Planning for your estate to pass to your beneficiaries, reducing inheritance tax

Jackie and grief in 1963

Jackie

I doubt there are many people over the age of 40 that do not know about the assassination of the American President… number 35, John F. Kennedy. One of the most iconic Presidents of American history helped somewhat by the charms of his wife Jackie. It is likely that you would have seen more than one movie about JFK, but not that many about his widow Jackie.

The film is of course, centred upon the assassination and its immediate aftermath. Retold, this time, from the given perspective of the then First Lady. Jackie Kennedy (played by Natalie Portman) suddenly became a widow at the age of 34. Her husband 12 years her senior had only been President for 2 years 11 months. Yet their brief “Camelot” was full of incident.

Grief on Display

Grief is of course a daily reality. We all lose people that we love. It is a deeply painful experience. When the effective Head of State is assassinated, an entirely different set of circumstances are presented to the grieving family and friends. There are practicalities of a ceremony to which dignitaries are expected. In this case JFK was killed on Friday and buried on Monday. This is set against the backdrop of anxious security forces on high-alert, not yet knowing the who, what, how many or why JFK was assassinated. A hasty usurping of position and removal from a home, albeit a temporary one. How to “behave” and conduct oneself? It is perhaps reminiscent of the thoughts that must have concerned the Royal Household when Princess Diana died nearly 20 years ago, albeit in very different circumstances, but the same dilemma – how to display grief.

1963 annus horribilis

The film touches on the wider context. Only 15 weeks earlier, the couple had lost their third child Patrick, just 2 days after her was born to infant respiratory distress syndrome. On Friday 22 November 1963 JFK left a wife and two small children, Caroline 5 and John 2. Both children had their birthdays that later that month, John Junior’s was the day of the funeral. Tough for any “normal” family to come to terms with. Certainly Jackie would be entitled to call 1963 her “annus horribilis”.

The truth about life assurance

Life assurance does not provide comfort. The financial services industry has always struggled to market life assurance and persuade people of its merits. It is a product that is only payable when a horrible event happens. What it does provide is the financial resource to continue, to go on, as gradually those left behind rebuild their lives. I have witnessed the benefits of life assurance and the strife caused by not having enough. I cannot overstate how important it is. The question of how much cover is really required will vary from person to person and how well resourced you are. It will also depend on how you have arranged your Will and your estate.

It is unlikely that your loved ones will be under the degree of pressure that Jackie faced, within the eye of the world’s media. However, you can plan to make any such event considerably easier than it might otherwise be. It is time to ensure that your own house is in order.

Here is the trailer for the film, for which Natalie Portman has been nominated for an Oscar as Best Actress in a leading role.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Jackie and grief in 19632017-02-21T11:06:58+00:00

Delusion and Florence Foster Jenkins

Delusion and Florence Foster Jenkins

How we respond to money is explored in the new film by Stephen Frears “Florence Foster Jenkins”. The film recounts the true story of the wealthy musical benefactor played by Meryl Streep. Sadly she does not possess the singing talent that she so desperately craves, yet a doting and financially dependent husband (Bayfield) played by Hugh Grant, contrives to protect her in a bubble of innocence, a charming modern day PR man. In practice, this protected them both.

The delusion is maintained through some creative and tender manipulation of a largely uniformed social circle, who pass the entrance test of wealth, yet clearly have a lack of knowledge about music. In reality this exposes their own hunger for social standing and are caught by the inability to speak the truth for fear of being outcast. There is no malice in the contrivance, but reminds us again of the impact of crowds and fear of being different, something more like the Emperor’s new clothes.

Collusion in delusion

I was surprised how much I enjoyed the film, it is warm, funny and moving. This, despite essentially being a story about the ultra-rich, living in denial of any form of reality and for whom success is bought. The strong character performances carried the suggestion that denial and delusion are arguably just as important as the truth, a sentiment that Shakespeare frequently conveyed. Perhaps in relationships denial of some realities (we all have flaws) is even a necessity.

I won’t spoil the film for you, do go and see it. As a financial planner, I would draw your attention to the briefcase and the lengths that people go to avoid the harsh confrontation with reality. The Q&A at the BFI last night with Hugh Grant, Stephen Frears and writer Nicholas Martin was also illuminating, ironically employing similar delusionary tactics to protect Florence, the audience and probably the box office. This is of course is the skill in great story-telling, how to edit and reassemble a story that shapes opinion, of course the political interpretation is ever present.

