GIVING AND INHERITANCE TAX 2021/22

TODAY’S BLOG

GIVING AND INHERITANCE TAX

Part of your tax year end planning may involve making some gifts that help reduce the value of your estate with the knock-on effect of reducing inheritance tax (hopefully a long time in the future though… right?!).

Anyway, the uncertainty that Capital Gains Tax faced last year was mirrored by IHT (inheritance tax). That too had been subject to a review by the OTS (Office of Tax Simplification … yes it does sound like something from a Peter Sellers sketch) commissioned in January 2018, which had seemingly got lost in the Chancellor’s in-tray. Thankfully, after nearly four years, the end of November 2021 saw a statement confirming that there would be only one administrative change to IHT (first announced in March 2021), easing the paperwork burden for many executors. IHT year end planning is, thus, also business as usual, meaning that you should consider using the three main IHT annual exemptions:

THE ANNUAL EXEMPTION

Each tax year you can give away £3,000 free of IHT. If you did not use all the exemption in 2020/21, you can carry forward the unused element to this year (and no further), but it can only be used after you have used the current tax year’s exemption. For example, if you made no gifts in 2020/21, and you gift £4,000 in 2021/22, you will be treated as having used your full 2021/22 exemption and £1,000 from the previous tax year.

THE SMALL GIFTS EXEMPTION

You can give up to £250 outright per tax year free of IHT to as many people as you wish, so long as they do not receive any part of the £3,000 exemption.

THE NORMAL EXPENDITURE EXEMPTION

The normal expenditure exemption is potentially the most valuable of the yearly IHT exemptions and one which the OTS wanted to replace. Under the exemption, any gift – regardless of size – escapes IHT provided that:

you make it regularly;
it is made from your income (including ISA income, but excluding investment bond and other capital withdrawals); and
the sum gifted does not reduce your standard of living.

This last exemption is not easy to prove. It would help your Executors and therefore your beneficiaries if you follow our guidance and requests to update your income and spending each year. Honestly, we don’t do these things to simply get you to complete forms – there is a logic and it’s all for your benefit (we do appreciate that it is a pain!). You can do this using our spending plan or simply update the information on the portal. If I have worked on your plan recently, the figures there also need to be checked. Basically we need to evidence your spending – or rather your executors will.

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GIVING AND INHERITANCE TAX 2021/22Dominic2025-01-21T15:48:27+00:00

HEARTS, MINDS AND EQUITY RELEASE

TODAY’S BLOG

EQUITY RELEASE SURGE

A surge in homeowners looking to free up cash from their properties propelled the figure for equity release to £1.05bn in the three months to the end of September, driven by high house prices, gifts to family members and uncertainty induced by the coronavirus pandemic. The value of equity released jumped by nearly one-fifth from £884m in the third quarter of 2020.

While the number of loans taken out was slightly down year on year, the average amount of housing wealth freed up was 23% higher, at £101,593 per borrower. Data published this month by one of the main equity release providers (Key) suggested many borrowers were taking advantage of recent house price gains to help family members climb the housing ladder. “Big-ticket items” such as debt management and gifting were behind nearly two-thirds of the equity released in the third quarter. More than two-fifths (42%) of the cash given to family and friends was used for house deposits.

For homeowners over the age of 55, equity release offers a way of unlocking the value of their properties, whether for home improvements, paying off other debts or to help family members. Interest on the loan is paid through the sale of the house at the end of the term, so unlike a conventional mortgage a borrower is not required to demonstrate a minimum level of income to qualify. Interest rates are higher for these “lifetime mortgages” than for most mainstream mortgages. Interest rates are low by historic terms, but equity release is a not straight-forward.

THE POWER OF COMPOUNDING INTEREST

Equity release is not like a normal mortgage, repaid over a set time. It is generally a loan which is only repaid when the property is sold. Overall, no payments are made, the interest merely compounds. By now you know the miracle of compounding interest – which works wonderfully for your investments and does precisely the opposite for your debt.

