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…

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 decision to investigate is based on advice given by the Legal Services Consumer Panel’s (LSCP) following its own investigation into the will-writing market, which began in summer 2010. The LSCP’s subsequent report found that many wills, prepared by both solicitors and unregulated will-writers, did not reflect the instructions of testators and contained many basic errors. Further background information is here and here.

Currently, will-writing is not a reserved legal activity in England and Wales, although the preparation of probate papers and the administration of oaths are. This means that the writing of wills is not restricted to solicitors and barristers, who are regulated by the Solicitors Regulation Authority and the Bar Standards Board respectively. With unregulated private will-writing companies now claiming to write approximately 10 per cent of all new wills, consumers who use them are often unaware that this incredibly important legal document may be written by someone who has little or no legal training.

In a related matter, yesterday’s national newspapers published details of the Legal Services Ombudsman’s plea to the Government to take action over unregulated companies that offer consumer financial services, including will-writing. The Ombudsman said that since it became operational late last year, it has received 38,155 complaints and accepted 3,768 cases for investigation – 13 per cent of which involved will-writing. The consumer organisation Which? and the Law Society have also called for more protection for consumers.

Change in the industry has already begun. In February 2011, following discussions with the Office of Fair Trading, some of the UK’s biggest banks voluntarily agreed to review and, where necessary, improve the way they sell will-writing and professional executor services to consumers.

However, any further move towards the regulation of will-writing is currently on hold: a spokeswoman for the Ministry of Justice has said that the Government will await the outcome of the LSB investigation before taking any action.

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.

Why? Because taxpayers are not properly planning, managing and reviewing their personal finances in a tax-efficient way, resulting in them paying more tax than they need to. The south-east of England was found to be the most tax-inefficient, with tax payers squandering a whopping £1.8bn in overpayments of capital gains tax and by not taking advantage of tax reliefs and other entitlements.

According to the research, a staggering 88 per cent of people stated that they have done nothing in the past 12 months to reduce their tax liabilities. (Last year it was 86 per cent, proving that this is not a one-off statistic.) Of that 88 per cent, 45 per cent of respondents erroneously believe that they are being as tax-efficient as possible; 28 per cent of respondents admitted that they do not know how to become more tax-efficient.

There are all sorts of ways to reduce your tax liabilities, such as using your partner’s income tax rate, making use of pension tax relief, maximising your (and your children’s) capital gains tax allowance, structuring your investment portfolios, inheritance tax planning, and writing a will. The list is endless.

At Matthew Arnold & Baldwin, we can help you and your business in all matters related to developing tax structures, mitigating tax liabilities, and the preparation of wills. If you would like to discuss your options, please contact me at iain.donaldson@mablaw.com (tax and trusts), or James Odds at james.odds@mablaw.com (tax), or Emma Alford at emma.alford@mablaw.com (wills).

Although the Bill’s proposals on this issue were generally supported by respondents to the consultation and the Justice Committee, the Government has decided to defer any changes, pending the outcome of the Estates of Deceased Persons (Forfeiture Rule and Law of Succession) Bill, a Private Member’s Bill that is currently before Parliament and which proposes the majority of the reforms on the law of succession contained in the Civil Law Reform Bill.

The proposals in the Civil Law Reform Bill sought to amend the law of succession so that where a person was disqualified or refused an inheritance, his or her heirs were not disinherited. The Bill intended to reform the law governing the distribution of estates of deceased persons in three areas; that is whereby:

1. An inheritance is disclaimed (i.e. rejected);

2. An inheritance is forfeited (i.e. where a person has killed another person and is disqualified by the forfeiture rule from inheriting property from his or her victim); and

3. A person loses (but not forfeits or disclaims) a benefit on intestacy by dying under the age of eighteen and without having married or formed a civil partnership.

