list, if you are interested!), there is a danger that some important reliefs may be lost as well during this streamlining exercise.

After considering its findings and assessing all the comments made from interested parties, the OTS will produce a final report, including its recommendations, before the Chancellor’s Budget in March 2011.

I’m posting it since it’s amusing and with no reflection of whether or not I think it is accurate.  For one thing, if I have a hard time imagining the pub suggesting that they drop the price of beer by 20%, I don’t have words to describe my feelings as to the impossibility of the Govt dropping income tax by any amount at any time before they start campaigning for the next election!

Shimon

……………………………………..

Suppose that once a week, ten men go out for beer and the bill for all ten comes to £100.
If they paid their bill the way we pay our taxes, it would go something like this..

The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7.
The eighth would pay £12.
The ninth would pay £18.
And the tenth man (the richest) would pay £59.

So, that’s what they decided to do.

The ten men drank in the bar every week and seemed quite happy with the arrangement until, one day, the owner caused them a little problem.   “Since you are all such good customers,” he said, “I’m going to reduce the cost of your weekly beer by £20.”  Drinks for the ten men would now cost just £80.

The group still wanted to pay their bill the way we pay our taxes.   So the first four men were unaffected. They would still drink for free but what about the other six men? The paying customers?  How could they divide the £20 windfall so that everyone would get his fair share?  They realized that £20 divided by six is £3.33 but if they subtracted that from everybody’s share then not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fairer to reduce each man’s bill by a higher percentage.  They decided to follow the principle of the tax system they had been using and he proceeded to work out the amounts he suggested that each should now pay.

And so, the fifth man, like the first four, now paid nothing (a100% saving).
The sixth man now paid £2 instead of £3 (a 33% saving).
The seventh man now paid £5 instead of £7 (a 28% saving).
The eighth man now paid £9 instead of £12 (a 25% saving).
The ninth man now paid £14 instead of £18 (a 22% saving).
And the tenth man now paid £49 instead of £59 (a 16% saving).
Each of the last six was better off than before with the first four continuing to drink for free.

But, once outside the bar, the men began to compare their savings. “I only got £1 out of the £20 saving,” declared the sixth man. He pointed to the tenth man, “but he got £10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a £1 too. It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man. “Why should he get £10 back, when I only got £2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”  The nine men surrounded the tenth and beat him up.

The next week the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important – they didn’t have enough money between all of them to pay for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works.

The people who already pay the highest taxes will naturally get the most benefit from a tax reduction.  Tax them too much, attack them for being wealthy and they just might not show up anymore.

In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

David R. Kamerschen, Ph.D.
Professor of Economics.

Baroness Deech shared the view that the current state of the law is unsatisfactory but showed greater concern for the gender issues, and offered the opinion that a Commission was a poor alternative, taking too long and covering moral as well as legal issues.

Where John Hemming and the speakers were agreed was in the observation that Parliament is noticeably reluctant to engage in this area, crying out for reform. Why is that and what form should that reform take?

To spark off your comments, my own view on the former is that its not a vote winner but a potential vote loser and any MP raising their voice on the subject in Parliament would have to anticipate a gruelling examination of  his or her private life as such a debate hots up!

Anyway, with only the Law Commission’s report in 2011 on marital agreements to look forward to as a signpost to reform, if you’re not happy with the current law on marriage, separation and divorce, this Parliamentary Group looks like one of the better focus points at the moment, so contact it, attend its meetings and express your views – it can’t do any harm! As far as I know, until the movement gathers pace, your contact point is John Hemming MP,  House of Commons. See you at the next meeting.

Peter Tatchell will lead the campaign and starting on the 2^nd November 2010, 8 different couples will file applications at their local Registry Office.  Four of those couples will be in same sex relationships who will apply for civil marriages whilst the remaining four will be heterosexual couples making an application for a civil partnership.  Each week until the 14^th December one couple will make an application and if they are turned away, legal action will be taken.  Peter Tatchell, the equal love campaign co-ordinator says, “we will argue in the Courts that in a democratic society gay and straight couples should be equal before the law.  Both civil marriages and civil partnerships should be open to everyone without discrimination”.

Robert Wintemute, the professor of Human Rights Law at Kings College, London is preparing the legal case in which he claims that the “rights attached to civil marriages and civil partnerships are identical, especially with regard to adoption of children, donor insemination and surrogacy”.  He continues to say that he feels that the “only function of the twin bands is to mark gay people as being inferior to heterosexual people”.

It is anticipated that the campaign and legal case will begin in earnest in the New Year once all the decisions have been received from the local Registry Offices.

This continues the trend in recent years of grandparents picking up increasingly more of the burden, both financially and in terms of time.