The risks you need to consider are future interest rates, the future value of your home and how long you will live or anyone else that you share it with. The earlier you release equity, the bigger your total debt in the end. Admittedly this helps reduce the value of an estate for inheritance tax, but in practice it can simply mean that there is nothing to inherit.

Some of you may remember the significant property crash in the late 1980s. At the time equity release was very popular and many people got caught out by the reduced value in their home and the increasing interest rates. All conspired to create genuine stress and financial hardship for some. There have been reforms, but I would urge caution – a lot of it. This should always be considered in the context of your total financial planning, not simply a desire to help a family member.

We do not provide advice about equity release but can refer you to a specialist. However, you should exercise great caution and have a clear plan and reason about why you want the funds. Interest rates are normally higher than a typical mortgage. The fact that around half of those using equity release are between 65 and 74 does not bode well for those that may live for 2 or 3 decades.

As ever, good financial management starts with good budgeting and a proper plan.

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

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk Call – 020 8542 8084

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HEARTS, MINDS AND EQUITY RELEASEDominic2025-01-21T16:33:30+00:00

BETTER NOT CALL SAUL

TODAY’S BLOG

SELLING TRUTH YOU WANT TO HEAR

One of the TV series I enjoy is a spin off from Breaking Bad – Better Call Saul, which you can find on Netflix. In simple terms it is the story of James “Jimmy” McGill who is the younger wayward sibling of two brothers. Regularly in trouble, Jimmy is nothing like his responsible, pedantic brother Charles who is a very successful lawyer. Despite their differences, Jimmy is close to his brother, tending to a peculiar illness which is debilitating.

Jimmy is a low-level conman, who has a talent for spotting a fool and parting him from his money as most confidence tricksters do. His observational skills and self-confidence combined with a malleable relationship with rules are the perfect combination for selling a different version of truth, a lie that people want to believe. It becomes apparent to him that perhaps being a lawyer requires a similar skill set. Most believe that lawyers are crooks with a Degree and Jimmy can smell opportunity.

The numerous series chart his misdemeanours, and these run parallel to the mirroring characters of the drug world. Instead of law firms and partners, read gangs and cartel all pushing the same freedom fix, but with grave penalties for error.

TO WHAT PURPOSE?

The series raises lots of relevant questions – fundamentally what is our purpose? Who is Jimmy? Why is he endowed with the skills he has and how could these be put to more rewarding, purposeful use. We witness him genuinely attempt to do good, to remove or reduce harm, to expose corruption and to protect the vulnerable, yet his efforts are met with the resistance of indifference and judgement that prevents him from straying outside of his box. A societal box that others have placed him in. This is of course particularly timely as we all consider the challenges that face anyone that is genuinely interested in equality, justice and fairness.

It isn’t often that I would encourage you to pay attention to someone that is essentially a corrupt lawyer, but there are many valuable insights to be found. These are as basic as understanding the mechanics of a scam, hiding in plain sight and how to find hidden fees. However we also have to face the reality of understanding depth, capacity, risk and the difference between problems and trouble.

Many of the problems that Jimmy faces are problems that many of us may experience at some point – whether that’s the importance of a Will, care costs, business partnerships, deals and the value of what we provide to others. However at its heart of the story is the strength and weaknesses of relationships – whether that’s between siblings, employers, family or friends. Jimmy is largely making decisions in reaction to those relationships, as are others. Every character has a story but as ever, being able to see the solutions to your own problems is often aided by an impartial other.

One of the lessons I have been reminded of this week, today in fact, is that as a planner, I help provide objectivity and accountability – helping clients keep on track with their stated values and plans for a great life. Jimmy could have had a very different story if someone had shown him how his skills could be applied, if he had received the right support and encouragement. It may not have been as dramatic (and worthy of a TV series) but it would certainly have ensured prosperity in the fullest sense of the word.