Under current common law, any children of a disqualified heir are also disqualified from inheriting. The Law Commission, after conducting its own consultation on the issue in 2003, deemed this situation to be unfair and its proposals for change were incorporated into the Civil Law Reform Bill. To back its call for change, the Law Commission cited the Court of Appeal’s 2001 ruling in Re DWS deceased, in which two grandparents, who were murdered by their only son, died intestate (i.e. without leaving a valid will) and the Court reluctantly held that the law did not allow their grandson (the murderer’s son) to inherit the property whilst the son (the murderer) was still alive.

The Estates of Deceased Persons (Forfeiture Rule and Law of Succession) Bill seeks to change the law by allowing the deceased’s property to be distributed as if the potential heir had died, rather than been disqualified through forfeiture. It also addresses the current situation whereby the children of a minor, who is entitled to inherit an interest in the estate of an intestate person but who dies unmarried and without entering a civil partnership before the age of eighteen, are unable to inherit their parent’s interest in that estate.

Although the Bill is supported by the Ministry of Justice, Private Member’s Bills are not usually allocated enough parliamentary time to be debated and, thus, become law. Consequently, even with the Ministry of Justice’s backing, there is no guarantee that the Bill will become law.

The Legal Services Board, the independent body responsible for overseeing the regulation of lawyers in England and Wales, had asked the LSCP to conduct this investigation, with a view to considering the possible regulation of the industry.

Will-writing in England and Wales is not currently a reserved legal activity under the Legal Services Act 2007, meaning that the writing of wills is not restricted to regulated lawyers, who are independently regulated by the Solicitors Regulation Authority and the Bar Standards Board respectively. Consequently, some consumers are unwittingly using unregulated private will-writing companies, whose will-writers may have had little training or have little expertise in putting together what is one of the most important legal documents a person will ever create. Concern about unregulated will-writers has grown so much that the BBC’s Panorama programme recently investigated the issue (click here.) Interestingly, across the border, will-writing in Scotland is expected to become a regulated activity very shortly, after the Legal Services (Scotland) Act 2010 received Royal Assent in November 2010.

The LSCP has received a lot of responses to its consultation, which closed on 15 December 2010, with both consumer bodies and the legal profession strongly supporting the regulation of will-writing. Full details of the responses are here.

The Law Society, which backs regulation, said that although will-writers should not have to have the same qualifications as solicitors, there should be a regulatory regime which has “minimum training requirements; compulsory insurance cover; a compulsory compensation fund; a code of conduct; a complaints management system; and a robust disciplinary mechanism.”

The Trades Union Congress, Remember a Charity, Citizens Advice and the National Consumer Federation, amongst many others, all called on will-writing to become a reserved activity. However, the Office of Fair Trading has said that it is yet to be convinced that regulation is required.

The LSCP will now report its findings back to the Legal Services Board, who will decide whether regulation should be introduced to the will-writing industry.

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. If you would like to discuss writing a will, please contact me at iain.donaldson@mablaw.com, or my colleague Emma Alford at emma.alford@mablaw.com.

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.

According to the research, in the past year more than 20,000 pensioners were forced to sell their houses to meet residential care home fees – a rise of more than 17 per cent in the past five years. When a person enters care, they are “means tested” and most of their assets, including their home, are taken into account. If that person has assets of more than £23,250, he or she is deemed to be able to meet the full cost of their care. With the average care home fee reported to be £470 per week (according to Age Concern and Help the Aged), it is no surprise that people are being forced to sell their homes to meet these growing fees – meaning they are unable to pass their most valuable asset to their children or other beneficiaries through their will.

However, it doesn’t have to be this way.

With careful estate and trust planning, it is possible to protect your home and other assets, so that on your death they can be passed down to family members through your will.

If you would like to discuss your options, please contact me at iain.donaldson@mablaw.com.

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.

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.

 To read the whole article, click here

This investigation into will-writing follows recently-publicised concerns over the quality of wills and poor sales practices in the industry, which culminated in a Panorama investigation, aired in August 2010.