FFJ preview Q&A BFI 2016-05-04

So the question is, what are we in denial about? Some denials are probably healthy and serve our own interests, other – such as the truth about your own finances is rather more vitally exposed, not harshly, but so that reality can bring about a healthy perspective.

If you would like a financial reality check, you now simply need to get in touch – contact details all over the site. Here is the trailer for the new film.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Delusion and Florence Foster Jenkins2017-02-02T13:32:43+00:00

Inheritance Tax and BPR

Inheritance Tax and BPR

You will recall that I have been blogging about various HMRC inheritance tax forms,  and last week I also discussed Power of Attorney and the Court of Protection. Today I am high-lighting some planning opportunities that address these issues in a practical way using BPR – or Business Property Relief.

Inheritance Tax (IHT) is the second most resented tax in the UK. IHT is currently payable at the rate of 40% on an individual’s estate which exceeds the ‘nil rate band’, currently £325,000. Estates which comprise a family home and few other assets can incur a large tax liability. There are many options available to those who wish to mitigate their estate’s IHT liability. Trusts and gifting are the most common strategies employed, but both take 7 years in order to be fully effective. For clients who are elderly or unwell, this is often too long a timeframe.

Business Relief, or Business Property Relief (BPR) as it is commonly known, is a UK IHT relief that was introduced by the Government nearly 40 years ago (7 April 1976). It was designed to allow business owners to pass on businesses to beneficiaries without incurring an IHT liability. In 1996, it was made more widely available to private investors and now allows any qualifying investment held for at least two years, and at the time of death, to benefit from 100% IHT shelter. Most unquoted, UK registered companies will qualify for this relief. This two year timeframe makes this form of planning the quickest way of sheltering assets from IHT.

BPR and Power of Attorney

Another area when BPR could be of use is when Power of Attorney (POA) is in place. Take a look at this example.

Mrs Jones is 70. Her son has Power of Attorney (POA) over her financial affairs and due to her poor health, he can make financial decisions on her behalf. Gifting and trust planning may not be possible in this case, because a number of restrictions exist to avoid attorneys abusing their positions. One of the main rules states that attorneys cannot give away access to a donor’s (Mrs Jones) funds, without applying to the Court of Protection for approval. Trust work and gifting both involve a change of ownership and it would be difficult for Mrs Jones’ son to successfully put either in place. It may also be unsuitable given the 7 year timeframe and Mrs Jones’ health status.

Mrs Jones’ son could, however, invest in a BPR qualifying company/a portfolio of companies on her behalf. Since the investment remains in her name, he has not changed the ownership for the funds and since a BPR investment only requires 2 years to become effective for IHT purposes, it may be the most suitable option.

Unquoted companies are usually riskier than those listed on a major stock exchange. Whilst there are a number of risks associated with investing in unquoted companies, many investment companies offer BPR investments that target capital preservation. These investments involve companies with long-term, index-linked and stable cash flows.

Want to know more? just get in touch.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Inheritance Tax and BPR2017-01-06T14:39:22+00:00

Power of Attorney

Power of Attorney

Clients will know that I advise everyone to arrange Power of Attorney. Often people believe that because generally older people are the ones who suffer from loss of faculty, only the aged need Power of Attorney. I would suggest that this is a very dangerous assumption to make.

Anyone can find themselves unable to make their own decisions. Being hospitalised due to an accident and being “comatose” would be one example. As society becomes rather better at understanding mental health issues (slowly) this can also result in the need for a Power of Attorney.

In essence, an Attorney is meant to act in your interests, as though they were you. This prevents the stressful and lengthy process of going to the Court of Protection, which, like many State institutions is currently “swamped”.

 

Protection in Action

A Power of Attorney is rarely overturned, but last month just such a case occurred. On 13th October 2015, the Court of Protection revoked the powers of an attorney who charged his elderly mother expenses of £117,289 for visiting her in her nursing home and acting as her attorney. The attorney applied the daily charging rate that he used when he was a self-employed independent consultant.

The judge made the comment that ‘one would be hard pressed to find a more callous and calculating attorney, who has so flagrantly abused his position of trust’ with Senior Judge Lush adding that ‘charging one’s elderly mother a daily rate of £400 for visiting and acting as her attorney is repugnant’.

Even though the son, Martin is named as the sole beneficiary of his mother’s estate, attorneys must never take advantage of their position or profit from it, apart from receiving gifts where the law allows it.