Unless your kids are really demanding, you probably won’t need to consult your solicitor to get you out of babysitting for the little darlings.  However, if you are a grandparent providing financial support (for example, school fees) there are a number of steps you can take to reduce the cost of helping.

For example, many grandparents put money or investments on trust for their grandchildren.  Any growth in the fund gives rise to tax on the grandchildren (which in most cases will mean that there is effectively no tax).  This may also be effective inheritance tax planning.

If you would like to discuss tax planning to provide for your grandchildren, please contact me or any member of the Wealth Management team on 01923 20 20 20.

If you miss the deadline it could be costly, as paper returns filed after this date could mean a £100 penalty.

An alternative to paper-filing is to file your return online, which benefits from a January deadline.

If you would like assistance in preparing and filing your tax returns, please contact James Odds on 01923 202020 or james.odds@mablaw.com.

The Treasury have just now issused the following press release, which we will consider in more detail and comment on in due course.

Financial Secretary to the Treasury announces changes to restricting pensions tax relief

Financial Secretary to the Treasury, Mark Hoban MP, announced today that the annual allowance for tax-privileged pension saving will be reduced from £255,000 to £50,000, and the lifetime allowance will be reduced from £1.8 million to £1.5 million. This will replace the complex proposal legislated for by the last Government in the Finance Act 2010.

This measure will raise £4 billion per annum in steady state and will help reduce the record Budget deficit that this Government inherited. It will be targeted at those who make the most significant pension savings. An annual allowance of £50,000 will affect 100,000 pension savers 80% of those will have incomes over £100,000.

The Government is committed to protecting individuals on low and moderate incomes as far as possible. To protect individuals who exceed the annual allowance due to one-off “spikes” in accrual, the Government will allow individuals to offset this against unused allowance from previous years.

We will also consult on options enabling people to meet tax charges out of their pensions in November.

In order to protect the public finances it is necessary to introduce the reduced annual allowance from April 2011. The Government plans to introduce the reduction in the lifetime allowance from April 2012.

Mark Hoban said:

We have abandoned the previous Government’s complex proposals and developed a solution that will help to tackle the deficit but not hit those on low and moderate incomes. We have taken a tough but fair decision.

The Coalition Government believes that our system is fair, will preserve incentives to save and – compared to the last Government’s approach – will help UK businesses to attract and retain talent.

The government announced earlier this year that it was acquiring the Swiss bank account details of up to 6,600 wealthy Britons suspected of evading tax.

If you have received one of these letters and would like advice as to your next steps, please contact your normal MAB solicitor or ask for the Wealth Management team on 01923 202020.

It must also be filed when no tax is due as a result of the transferable nil rate band applying.  Essentially, this would be on the second death of a married couple or civil partnership where the first to die did not use all of their nil rate band.  This rule was introduced in late 2007 and is currently being used in 27,000 full estate returns each year.

HMRC now proposes to extend this exemption to some cases where the transferable nil rate band rule applies.  HMRC estimates this will apply in three out of every four cases where transferable nil rate band is invoked.  In all other more complex cases a full estate return will still have to be completed.

Not only will this save time and benefit probate practitioners, but it could lead to cost savings for clients and would be a most welcome change.

If you would like to speak to someone about probate, wills or estate planning please contact us on 01923 202020 and ask to speak with the Wealth Management team.

A statutory will is a will made on behalf of someone who lacks the necessary capacity to do so themselves by application to the Court of Protection.

In the case of Re D (statutory will), the Court of Protection considered what principles should be applied in determining whether to order the execution of a statutory will for and on behalf of a person who lacked the mental testamentary capacity to do so.

The Court of Protection held that under the Mental Capacity Act it can authorise a statutory will on the grounds that the validity of an earlier will is in dispute.  Decisions taken on behalf of a mentally incapacitated adult must be taken in his or her best interests.  This can include being remembered for having done the ‘right thing’ in his or her will.  In this case the judge ruled that the ‘right thing’ meant ensuring Mrs D’s memory was not ‘tainted by the bitterness of a contested probate dispute between her children’.

Comment

It is heartening to see the Court taking such a practical (and sensitive) approach.  The alternative would have been for the beneficiaries to have waited until Mrs D had died and to then contest her will in the courts.  This would have been far more stressful and expensive and would almost certainly not have been what Mrs D would have wanted.

If you would like advice on statutory wills or mental capacity please contact me on iain.donaldson@mablaw.com or 01923 202020.

 This is a device of long lineage, first noted judicially in 1769 (the same year the last wild wolf was killed in the British Isles) in Dufour v Pereira a case tried by Lord Camden (yes, the man who founded Camden Town), who amongst the “haths” in his  judgment, had this to say

“It is a contract between the parties, which cannot be rescinded, but by the consent of both. The first that dies, carries his part of the contract into execution. Will the Court afterwards permit the other to break the contract? Certainly not.”