The Panel is investigating whether the will-writing industry should be regulated. Currently, will-writing is not a “reserved legal activity” under the Legal Services Act 2007; this means that the writing of wills is not restricted to solicitors and barristers, who are regulated by the Solicitors Regulation Authority (SRA) and the Bar Standards Board respectively. Unregulated private will-writing companies now claim to write about 10 per cent of all new wills, but consumers are often unaware that these companies are unregulated and that their will-writers can have little or no legal training. A survey published by the Society of Trust and Estate Practitioners (STEP) in August 2010 provided evidence of such companies charging ‘hidden’ fees that were not outlined in the stated price for a will, of companies going out of business and ‘disappearing’ with their clients’ wills, and general incompetence that resulted in consumers receiving additional tax bills.

The investigation also follows the Scottish Parliament’s decision in June 2010 to propose amendments to the Legal Services (Scotland) Bill, meaning that non-lawyer will-writers in Scotland are expected to become subject to the same regulation as their legally qualified counterparts from 2011. There is now growing support amongst lawyers and consumers for England and Wales to follow suit.  

The deadline for submissions to the investigation is 15 December 2010.

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.

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.

Just when all family solicitors thought nothing could be further from the truth, along comes a decision from the Court of Appeal to make it even less likely and the law even more difficult to predict.   

In the case of Jones v Kernott, the Court looked at this issue yet again. In this particular case, Ms Jones and Mr Kernott had met and gone on to purchase a house together in their joint names. As with most other couples venturing into the world of home ownership, they saw no reason to discuss what would happen in the event of their separation, preferring not to consider this as an option. That being said, to be fair to them at the time, they would probably have agreed that the net sale proceeds should be divided equally. As with so many of these cases, it was not until some time later that one of them decided this was no longer fair or reasonable.  

They separated. Mr Kernott moved out and bought another property. When they separated, it still seemed reasonable to both of them that they should share equally in the net sale proceeds. However, Mr Kernott stopped contributing towards the mortgage, presumably concentrating on paying for his new property – again a perfectly obvious thing to do. Meanwhile, Ms Jones continued to make the payments on the mortgage and the endowment, and paid all other bills without any assistance form Mr Kernott. It seems that this was when her view changed and she felt that she should be entitled to more. However, she did nothing about it until Mr Kernott, some 12 years later, decided to try and recover his half share. Ms Jones issued proceedings, seeking a declaration that she was the sole beneficial owner of the property and entitled to the full net sale proceeds.  

The first and second courts agreed with her, albeit not entirely. Nevertheless they awarded her a 90 per cent interest in the property. The Judges based their decision on the fact that clearly their intentions – that all important word in considering division of property between unmarried couples – had changed and that the court could infer this from the very fact that Ms Jones had taken on responsibility for the mortgage without financial assistance from Mr Kernott. Having decided that there was a change in the parties’ intentions, they then went on to decide the appropriate shares bearing in mind what was “fair and just.”    

However the Court of Appeal overturned the decision and ordered that the parties should be entitled to the property equally. The Court of Appeal was of the view that the court in such applications was not there to re-write the law and could not therefore infer an intention. Had there been a change of intention? Nothing had been discussed. Whilst Ms Jones may have changed her intention, there was nothing to suggest she had ever communicated this to, or agreed it with, Mr Kernott. He was carrying on, blindly assuming that he was still an equal owner as he had been in the past. Indeed it might be said that had he known his lack of attention to dealing with this was eating into his share of the property, he would have acted earlier to realise it – maybe that would not have been in the best interests of Ms Jones, who was of course continuing to occupy the property with the children of their relationship.

The upshot was, however, that the Court of Appeal held that there had been no change in the common intention and that, as a result, they must still own the property in equal shares. In light of the fact that Ms Jones had brought up the children without any financial assistance, not only towards the mortgage and endowment but also in the form of child support, will make this decision seem to most of us grossly unfair, but it just highlights that the courts cannot simply do what may be considered morally right, but must follow the law.

This remains a very difficult area of law to predict and this in itself makes it expensive litigation. If you have any questions concerning this area of law, please do not hesitate to email me at amanda.melton@mablaw.com.

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.

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.

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.