The law actually states:

“A fiduciary duty means attorneys must not take advantage of their position. Nor should they put themselves in a position where their personal interests conflict with their duties. They must also not allow any other influences to affect the way in which they act as an attorney. Decisions should always benefit the donor, and not the attorney. Attorneys must not profit or get any personal benefit from their position, apart from receiving gifts where the Act allows it, whether or not it is at the donor’s expense.”

When Martin suggested that the appointment of a panel deputy would be a waste of time and money because his mother’s estate is effectively already his.  Senior Judge Lush disagreed, stating that, “the panel deputy will, for the first time in eleven years, place Sheila at the centre of the decision-making process, rather than view the preservation and enhancement of Martin’s inheritance as the paramount consideration”.

For more details of the case click here.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Power of Attorney2017-01-06T14:39:22+00:00

Til death do us part… more IHT issues

Til death do us part…

If you have ever taken marriage vows, you were probably not bothered by the inheritance tax advantage that couples enjoy. More accurately, it is of course the beneficiaries of the estate that will actually enjoy any inheritance tax benefit from marriage.

This is because everyone has a “nil rate band” and whilst much has been made of this “allowance” it is a personal one, so a couple naturally has a doubling advantage. Sometimes people set up their finances so that on the first death, an amount of assets is released from the estate to the beneficiaries, rather than them having to wait for their inheritance.

This does come with some rather obvious potential snags – such as where does the money come from to be released and how best to achieve this. Of course the surviving spouse may have his or her circumstances significantly altered since such an agreement was originally made, so may also be reluctant to release funds if they believe that they are needed.

Nil Rate Wedding Bands

It is quite a common practice for solicitors and Will writers to include the transfer of the “nil rate band” upon death, so you ought to think through if this is right for you. Just because it was good advice at the time does not mean that it will remain best advice.

Think about how the money might be released and to whom. If it does pass to your children, please remember that around 1 in 3 marriages end in divorce, so should that happen to one of your children, the inheritance might be “diluted” as a result of divorce. This is where Trusts can protect family wealth as the money isn’t paid to an individual but to a Trust. The Trustees, then will be directed by the terms of the Trust and depending on how it is set up have discretion about how to pay funds.

IHT402

IHT402 is a form that is used to transfer the nil rate band and any unused relief. It is worth downloading and having a look at (click on this text to open a pdf of it). You should review your Will regularly to ensure that it remains suitable. However perhaps more importantly, the bigger question you should reflect on before gifting or transferring any substantial sum is to ensure that you aren’t going to run out of funds yourself. Hence a financial plan will keep you up to date and on track and rather vitally, will explore this fundamental concern.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Til death do us part… more IHT issues2017-01-06T14:39:22+00:00

As safe as houses… more IHT

As safe as houses…. more IHT

You have probably heard that the nil rate band or inheritance tax allowance is increasing on a main residence, provided that it is inherited by your family and provided that it isn’t worth too much. As probably intended, many are under the impression that this new “£500,000” allowance has started… it hasn’t and many will not see the benefit.

For starters, the new “Main Residence Nil Rate Band” … MRNRB is being gradually introduced from April 2017 starting with an extra £100,000 rising each tax year by £25,000 until the full extra £175,000 becomes applied from April 2020. However if the net value of the estate is worth more than £2m, then this extra allowance is gradually lost. I think that’s called giving with one hand and taking with the other and of course is ignored by those who think that this is a tax break for the super rich…. reality is quite different.

IH405

IHT405 is the form you use to tell HMRC about all of your properties upon death. Have a look at the form, the valuation of a property (or plural) can and will make a considerable difference to the value of an estate. If you have a second (or further) property, then please keep really good records about it. This includes dates and purchase prices, valuations, work done, insurance costs and so on. You need to be fastidious in your record keeping… not least because these records may also be pretty vital whilst you are alive.

Getting your house/s in order

If you have acquired property over the years, perhaps just for your own family use or perhaps as a commercial concern to generate rental income, this all needs accounting…(sorry for stating the obvious). The value of property obviously changes and there is some degree of flexibility in how this is valued for probate… on the basis that what someone will actually pay for a property is more fluid than a simple figure.

As an aside, landlords that are off-setting interest against rental income, thereby reducing profit and tax, are having the amount permitted altered (another feature of the last Budget). So beware! Also as an aside, those with second properties that have soared in value are loaded with capital gains and thus subject to capital gains tax. There are ways to manage this… which I shall outline at another time – but be advised that there are solutions that may appeal.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

As safe as houses… more IHT2017-01-06T14:39:23+00:00

How does HMRC know about gifts?