Sounds a bit scary, a bit like a suicide pact, but in reality it’s not, it is just an arrangement where two people irrevocably agree to leave their estates reciprocally . But aren’t all wills recovocable until death, I hear you say? Absolutely, and theoretically this is no exception to the rule, being in fact the application of a prior constructive trust.

Say A and B agree to make wills leaving all to each other, subject to a proviso that if the other dies first the estate passes to X. A dies and the estate passes to B, who contrary to the earlier  agreement with A, then makes another will leaving all to Z.  On B’s death X can apply to have the gift to Z set aside, citing the agreement for mutual wills as the document that sets out the terms of the prior trust. Don’t most husband’s and wives write wills in that form? Well yes, all apart from the agreement that the wills are to be in irrevocable mutual form.

The recent case that underlined the continuing effectiveness of mutual wills involved the estates of two sisters Ethel Willson and Mabel Cook.  Mrs Cook died in 1995 having made a mutual will by agreement with her sister Ethel, who died in 2006,  having made a new will 2 months before she with provision materially different from the earlier mutual will; Ethel cut out the earlier bequests to relatives and friends  in favour of the sisters’ hairdresser, who duly received the £390,000 estate. The disappointed relatives and friends took their greivance to Court, and in a case involving allegations of undue influence and mental incapacity, the Court concluded that the sisters had made mutual wills the terms of which should be upheld, such that Mrs Fraser was required to hand back the cash.

For understandable reasons such cases rarely come to Court.  In the opinion of the solicitor acting on behalf of the disappointed family and relatives such a proposition has been upheld only 3 times in the last 80 years. Such wills are rare, falling outside many a seasoned draftsman’s experience. It’s also quite likely that should the survivor of such an arrangement subsequently make a different will the fact that the provisions cut across an earlier mutual will may not be brought to anyone’s attention. Errors of drafting or administration in this particular field can still have spectacular consequences, as this case amply illustrates. Get thee to a lawyer if you are at all concerned!

Two sisters had each made a will in 1991.  They had made mutual promises to each other and as part of that had agreed that the will of the survivor would not be altered so as to change those gifts.  The surviving sister did, in fact, alter her will in 2003 and the persons who would have been the beneficiaries under the surviving sister’s original will went to court (after her death) to ask the court to give effect to the 1991 will.

Neither of the wills contained any record that they had been made pursuant to an agreement between the sisters but it was apparent from the provisions of the wills that the terms had been carefully discussed and agreed.  The court was asked to apply the doctrine of mutual wills.

The court ruled that for the doctrine of mutual wills to apply there had to be what amounted to a contract between the sisters that both wills would be irrevocable and remain unaltered.  A common intention, expectation or desire was not enough.  The mere execution of mirror or reciprocal wills did not imply any agreement either as to revocation or non-revocation.  The agreement had to be established by clear and satisfactory evidence on the balance of probabilities.

In the light of the evidence, there had been an agreement between the sisters at the time they had made their 1991 wills.  They had made mutual promises to each other and it was part of those promises that the will of the survivor would not be altered so as to change those gifts.

This case, once again, highlights the importance of proper and qualified legal advice when drafting wills.  None of this would have been necessary if the sisters advisers had ascertained their intentions as to revocation, advised as to the effect of making mutual wills and ensured that any agreement they wished to make was clearly and accurately recorded.

If you want to speak to someone about making a will please contact Suki Sandhu or Emma Alford on 01923 202020 or email info@mablaw.com.

If you have a concern about your entitlement under someone else’s will please contact Amanda Melton on 01923 202020 or amanda.melton@mablaw.com.

Within the qualifying period, these employers will not have to pay the first £5,000 of Class 1 employer NICs due in the first twelve months of employment. This will apply for each of the first 10 employees hired in the first year of business and operate in selected countries and regions.

Subject to meeting the necessary legal requirements, the scheme is intended to start no later than September 2010. Any new business set up from 22 June which meets the criteria set out in the forthcoming announcement will benefit from the scheme.

The countries and regions which will benefit will be Scotland, Wales, Northern Ireland, the North East, Yorkshire and the Humber, the North West, the East Midlands, the West Midlands and the South West.

For more information HMRC have published questions and answers which can be found here.

Training is a professional requirement but for many doctors the cost of courses comes out of their own pockets.  They rightly want to know whether it is possible to obtain tax relief for these costs.