Basics

Inheritance tax (IHT) generally arises on death. It is normally only a concern if the estate on death is over the nil-rate band threshold, currently set at £325,000 for a few years. Over this amount, IHT is charged at 40%. IHT is also charged on gifts made in the seven years prior to death.  IHT can be charged on gifts made during someone’s lifetime, including gifts made to trusts.  

Married couples and registered civil partners are able to benefit from the transferrable nil rate band.  This can effectively increase in the nil-rate band threshold when the second partner dies – to as much as £650,000 currently.

Saving IHT with business property relief

Business property relief (BPR) is one of the most useful IHT reliefs. BPR can reduce the value of the relevant assets in the estate by up to 100% of its value. It is available in respect of a range of shares, securities or other property classed as an interest in a business.  The relief is also available for unquoted shares, which includes shares in AIM listed companies. The business property needs to have been held for two years before relief is available.

Top Tips:

• Some providers offer investments in a selected portfolio of shares all of which qualify for business property relief after 2 years. Clearly there are risks involved in investing in shares, and proper advice should be taken.
• BPR is only available for businesses which are substantially trading businesses.  If the business comprises a mix of investments and trading stock, or even large amounts of cash, careful planning will be required to ensure that relief is not restricted.  Compare, for example a business which develops properties and then rents them.  The development trade would qualify but the property rental would not, potentially contaminating the overall BPR position.
• For business owners, will planning is essential.  Not only does this give the opportunity to plan for the continued success of the business but through careful use of the nil rate band and other reliefs, it may be possible to minimize the overall IHT burden on the estate.
• If you are owed money by your business then this is an asset in your estate (and therefore subject to IHT).  It may be possible to convert this into a security which can benefit from BPR.

For more information about these planning ideas (or others) or to discuss inheritance tax generally please contact me on james.odds@mablaw.com

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.

In this case, K appealed against earlier decisions regarding a declaration as to the share of the beneficial interest in a property he co-owned with J. J and K had bought the property in 1985 with a deposit provided by J and a mortgage, the repayments of which were shared. The property was in joint names. In 1993, K moved out and J remained in the house with their two children and made all the mortgage repayments during that time. K subsequently purchased another property. Approximately 12 years after their separation K sought the payment of his half share. J issued proceedings under the Trusts of Land and Appointment of Trustees Act 1996 and sought a declaration that she owned the entire beneficial interest in the property. A declaration was made that the beneficial interest was split 90 per cent to 10 per cent in favour of J and that decision was upheld on appeal.

The Court of Appeal held:

1. The conveyance into joint names created joint beneficial interests. The parties agreed that when they separated they had equal interests. There had to be something to displace those interests and the passage of time was insufficient to do so, even though K had acquired alternative accommodation and J had paid all the outgoings since K had left. K was entitled to a 50 per cent interest in the property and the decision that the interest was split 90 per cent to 10 per cent in favour of J was wrong.
2. There was nothing to displace the presumption of equality. There was a total lack of evidence about the parties’ intentions. If K and J had truly intended that K’s beneficial interest should reduce post-separation, they should have acted accordingly and adjusted their beneficial interests.
3. The burden of proof was on the party seeking to show a common intention that the beneficial interests should be different to the legal interests.

This case followed the landmark decision in  Stack v Dowden (2007) UK HL 17 in which an unmarried couple lived for many years in property purchased jointly. No express declaration was made as to how the beneficial interests in the property were held. The House of Lords held that they were entitled to joint and equal shares in the property unless a clear contrary intention was shown otherwise.  The case established the following principles for determining the beneficial interests:

•  a conveyance into joint names will result in a legal and beneficial joint tenancy, unless the contrary is shown;
• the burden of proof is on the owner seeking to show that they intended to hold their beneficial interests as tenants in common;
• the court must ascertain the parties’ shared intentions in the context of the whole course of their conduct relating to the property. Some of the factors to be considered include:

• any advice or discussions at the time of the transfer, that would indicate their intentions at that time; 
• the reasons why they purchased the house jointly; 
• the purpose for which the house was acquired; 
• the nature of the parties’ relationship; 
• whether the couple had children for whom they both had responsibility to provide a home; 
• how the purchase was financed, both initially and subsequently; 
• how the parties arranged their finances, for example, whether their accounts were held separately, together or a combination of both; and 
• how the couple discharged their outgoings on the house and other household expenses.