How does HMRC know about gifts?

You may have been very generous with your wealth and given lots of money to your beneficiaries or charity prior to your death, but how on earth does HMRC or the Executors of your estate know to correctly offset these gifts (if appropriate) against your estate?

Probably the simple answer is that if it isn’t recorded, it would seem difficult to prove a gift was made. There are a variety of issues – the annual giving allowance (£3,000) does not need to be reported, but frankly it would seem wise to record the fact that the amount is actually gifted… all helping to demonstrate the accuracy of the story behind the information.

IHT403

Here’s the link to take a look at form IHT403 – which is essentially a list of gifts and transfers that you have made within the last 7 years. In short, you really need to know the dates of the gift (within a tax year), the beneficiary, a description and the value of the gift.

Inheritance tax can get rather complicated with terms like “Pre Owned Assets” “Gifts with Reservation” “Lifetime Transfers” and more. So it’s rather important that the source of gifts is documented. To my mind it makes sense that you provide a brief written, dated document to the recipient of your gift and ideally your financial planner and possibly Accountant if you have one. Certainly retain a copy within your records – but remember passwords are all well and good when you are alive, but when you aren’t here to tell anyone what they are…

Gifts from Income

I don’t wish to drown you with detail, but it is possible to make gifts from income, provided that this is not to your detriment or deliberately reduce the value of your estate for IHT planning. If that sounds like an oxymoron… well, that’s the state of the tax system.

How do you demonstrate legitimate regular gifts from income? without a summary of your tax year income and expenditure I’d suggest that it will be fairly “difficult”. A business doesn’t have this problem – there are obvious accounts, or at least there should be, but as individuals perhaps the rule of thumb ought to be – think of yourself as a business – which means keep details carefully.

Taking a look at the last page of the form IHT403, you will observe that HMRC will request details of income and expenditure for the last 7 years. Could you provide this for yourself today? if not, how on earth will your Executors?…. hence one of the reasons we ask clients to update us with income and expenditure information every tax year… enabling us to help them build up a record – but also to do all the other sensible financial planning stuff – like helping reduce income taxes, checking that our assumptions about future lifestyle costs are broadly right and where it’s all going… and ideally to help them catch rather more of it than they otherwise would. So yes, those forms are rather important both whilst you are alive or deceased.

In practice, it is possible that HMRC might even wish to go even further back in time, perhaps as much as 14 tax years prior to death…. so my advice is to get your “ducks in a row” – which has several important positive by-products.

  1. Better budgeting
  2. Better financial planning
  3. Lower income taxes
  4. Reduced costs
  5. Longer-lasting wealth…

You heard it here – make an HMRC form your best financial planning tool!

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

How does HMRC know about gifts?2017-01-06T14:39:23+00:00

Marriage is not an IHT exemption

Marriage is not an IHT exemption

Save yourself some time, if you aren’t married or haven’t been married or don’t ever plan to marry you really don’t need to read this item, but if you have, are or do… well its one for you to take a look at.

Let me begin by correcting myself – marital assets are generally exempt from IHT (inheritance tax). However what is not exempt is the need to report these to HMRC upon the death of one or both of the parties. This is all part of the continuing series about IHT and how it inter-relates with your financial planning today – and how the information that is requested once you have died isn’t easy to trace and leaves your Executors – perhaps your nearest and dearest, with a headache.

IHT404

This is a form that HMRC use for you to report jointly owned assets (click to see). Now please be careful, this needs some thought and you may have already made some changes to jointly owned assets – perhaps “giving” them to your spouse to help reduce your combined taxes, or perhaps you have been persuaded to adjust the ownership details of your home by a solicitor intending to help you to reduce inheritance tax.

I meet lots of different people as you may imagine and many couples take different views about money, in essence these boil down to – everything is private and separate or everything is jointly owned and some couples delegate financial management to just one of them, with the other playing a very minor role (which usually troubles both in the event that “something were to happen”).

Clarity

So if you have been married or are married, please take a look at the HMRC form IHT404. Download it and then complete it fully, keep a copy, ensure your spouse has a copy and also send your financial planner a copy too.

This is a form for the Inland Revenue (HMRC) so its not to be trifled with, the dates of purchase, values and share of ownership are not “minor details” this is your account of what you have together. I’m not bothered about how old you are, unless you can tell me exactly when you will die, this is a form all married people need to get sorted out in advance and keep under review. So, if that’s you… its your task for today… another way to show your spouse that you care!