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

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

BETTER NOT CALL SAULDominic2023-12-01T12:13:17+00:00

An Act of Trust? My Cousin Rachel

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An Act of Trust? My cousin Rachel

There’s a new reworking of Daphne Du Maurier’s 1951 story “My Cousin Rachel” that is currently in cinema’s. A romantic throw-back to a time when men wore britches and women had little to call their own, thank heaven we have moved on. This is perhaps a timely reworking of the story, visiting the issue of inherited wealth with a passing nod to the patronage of the landed gentry, whilst their labourers gather the proverbial scraps from under their table.

Philip Ashley (Sam Claflin) is an orphan, taken in by his Cornish, landowning bachelor cousin Ambrose. Sadly for Mr Ambrose, he becomes unwell and heads to Florence, where he is initially restored by the sun and charms of Rachel, who he elects to marry. His illness shortly returns, resulting in his mysterious death, leaving a widow and Philip to face the prospect of an early inheritance. Suspicious of foul play, due to letters from his dying cousin, Philip is determined to punish Rachel for what he believes she has done. “Whatever it cost my cousin in pain and suffering before he died I will return with full measure upon the woman that caused it.”

rachel-weisz-goes-gothic-in-my-cousin-rachel

Under a Spell

As a somewhat naïve and hot-headed young man, he is mesmerized by his cousin’s widow when she arrives at the estate. All plans to punish are swiftly reversed and forgotten, because he “likes to look at Rachel”…. who is played rather brilliantly by Rachel Weisz.

I will not reveal any more of this thoroughly enjoyable tale, which will perhaps get you reflecting on whether women are viewed any differently today than they were then. In fact to say any more would not help your own reflections.

The thing about inheritance

However, I can say that the story is an example of why you need to have a Will and that it is reviewed regularly. Moreover (a word I use knowing the angst caused for my old French teacher, who swore it was redundant) it also displays some of the pitfalls of a Trust, or at least a Trust that reverts to a beneficiary who is only 25 and is unhelpfully naïve and besotted.

This is a common financial planning problem – at what age should someone inherit wealth? particularly a life-defining amount. For all the planning that can be done, this will inevitably boil down to how the Trust was established and who the Trustees are and to be blunt, how responsible the beneficiaries are.

In the story, Philip can rely on the steady hand of family friend and Trustee Nick Kendall, (Iain Glen) who whilst being a voice of reason, is also compromised by his hope that his daughter Louise, (Holliday Grainger) will marry Philip and thus be financially secure. The Kendall’s suspicions are alert for conflicted reasons. Often selecting a Trustee can be a difficult task, the basics are that they must be at least 18 years of age and of sound mind, and not held at her Majesty’s pleasure.

Selecting Your Trustees or Executors

Many clients will of course naturally wish to select family members or friends, there is nothing wrong with this, except that most families have at times, strained relations. Friends may change. The responsibility of being a Trustee or Executor is no small matter – just ask anyone that has been one (or is). This is why these important legal documents, which assure your beneficiaries of your provision, are reviewed regularly. In our post-modern society, people move around the world, not simply the county. Death at a distance (a fate that befell Ambrose) is rather more complex than that wedding you have been invited to abroad. So when selecting Trustees, always use your head which may well conclude that those that share your surname are indeed the right people, but do think about this carefully.

Anyway, here is the trailer.

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

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An Act of Trust? My Cousin RachelDominic2025-01-21T15:48:30+00:00

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 1963Dominic2025-01-21T15:48:31+00:00

Where there’s a Will – part 2

I asked Alex Truesdale for her thoughts on the ruling by the Court of Appeal and am thankful for her very valuable insight, here are her thoughts and observations.

The Court of Appeal’s judgment in this long-running dispute confirms that disinherited children are permitted by a 1975 statute to challenge their parents’ Wills if reasonable provision for their maintenance is not made. “Maintenance” means the child’s cost of daily living at whatever level is appropriate to them. The question of what is “reasonable” is dealt with by the court exercising its discretion to consider a number of factors laid down by statute, including the child’s needs and circumstances, the needs and circumstances of the beneficiary who has inherited instead, and the parent’s conduct. Here, Arden LJ endorses the lower court’s description of Melita Jackson’s conduct towards her daughter Heather Illot, since their 1978 estrangement, as “unreasonable, capricious and harsh”, before replacing the lower court’s £50,000 award with a sum of £163,000. This, Arden LJ reasoned, would allow Mrs Illot to purchase her house, receive a modest income, and potentially arrange a pension through equity release, all without compromising her state benefits.