The case of CRC v Dr Piu Bannerjee (heard in the Court of Appeal) goes some way to answering some of those questions.  The taxpayer worked for the NHS as a specialist registrar in dermatology.  For those who aren’t familiar with the exact terminology, a registrar is still in training.  Under the terms of her contract she was required to attend external training courses.  She claimed back the expenses incurred in this training but HMRC argued against this.

The issue was whether the expenses incurred in attending the training courses and defrayed by the taxpayer were wholly, exclusively and necessarily in the performance of the duties of her employment.  HMRC argued that attendance at the course was simply a means to better performing her duties, improving her professional skills and as part of her training.  This meant that there was a duality of purpose behind the training and therefore it would not meet the test of exclusivity.

The Court of Appeal held that the taxpayer had been ‘employed exclusively for training purposes’, not just to attend to patients on the ward, but also to attend the compulsory training that was part of her obligations to her employer – and therefore there was no ‘dual purpose’ in incurring the related expenses.  The result was that HMRC’s appeal was dismissed.

Conclusion

This case could have ramifications not just for other doctors but for other professions too with rigorous professional training requirements (such as architects, surveyors, solicitors, accountants and actuaries).  Each case needs to be considered going forward, and it might be possible in some cases to amend prior returns in light of this decision. 

It also highlights the benefit of proper advice in preparing tax returns.

If you would like advice on claiming expenses or in relation to your tax return, please contact James Odds on james.odds@mablaw.com or 01923 202020.

A will is one of the most important documents you will ever write, so it is important to ensure that it is done properly.

Tonight’s Panorama on BBC 1 at 8:30 has a look at some of the issues involved with getting a will drafted and some of the pitfalls.  According to the report on this morning’s Today programme on Radio 4, will writers and banks get rather pummelled whilst the legal profession comes out on top.

The reasons for this are clear.  It boils down to professional standards. 

Customers of will writers and banks are enticed by slightly lower fees but often find themselves encouraged (and in some cases pressured) into appointing the will writers or the bank as executors without being fully informed of what this means in terms of fees (which can amount to about 4% of the estate).  Customers are often then charged to have their wills stored.  To add insult to injury the advice in preparing the will is not always correct with no legal redress against the will writers.

How can this happen?  Simply put, the will writing industry is unregulated and anyone with a PC and a desk can make themselves a will writer. 

Solicitors, conversely, are regulated by the Law Society and the Solicitors Regulation Authority.  We have a code of conduct which places the client first.   Whilst not all solicitors are experts in trusts and inheritance tax, one must have a certain level of expertise and training to be admitted as a solicitor.

I’m not saying that the legal profession is perfect.  There is a diverse range of solicitors from sole practitioners on the high street to the multi-nationals in the city.  But what using a solicitor offers is the security of a skilled professional, putting your interests first, backed up by the guarantee of insurance should something go wrong.  Because of this costs are sometimes higher, but at the end of the day you know what you are getting.

Matthew Arnold & Baldwin LLP does have a dedicated team of Wealth Management specialists with expertise in wills, tax, trusts and probate.

If you would like to speak to someone about making a will, please contact Suki Sandhu or Emma Alford on 01923 202020, or email info@mablaw.co.uk.

Action has now been taken.

On 27 July 2010, HM Treasury published a discussion paper outlining its proposals for an alternative means of restricting pensions tax relief. The main proposals for discussion are as follows:

1. Reducing the annual allowance

The discussion paper says that the reduced level of the annual allowance would depend on how the restriction is designed, but it was likely to be between £30,000 and £45,000. The main points raised for discussion are:

a) A tailored annual allowance charge. Instead of the current flat-rate 40 per cent charge, contributions exceeding the annual allowance would be treated as the top slice of an individual’s income and subject to a recovery charge that would vary according to whether income is taxed at the higher rate or the additional rate;

b) Valuing defined benefit accruals. For valuing deemed contributions to defined benefit pension schemes, the Government proposes using a flat-rate factor in the region of 15-20 (the current factor being 10.) The Government Actuary’s Department suggests that a factor of 15-20 could lead to an annual allowance of £40,000 being needed;  

c) Treatment of deferred members. Carving out deferred members from the annual allowance test would ease administrative burdens on schemes, but could raise potential fairness issues over the treatment of active members;

d) Exemptions from the annual allowance test. The Government proposes that contributions or accruals would not be tested against the annual allowance on death or when a serious-ill-health lump-sum is paid; and

e) Reducing the lifetime allowance. To maintain cohesion between the annual allowance and the lifetime allowance, the Government proposes reducing the latter from its current £1.8m level. Consequently, it seeks views on whether the value of rights receiving primary or enhanced protection should be frozen.