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Marriage is not an IHT exemption2017-01-06T14:39:23+00:00

Where are you originally from?

Where are you from originally?

Today, this may sound like a loaded question, so let me explain. The UK has a plethora of international tax agreements. Financial planning is always set in a context – it can be done in almost any country and is a growing profession in northern Europe, India and China. A financial planner needs to understand where you are deemed resident and where you are deemed domiciled as this has considerable impact on any planning in the present, but also in the event of your death.

Global Death Duties

The world seems smaller because of our ability to communicate and travel much more easily, within a few hours, you could be… well, the other side of the world. Britain’s multi-cultural history might be reasonably easy to plot, but how about your own? If you aren’t here to correctly explain the where, when and why… who has the accurate details?

IHT401

The form IHT401 asks for a full history (take a look by clicking the link). The information requested covers some of what you may think is obvious (where you are from, your nationality etc) but also details about your education and employment. If you were not born in Britain, even if you have lived here since before you could walk, this is a form that you should prepare for your Executors. It has implications for where you are taxed and how much tax your estate will pay in the event of your death

Do yourself and your estate a favour..

The information requested by HMRC is probably easy for you to put together reasonably quickly, so can I urge you to do so. It will always be much harder for someone else to collate and verify your history, so make it easy for them to do so – by getting it done yourself.

This is more than a casual glance at LinkedIn with information of your career to date (assuming that your online CV is accurate). Naturally any Executor will need to check the information, so make this easy for them to find – provide it in a safe place or even in advance to each of them.

To my mind it makes sense for a financial planner to hold this same information about you as well – because investments that you make need to be set in the context of potential global taxes and of course ensure that the advice is suitable, appropriate and rather obviously – legal!

So, if you weren’t born in the UK – please take a moment to download the IHT401 form and fill it in, saving it to your records and if you are a client and haven’t done so already, send me a copy. Don’t put it off any longer.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Where are you originally from?2017-01-06T14:39:23+00:00

What if you had died yesterday?

What if you had died yesterday?

There’s no escaping this highly sensitive topic – death. It comes to us all eventually. However I’d like to take a different approach to this topic in relation to your financial planning, it will be a short series that I hope will be of value to you and yours.

Can I first of all challenge you to simply have a look through the HMRC (Inland Revenue) form called IHT400. It is the starting point for those charged with administering your estate. Yes I am serious. However far off death hopefully is, what if you’d been hit by the proverbial bus yesterday? Who would pick up this task and how do you expect them to complete it? Here is the link (open a new window – so that you don’t leave this page).

HMRC IHT400

OK, assuming that your estate does need to be reported (i.e. worth more than £325,000) and you moved past the double-speak, does anything strike you?

Stating the obvious…

I’m not going to approach this line by line, but to highlight some basic points. Whoever has to complete this form has a huge task ahead of them… perhaps you have done this for someone else already?… I have several times. The guidance notes document that accompanies IHT400 runs to nearly 100 pages…. the NOTES!

So let’s face a few key facts

  • You have 12 months to complete the form
  • After 6 months interest is charged
  • You need a lot of personal information, matters of record – marriages, births, deaths
  • You probably need a family tree
  • You need tax information, NI number, tax reference etc
  • You need a valid Will
  • You need a list of gifts and disposals
  • All banking information, investments, pensions and life assurance
  • All assets on a worldwide basis
  • All liabilities and debt
  • Details about Trusts and exemptions
  • Details of your income and expenses for the last 7 years
  • There are another subsequent 21 forms IHT401-IHT430

If experience has taught me anything, it’s that getting most people to put this sort of information together isn’t easy – because it’s an arduous, daunting task. Yet this is what we leave others to do for us in a time of stress. Yes a solicitor can do this for you, but actually most, if not all of the information is within your possession, it’s simply that it’s not easy to extract or perhaps understand.

Who else has this information? well…. we do… if you have kept us up to date…. which is one of the many reasons for requesting it. So… imagine that yesterday was your last. You are not here to tell your loved ones and/or Executors where everything is neatly filed (!)…. so where to begin? may I suggest we address this now? You could even start by printing off IHT400 and putting in some of the information you already know…. you can see where I’m going with this can’t you.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

What if you had died yesterday?2017-01-06T14:39:23+00:00
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