These cases show that it is imperative to consider how the beneficial interests should be held when purchasing property jointly, especially where the buyers are unmarried. The burden on the party seeking to rebut the presumption of joint beneficial interests is a heavy one and the court will not substitute what it considers to be a “fair” solution in the absence of any evidence as to the parties common intention. Any decision by the parties should be documented by way of a declaration of trust to avoid any uncertainty.

Shortly, these are the facts. Miss Jones, “a peripatetic hairdresser”,  was 26 when she met Mr Kernott in 1980 and 3 years later they were sharing her caravan,  a year before their first child was born in 1984. In 1985 Miss Jones sold her caravan and she and Mr Kernott jointly purchased a house for £30,000.  The purchase was funded by £6,000 of Miss Jones caravan sale proceeds and an interest only  mortgage in their joint names, backed by an endowment policy, also in their joint names. Mr Kernott was to do some repairs and refurbishment at the property, principally an extension, the size and effect of which was apparently to increase the value of the property by 50% on its purchase price.  In law,  although they clearly made different initial  financial contributions, they bought it as joint tenants, without specifying their respective interests, an ommission still depressingly common today. No declaration of trust was drawn up or any form of cohabitation agreement. The judgment makes no mention of whether the parties made wills or if they did what they provided, so it is probably fair to assume that they were “paperwork lite” in their arrangements, as is so often the case.

Miss Jones and Mr Kernott had a second child in 1986. Miss Jones continued as a home hairdresser and Mr Kernott was variously an ice cream salesman or a builder or on benefits. Mr Kernott gave Miss Jones £100 a week as housekeeping and that, with her earnings, met all the household outgoings, including the mortgage and endowment payments. Mr Kernott appears to have bought the extension materials and built it.

In 1993, 13 years after their relationship started and 8 years after their house purchase, Miss Jones and Mr Kernott parted. She stayed in the house with the children. The Court of Appeal don’t tell us where Mr Kernott then went, but by 1996 he was buying a property for himself.  From the time they separated, Mr Kernott paid nothing towards the house and gave nothing to Miss Jones for the children, although he saw them from time to time. Miss Jones redecorated several times over the following years, replaced the flat roof on Mr Kernott’s extension and added a gate and fences to the property.

In 1995, the property owned by Miss Jones and Mr Kernott was put on the market, but didn’t sell. In 1996 the joint names endowment policy was surrendered and divided equally, Mr Kernott using his share as the deposit on his new house. In 2006, once the property was no longer their children’s home, Mr Kernott asked Miss Jones for his share of the value of it. In 2007, Miss Jones launched an application under the Trusts of Land and Appointment of Trustees Act 1996 (often referred to as TLATA), seeking a declaration that she owned the entirety of the property, or that if she didn’t then she had an interest both in this property and the one that Mr Kernott had subsequently bought in his sole name using part of the joint endowment policy proceeds; Miss Jones later abandoned this alternative claim before the trial judge in Southend. In March 2008, Mr Kernott served a notice of severance of joint tenancy, ostensibly converting the joint ownership to a tenancy in common in equal shares. At the conclusion of that trial in April 2008, based on his analysis of their respective financial contributions to the property over the years, HHJ Dedman concluded that Miss Jones was entitled to 90% of the value in the property and Mr Kernott the remaining 10%, a conclusion he felt able to draw from the authorities of the House of Lords in Stack v Dowden (2007) and the Court of Appeal in Oxley v Hiscock (2004) and Goodman v Gallant (1986), the major decisions on beneficial interests in property. At that time the equity in the property was assessed to be £218,300; by comparison, Mr Kernott’s equity in the house he owned in his sole name stood at around £268,000.