2) Managing the impact of the annual allowance charge in defined benefit schemes

The discussion paper identifies a number of issues that may arise in defined benefit schemes, particularly unusual ‘spikes’ in accruals by individuals who are not normally subject to an annual allowance charge. The paper offers several suggestions for dealing with such situations, including capping or smoothing accruals so they do not exceed the annual allowance, or redesigning or removing benefit elements that may cause spikes. The Government has said that it will look out for actions that try to take advantage of the flat-rate valuation of defined benefit accruals, such as awarding large pension increases or bringing forward the normal pension age.

3) Paying the annual allowance charge

A revised annual allowance would still be assessed and collected through the self-assessment tax return. However, the Government has asked for views on whether the pension input period for the purposes of the annual allowance should be aligned with the tax year. Transitional measures will be included in legislation to cover those people who have already exceeded their reduced annual allowance by April 2011, but where their input period does not end until 2012.

4) Informing scheme members and HM Revenue & Customs

The Government suggests there is a case for requiring defined benefit schemes to inform members about their pension input amounts. Views are sought on whether schemes should be required to notify members specifically if their pension input amounts exceed the annual allowance.

What happens next?

All submissions to the discussion paper must be received by 27 August 2010. The Government will then decide by the end of September 2010 whether to proceed with reducing the annual allowance. If it does, the measures in the Finance Act 2010 to bring in a high income excess relief charge will be repealed.

However, this discussion paper shows that reducing the level of the annual allowance is potentially problematic for the Government. For example, there are fairness issues that need to be properly considered, particularly in relation to the comparative treatment of active and deferred members. Consequently, unless anti-avoidance provisions are included in any new legislation, it is possible that high-earners with substantial pension entitlements could manipulate the new regime to their advantage.

The Government has much to consider…

The case involved a deed of variation, which changed the terms of a will.  By way of background, it is possible for the effect of a will to be varied within two years of death, provided that various conditions are met, including the agreement of the affected beneficiaries.  In many cases wills are varied for tax reasons.

In the present case £10,000 plus some farmland of the £1.7m estate was to pass to the deceased’s husband and the rest was to pass to the deceased’s children.  The husband’s accountant suggested that the effect of the will should be varied to make it more tax efficient and a deed of variation was executed.  This was defective and led to an additional £33,000 of inheritance tax.  The parties attempted to rectify the deed of variation to the effect that the husband would not be liable to pay inheritance tax.  HMRC refused to accept the efficacy of the deed of rectification for tax purposes.  The claimant applied to the court seeking approval of the deed of rectification.

The court found in favour of the husband and allowed the deed of rectification.  The judge distinguished between a mistake as to the fiscal effect of the deed of variation and the document not giving effect to the true agreement or arrangement between the parties.  The court would not order rectification of a document if the parties’ rights would be unaffected, and if the only effect of the order would be to secure a fiscal benefit for one or more of them.  On the other hand, where the  mistake was as to the meaning or effect of a document, this might be amenable to rectification.

In many ways this case highlights just how flexible our legal system is.  The parties were not only able to amend the will, but when they got this wrong, they were then able to correct this mistake to give effect to their true intentions.

The case also highlights two other things.  First is the need for proper will planning – for if the deceased had received the correct advice while alive none of this would have needed to happen.  The other is the power of deeds of variation to create a much more favourable outcome for the beneficiaries.

If you would like to discuss any of the points raised here, please contact our Wealth Management team on 01923 202020.

Whilst this might seem surprising, this decision is actually based on case decided 127 years ago (Parker v Felgate). The court also confirmed that a testator can know and approve the contents of his will without having what is known as testamentary capacity.

The test for capacity for making a will can be summarised as:

• He understands the nature of making a will and its effects.
• He understands the extent of the property of which he is disposing.
• He is able to comprehend and appreciate the claims to which he ought to give  effect.
• For this last purpose, no disorder of the mind poisons his affections, perverts his sense of right or prevents the exercise of his natural faculties – no insane delusion influences his will in disposing of his property.

It is likely that the Mental Capacity Act 2005 may influence the Courts’ interpretation of the above test in the future.

Does capacity matter any more?

In short, yes.  For one thing, the testator needs to understand their instructions as to how their will is drafted.

Which is why, for many, this will seem a surprising decision.  However, it follows the tradition of testamentary freedom in English law.  In essence, the court prefers to give effect to decisions that the testator made when he did have testamentary capacity, provided that the testator himself intended to do this.

In practice if one uses a responsible solicitor to draft their will, they will ensure that they are satisfied of the testator’s capacity and ability to understand the consequences of what they are doing.  If there is doubt, their solicitor should obtain medical evidence of testamentary capacity, often from the testator’s GP.  This usually avoids cases such as this making it to court with the associated financial and emotional costs of doing so.