This is not new Law

None of this is new law. But it is inevitable that this high profile victory for Heather Ilott – albeit one which sees her receiving just over 1/3 of her late mother’s estate – will encourage further challenges to Wills which seek to disinherit family members, particularly if there is no connection between a testator and the charity which has benefited from a windfall legacy. A costs order has yet to be made but will be considerable: Melita Jackson’s insistence that her executors defend to the hilt any attempt by her daughter to contest the Will will already have eroded the value of her estate, and so now the charities themselves face a smaller residual legacy and their own costs bill. There may be a further appeal to the Supreme Court, but I would suspect that the charities will take a view on the reputational as well as financial damage they risk in prolonging a dispute which has run since 2004 and, arguably, since the estrangement in 1978.

Where does this leave testamentary capacity? Much as it was before – the award made in this case turns on its own facts, and does not represent any further curtailment of one’s freedom to leave one’s estate as one pleases, so we should all still be making Wills.

Think ahead and think carefully

However, I would encourage those who do wish to exclude family members from their Wills to leave contemporaneous evidence of their reasoning not only to exclude a particular beneficiary, but also to favour other beneficiaries. This is particularly important if, in the case of charities, the testator has no connection with, or history of donations to, charity during their lifetime. I have been instructed on a number of cases where we have done just that by way of a side letter, to try to avoid the washing of too much dirty linen during probate, a process which makes Wills public. And those asked to act as executors should always check whether they are risking accepting a poisoned chalice that may compel their involvement in a protracted legal battle. As in this case, that may, sadly, become the testator’s most enduring legacy.

Alexandra Truesdale MIPW

Alex Truesdale Wills Limited | Registered in England and Wales no 7275445 | Registered office: 27 Mizen Close Cobham Surrey KT11 2RJ

Alex Truesdale Wills Limited is a member of the Institute of Professional Willwriters and complies with its Code of Practice

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 there’s a Will – part 2Dominic2025-01-21T15:48:52+00:00

Where there’s a Will…

Perhaps you know the saying.. “where there’s a Will, there’s a crowd”, well it seems that there may have been a landmark ruling in the Court of Appeal. This could impact anyone wishing to disinherit their own children.

The potential landmark ruling was handed down by Lady Justice Arden at the Court of Appeal on 27 July 2015 throws into question the “security” of a number of Wills.

Long story short – Heather Ilott challenged her late mother’s Will of 2002. The original Will made by her mother Melita Jackson, expressly prohibited her only daughter from any inheritance from her estate, leaving the entire estate to animal charities. This all stemmed from a family event in 1978 when Heather then 17, eloped with her boyfriend, who she later married. Mrs Jackson died in 2004 and the Will was initially challenged by her daughter and she was awarded £50,000 of the £486,000 estate. An appeal was initially denied, but this week was upheld by Lady Justice Arden. Heather Ilott was awarded £164,000 about a third of the estate.

“Unreasonable, capricious and harsh”

Lady Justice Arden, ruled that the exclusion of her daughter from an inheritance was unreasonable, capricious and harsh. Ruling that she should have a greater share of the estate.

Needless to say this prompts a few concerns and questions. Firstly it has taken 11 years to agree the terms of Probate and settle the Will. Secondly the original Will, despite being “crystal clear” was overturned, not completely, but essentially opening the way for more legal challenges to Executors. Of course, the animal charities have also lost a reasonable amount too – presumably having an impact on their planning somewhere.

The number of Wills challenged each year continues to rise which rather affirms the statement that where there’s a Will, there’s a crowd. Most people do not understand what is involved when someone dies, having little or no grasp of the lengthy delays that can occur. This case has been rolling on for 11 years!

You can see the ruling by clicking 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

Where there’s a Will…Dominic2025-01-21T15:48:52+00:00