Unfortunately for Miss Jones, two out of the three judges hearing Mr Kernott’s appeal in the Court of Appeal, saw it differently. On their analysis, a property bought in joint names, with no express indications to the contrary, is owned equally. On their view there had been no change to that ownership over the years, notwithstanding arguments that one had contributed more financially than the other, one had done more work on it than the other, or one had (and the other hadn’t) occupied it solely for some years.

In the leading judgment of Wall LJ, following Stack v Dowden “the conveyance into joint names…created joint beneficial interests and the parties agreed that when they separated they had equal interests. There has to be something to displace those interests, and I have come to the conclusion that the passage of time is insufficient to do so, even if, in the meantime, [Mr Kernott] has acquired alternative accommodation, and [Miss Jones] has paid all the outgoings.”  Consequently, Miss Jones owes Mr Kernott around £109,000.

Unless and until the Supreme Court see it differently, this remains the approach the Courts are required to apply in such cases. It can be avoided by evidence of an agreement to the contrary, either express or to be inferred. Rather than leave it to a judge to decide, best advice must be put such agreements in place, in writing, and compare periodically the arrangements the documents envisage with what is happening in fact.

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.

Landlords of residential properties where the annual rent is more than £25,000 are not currently required to register a tenant’s deposit with a tenancy deposit scheme but they will  need to protect that deposit before 1 October 2010. Failure to do so will result in a Landlord falling foul of the requirement to protect a tenant’s deposit in accordance with the provisions of the Housing Act 2004, leaving them open to a claim by a tenant for failing to register the deposit.

For tenants this change means greater protection as they will be afforded the rights granted to them under the Housing Act 1988. Landlords face potential claims against them for failing to register a tenant’s deposit. The change will of course impact Landlords with expensive properties in London where rents are higher than the rest of the country as well as Landlords of larger properties which are occupied by multiple tenants such as student houses where the rent is more likely to exceed the current threshold.

The changes will increase the number of tenancies coming within the Assured Shorthold Tenancy regime which will standardise procedures for Landlords to gain possession and allow use of the accelerated possession route (only open to Landlords of Assured Shorthold Tenancy Agreements).  Landlords who do not and who are required to register a tenant’s deposit will be unable to get possession of a property on a “no fault” basis until the deposit is registered, causing unnecessary delay.

Landlords – review rental levels register your deposits without delay.

Managing Agents – notify your Landlord clients immediately of the impact of this change and the steps they need to take.

We are already seeing cases in the County Courts regarding non-registration of deposits and no doubt Court offices across the country will see further cases next year arising out of these changes.

If one spouse or partner has a higher income than the other, this presents an opportunity for tax planning by diverting more of that rental income to the spouse with a lower rate of tax. This balancing exercise can give rise to significant savings opportunities with careful tax planning. This will be of particular importance come 6 April with the introduction of the 50% rate of tax, but is also relevant for those whose income is taxed at 40%.

If you would like some advice on how best to achieve this, please contact Shimon Shaw or James Odds.

Heinrich Kieber, an employee of the bank, stole a disk containing a list of 1,400 of the bank’s foreign account holders which he sold to the German tax authorities for €4.2m. The German authorities promptly prosecuted all Germans named on the disk who had not disclosed their LGT accounts on their tax returns, including one Elmar Schulte, a property developer from Bad Homburg in Germany. He was given a suspended two-year jail sentence for tax evasion and ordered to pay €6.5m to the tax authorities and €1m to charity.

Schulte claimed that the bank should have warned him immediately that his account had been compromised, so that he could disclose it to the German authorities and so escape prosecution. The court agreed, and found LGT liable to compensate Schulte for the amount he had been fined in Germany, although not the amount he had to pay the German authorities in back taxes.

This case is interesting in several respects. First, copies of the disk have also been sold to the British, French, American, Australian and Italian governments, so anyone who is likely to be on those disks should think about owning up before they are approached directly. The case also raises interetesting questions of principle about the responsibilities that banks have towards their customers. Given the changes in the law over the last few years enabling revenue authorities to get information from banks, and the current scuffle between Germany and Switzerland (see here), banks are going to increasingly find themselves in an uncomfortable position as middleman between customers and tax authorities.