In cases where there is genuine doubt as to whether a testator has lost capacity before they sign a will, it will now be very important for their legal advisers to take full consideration of the facts of this case before suggesting a proper course of action.

Getting technical, there are nine consultation / discussion documents which invite views from the public and professions on:

• PAYE reform
• Furnished holiday lettings
• Pensions tax relief
• Associated company rules
• Disclosure of inheritance tax avoidance
• Foreign branch taxation
• Controlled foreign company interim improvements
• Modernisation of investment trust company rules
• National minimum wage regulations

This is supposed to be the start of a new era of openness and transparency.  It is hard, though, to escape the cynicism engendered by 13 years of Mr Brown at the tiller.  Under the last regime, consultations meant less and less as time went by.  It became increasingly clear that they were more of a statement of intent than a genuine request for views. Time will tell how the new Government will act.

Only the papers PAYE and national minimum wage have the potential to be of interest to the public at large (and even then, there is a limited audience).  The other consultations are of more interest to the professions and to business.

Many people will look carefully at the proposed changes to pensions tax, and associated companies which could have a genuine impact on owner managed businesses.  For tax planners, the outcome of the discussions on disclosure of inheritance tax avoidance and foreign branch taxation will be of particular interest.

If you would like to discuss the impact of any of these proposals please contact me on james.odds@mablaw.com or comment below.

In the 2009 Budget, the former Chancellor of the Exchequer Alistair Darling announced that the Government would restrict the availability of pensions tax relief for high earners from 6 April 2011. The aim was to ensure that tax relief is available only at the basic rate for individuals with annual gross incomes or more than £180,000. The value of employer pension contributions made on behalf of an individual would also be caught by the restrictions. This measure was passed by Parliament, without scrutiny, just before the House of commons was dissolved for the general election.

Key points:

1. Tax relief available for pension saving by individuals with annual gross incomes of £150,000 or more will be restricted (“gross income” includes the value of employer contributions to money purchase schemes, or the annual increase in value of defined benefit accruals);

2. A floor of £130,000 in annual pre-tax “relevant income” will apply, not including employer contributions or defined benefit accruals;

3. Tax relief will be reduced from 50 to 20 per cent for individuals with annual gross incomes of between £150,000 and £180,000, at a stepped rate of 1 per cent of relief for every £1,000 of gross income. For individuals with gross incomes exceeding £180,000, relief will only be available at the current basic rate of 20 per cent;

4. Further accruals in defined benefit schemes will be valued using a prescribed scale of two-way age-related factors (reflecting age and normal pension date);

5. The restriction of relief will not apply to contributions or accruals made in the tax year an individual dies or commutes his or her entire pension on grounds of serious ill-health;

6. Employers will be required to identify all employees earning £130,000 or more in a tax year and request benefit statements for them from pension scheme trustees; and

7. Under a “scheme pays” option, individuals facing recovery charges of £15,000 or more in a tax year will be able to require their scheme to pay the charge and deduct a corresponding amount from their benefits. The “scheme pays” mechanism will be implemented in the Finance Bill 2011.

The changes to pension tax relief (and the subsequent impact they will have) have largely ‘fallen below the radar’ of many high-earners, as the recent controversy surrounding expected capital gains tax rises has taken prominence. However, the CBI and the Institute of Directors, along with accountancy firms, have now called on the Government to reassess these measures before they take effect. It will be a case of ‘wait and see’, but, in the meantime, high earners need to ensure that they are aware of this tax change and that they take it into account in their pension planning.

UPDATE: In tomorrow’s emergency budget (22 June), the Government may announce its intention to amend, or even scrap, the previous administration’s plans for pension tax relief. We do not have long to wait to find out…

There may, however, be tax traps for unwary home workers.  Here’s an article that I wrote for Accounting Web on the subject which sets out some of the issues you should consider, in particular if home working is something you do regularly.

The CBI argues that decreasing the deficit should be done by controlling spending rather than increasing taxes.   Specific points made by them include:

• The CBI wants to see a broad definition of business assets (which would benefit from tax relief) to prevent disincentives to investment or start-ups, and the tax should be structured to minimise the impact on long-term investment.
• The CBI is encouraged by the Dyson commission’s support for the R&D tax credit and urges the Government to retain it in its current form.
• Changes to tax treatment of pensions, planned to come into force from April next year, are unnecessarily complex and expensive to administer, and in their current form would make it harder for UK businesses to attract and retain global talent.

Undoubtedly, their concerns are echoed across the country.  I have spoken with many clients concerned about their own position if capital gains tax increases on 22 June.  Whilst there are steps which can be taken prior to then, the time for doing so is getting increasingly tight.

If you want to speak to an advisor about CGT increases please call 01923 202020.

The thinking behind this is that the rate is (relatively speaking) low at 5% compared to 17.5% VAT, which is what is already charged on certain types of insurance, such as travel insurance.  We also charge less IPT than some other EU countries.

The other thing which can’t have escaped notice is that premiums are already rapidly increasing and once people have forgotten about the budget they’ll probably blame their insurers.

The only people who are likely to benefit from this are meerkats.

I’ve just seen a great article in the Times here. Alice Thompson makes a strong case why Mr Osborne’s proposed rise in the rate of CGT is poorly judged and counter productive. It seems to me that it will be even more damaging if the increases take effect on 22 June as opposed to on 6 April next year, since this will not give people the chance to take steps to reduce their exposure and will be seen as incredibly unfair.

If you are concerned about the effects of the emergency budget on you, please contact one of our tax team who will be happy to discuss the options open to you.

Let’s be clear – there is nothing wrong per se with using offshore centres to hold your assets be they trusts or companies.  However, what is frowned upon is transferring assets offshore to evade tax or conceal your true wealth from creditors or governments.

Some countries have added very nicely to their GDP in past years by providing the “nudge, nudge, wink, wink” facility to hold assets through nominees and complex holding structures. Times are changing though, and it is becoming harder and harder to evade tax though taking such steps.

Legitimate tax avoidance and asset protection is always an option, with proper advice, and for those with an offshore presence or origin in particular there are quite valid and tax efficient ways to reduce your UK tax profile.

For more info – speak to our Wealth Management team.

We’ve had a great discussion on this already click here and thanks for all contributors.

Q1. What is a first time buyer?
A. A person who has not acquired a freehold or leasehold interest in residential property in the UK (except a lease with less than 21 years to run) or an equivalent interest anywhere in the world.

Shimon’s comment: this is going to be hard for the stamp office to police.

The 21 year point also means that if you bought a lease which had been granted to someone else with 21 years or more on it, you won’t qualify. Alternatively, if the lease is granted to you for a term of 21 years of more then you would qualify.

I would query whether a 15 year lease which was extended so that in practice it lasted 21 years would count. Also – it seems unfair that it someone has a business property that they should be caught but seemingly this would be the case.

Q2. When is the relief available?
A. The relief is available for transactions with an effective date on or after 25th March 2010 but before 25th March 2012.

Shimon’s comment: Despite what most people are saying the effective date is not always completion. If you either pay the majority (90%+) of the price or you take possession before completion then this might also be an effective date.

Q3. How do I claim the relief? A. The relief must be claimed on a land transaction return by entering relief code 28 at box 9.

Shimon’s comment: Your solicitor should deal with this.

Q4. I want to buy a house with my partner but one of us has previously owned a residential property. Can we claim the relief? A. No. All of the buyers, when there are more than one, must be a first time buyer.

Shimon’s comment: this is particularly unfair if you have only been on the title to help out a friend or family member. Also when the house will be yours but, say, Mum and Dad help out with the mortgage (and the bank wants them on the title too).

Q5. I previously bought a house jointly with my spouse/partner. The partnership has broken up so can I be treated as a first time buyer?
A. No. Where the individual has previously acquired an interest in a residential property as a joint tenant or a tenant in common the individual is not a first time buyer.

Shimon’s comment: All property ownership will count to exclude you from the relief – even joint ownership.

Q6. Is the relief available on transfers of interests in a home between partners? A. Such a transfer normally requires a transfer from the existing owner to him/herself and the partner. Even if the partner is a First-time buyer the existing owner is not. So the relief is not available.

Shimon’s comment: Depending on the price paid for stamp duty purposes, this is not always an issue. This is a technical area and you should speak to a specialist.

Q7. Can I get relief if I have previously owned an inherited property?
A. No. In this case a person will previously have acquired a major interest in a residential property.

Shimon’s comment: for stamp duty “acquiring” a property includes when it is given to you or when you inherit it.

Q8. Can I claim the relief if I’m buying on behalf of my parents?
A. No. Relief is not available unless the first time buyer(s) are buying, for themselves, a property that they intend to use as their only or main residence.

Shimon’s comment: this is, again, going to be hard to police. It is possible than on an investigation, the stamp office would want to see hard evidence that this was being used as the main residence.

Q9. Is there an age limit on claiming the relief?
A. No. First time buyers can be of any age.

Shimon’s comment: not much to say to this…umm, minors can’t own property in their own names.

Q10. Is there a price limit on claiming the relief? A. Yes, the sum for the whole of the purchase must not exceed £250,000.

Shimon’s comment: this will include when there are multiple purchases. E.g. if you buy two houses each worth £150k from the same person you’d loose out on the relief. Another technical point this, and you should take advice. The technical note HMRC published specifically said that they wouldn’t penalise you for buying connected properties – e.g. a house with a lease over a parking space. But there will be limits to what they accept.

Q11. Can the relief be claimed on shared ownership transactions? A. The relief can be available but only if a market value election is made. The relief is not available if taxed as a lease. Normal shared ownership rules apply on staircasing.

Shimon’s comment: you will need to ensure that your agreements allow you to do this and your solicitor may need to review this. If you have any questions about this please contact Sarah Wilkins in our Milton Keynes office.

Q12. How does the relief apply to alternative finance arrangements? A. Special rules apply to put this form of finance on a level playing field. Under these schemes relief for first time buyers is available for the first purchase by the financial institution, where the person(s) entering into the arrangements meet(s) the qualifying conditions for relief.

Shimon’s comment: this refers to shariah compliance finance arrangements. Under many of these the bank would actually buy the property. Clearly the bank wouldn’t qualify for the relief, but there will be an exeption from the rule for shariah compliant finance.

Q13. Can I claim the relief retrospectively? A. No. Transactions with an effective date before 25th March 2010 do not qualify.

Shimon’s comment: and the relief will continue until midnight on 24 March 2012.

The BBC have reported that Chancellor Alistair Darling is to announce in the Budget that stamp duty will be scrapped on house purchases up to £250,000 for first-time buyers.

Why the Treasury would drip feed info like this when there is going to be a Budget in a couple of hours, I don’t know.

Update

The Chancellor has confirmed that this measure will be implemented plus stamp duty is incresing to 5% on properties over £1m.

George Key, an 89 year old farmer lost his wife of 65 years in December 2006. A week later he made a Will leaving his two daughters £300,000 each, the bulk of his estate,  unchanged at his death in August 2008. His previous Will in 2001, in the context that his wife Sybil survived him, made provision for his daughter Jane to receive £10,000, his daughter Mary £5,000 and his 2 sons, Richard and John, Hall Farm and the residue of his estate.

The sons contested the 2006 Will, maintaining, in effect, that the 2001 version should prevail. After hearing evidence from 20 factual witnesses, including 2 expert psychiatrists, the issue for Mr Justice Briggs to decide was whether George Key, elderly and grief-ridden, had testamentary capacity in 2006 when he made the last Will. In a conclusion extending the ambit of the traditional tests of capacity, based on comprehension, laid down so long ago as 1870 in Banks v Goodfellow, the Court decided that “Mr Key was simply unable during the week following his wife’s death to exercise the decision-making powers required of a testator ” which ..”compels a conclusion that he did not know and approve the contents of his will”. The sisters were therefore subtantially disentitled, as the greter part of the Estate passed under the 2001 Will to their brothers.

The case is of interest not just for the furious family dispute put in evidence to the Court, but for the wider approach to capacity promoted in Mr Justice Briggs words “by the greater understanding of the mind now available from modern psychiatric medicine, in particular as to affective disorder.” It is also interesting in that it highlights that where you might have thought that in the 20 months or so before he died, if he thought at any time his Will did not reflect his current wishes, George Key could have changed it (and didn’t), that of itself is irrelevant. The key consideration is the testator’s capacity at the time the will is entered into, a circumstance which the solicitor on the case, a Mr Cadge, failed to take into account. Had he done so, then he would have obeyed the Golden Rule, requiring him to satisy himself of mental capacity with the assistance of a suitably qualified medical practitioner, as near as possible to the signing of the Will itself.

Mr Justice Briggs felt that whilst he had dealt with the legal issues before him the family would remain divided. It remains to be seen whether that  results in an appeal, or perhaps consideration of action against the draftsman and overseer of the overturned Will in this case. Either way, in matters of this nature, it pays to take appropriate steps during the testator’s lifetime.

Whenever a tenant pays rent to a landlord that is non-resident, or to a letting agent who then pays the rent to a non-resident landlord, the non-resident landlords scheme comes into play.

Essentially, the tenant or letting agent needs to deduct tax before paying rent to the landlord and account to HMRC for this. The landlord will still need to complete a tax return which might result in more tax or a refund. It is possible for landlords to register to receive rent gross of tax. This applies to all landlords, including individuals, companies, partnerships or trusts.

On 10 March, HMRC have published the first of their “Information Bulletins” for non-resident landlords, designed to provide information about changes in HMRC practice and some FAQs: http://www.hmrc.gov.uk/cnr/nrl-bulletin1.pdf

If you need help in registering for the non-resident landlords scheme or in understanding how this applies to you, please feel free to contact me.