Cheyney Goulding

Cheyney Goulding Solicitors

t: 01483 56 76 76   e: legal@cheyneygoulding.co.uk

Christopher Seddon

Families have overpaid £1.2 Billion in Inheritance tax

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Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s died.

Married couples can, with proper planning, pass on up to £1m tax free, but many with personal wealth above this amount are voluntarily paying over the odds by failing to make good decisions and missing out on the various tax breaks on offer. Estates worth more than the £1m pay three-quarters of all death duties, a collective tax bill of more than £5bn a year.

Recently, there has been a huge increase in the number of families paying 40% inheritance tax on their loved ones’ estates.  This means over £1 billion pounds passes unnecessarily to HMRC rather than to the deceased’s own relatives.

What most people do not know is that there are simple ways of reducing this extortionate charge. 

HM Revenue & Customs have confirmed that in 2017-18 almost half of the money that was tied up in inheritance tax-paying estates was invested in shares or held in cash. This amounts to around £1.2 billion pounds. This money could have been better placed into tax-saving schemes or gifted away tax-free. 

At Cheyney Goulding our specialist solicitors understand that the subject of inheritance tax and any attempt to reduce the same can be a minefield.   This is why we are on hand to assist you in reducing any inheritance tax bill by providing practical solutions to this increasingly common issue. To give you but a few examples we can explore the following with you:

  1. Simple Will planning
  2. Marital status and the impact this may have on any future tax payable.
  3. Use of uncomplicated Trusts
  4. Gifts in general
  5. Charitable donations

There are of course other options available to you and we would be delighted to discuss these in more detail going forwards. 

Don’t leave your hard-earned money to the taxman, leave it to your family. 

If you would like to know more about inheritance tax and the various tax-saving schemes, please do not hesitate to contact Christopher Seddon, who is the head of our Private Client Team for guidance and an initial free telephone consultation.

Email: cseddon@cheyneygoulding.co.uk

Telephone: 01483 796008

Can I leave my estate to anyone I wish?

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It used to be a principle of UK law that we were free to leave our estates on our deaths to anyone we chose.

However, legislation passed in 1975 changed things dramatically. Now an individual can claim that a deceased’s will, or failure to make a Will meaning the deceased died intestate, does not leave them with reasonable financial provision.

Who can claim under the Inheritance Act?

Not everyone can make a claim.  You must be an ‘entitled’ applicant under the Inheritance Act.

There are six categories of ‘entitled’ claimant against the deceased’s estate.  These are:

  1. the surviving spouse or civil partner of the deceased;
  • a former spouse or civil partner of the deceased (who has not subsequently married or entered into a civil partnership);
  • a person with whom the deceased had lived for the two years prior to death as spouse or civil partner;
  • a child of the deceased;
  • any person who was treated by the deceased as a child of the family;
  • any other person who immediately before the death was being maintained wholly or partly by the deceased (i.e. a dependant).

What will the court consider?

The court will consider three questions when presented with a claim:

  1. Does the Will or intestacy provision make reasonable financial provision for the applicant?
  • If not, should the court intervene and award further provision from the estate?
  • If so, what type of provision is appropriate?

The question of ‘reasonable financial provision’ depends on various factors.  For most, the provision from the deceased’s estate will need to be what’s necessary for their maintenance. 

For a spouse or civil partner, the standard of ‘reasonable financial provision’ is based on all circumstances and what is ‘reasonable’ for them to receive.  There is no requirement that their provision is solely for maintenance.

What is reasonable in all the circumstances will depend on many different things, but the Inheritance Act specifies certain factors courts must consider:

  1. Current and future financial resources and needs of the applicant and beneficiaries of the estate;
  • Any obligations and responsibilities which the deceased had towards the applicant and beneficiaries;
  • The size and nature of the estate;
  • Any physical or mental disability of the applicant or any beneficiary
  • Any other matter, including conduct of the Claimant.

Where an applicant is a spouse/civil partner, the court will also consider the applicant’s age, the length of the marriage and the applicant’s contributions to the welfare of the deceased’s home and family.

Sometimes we see Wills where there is a clause in the Will which  tries to make anyone bringing a claim forfeit any legacy they had been given. However, this is not usually be binding on the court.

If you have any concerns regarding a Will, whether it appears not to make proper provision or if you have simply have concerns regarding the preparation and execution of the Will, please contact Christopher Seddon, who is the head of our Private Client Team, for guidance and an initial free telephone consultation.

Email: cseddon@cheyneygoulding.co.uk

Telephone: 01483 796008

Contesting a Will on the grounds of ‘knowledge and approval’

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What is meant by ‘knowledge and approval’ when contesting the validity of a will?

For a will to be valid, the person making the Will (“the Testator”), in addition to having capacity, must have understood and approvedits contents. 


What happens if suspicious circumstances surround the preparation or execution of a will?

If circumstances surrounding execution of the will are ‘suspicious, is down to those who believe the will to be valid to provide evidence countering the ‘suspicions’ and prove the testator did have knowledge of the terms of their will and approved its content.

The approach of the courts, in these cases, is to consider whether there was a clear understanding of:

  1. What was in the will when it was signed; and
  2. What its effect would be.

For example, if the testator suffers from severe mental illness, they may be unable to comprehend the will they are executing.

Perhaps a person did not seek professional advice and has left minimal or no provision for their children.  Instead they give considerable benefit to others who are not reliant on them in any way.  These ‘suspicious’ circumstances may lead to assumptions that there was neither the necessary knowledge of the will, nor approval of its contents.

Some potentially ‘suspicious’ circumstances include:

  • The will is home-made, and no professional advice has been sought.
  • The will contains spelling mistakes and/or uses language which would not have been used or understood by the testator.
  • The will contains untrue statements and/or features which are uncharacteristic for the testator.
  • The will contains a radical change to previous legacies/long-standing wishes made without a rational explanation and/or generally the legacies cannot be rationally explained.
  • The relationship of the beneficiary to the testator was not close.
  • The witnesses to the will were not sufficiently independent.
  • There is evidence the beneficiary acted dishonestly, suspiciously or against the interests of the testator and/or having played a central role in the making of the will.
  • The person who made the will is elderly and the will is in favour of people who are not very close to them or in a position of power over that person.
  • The testator’s wishes were given in response to leading questions.
  • There is evidence generally of the testator’s mind failing, but they retained some testamentary capacity.

Finally, there are a few other areas of mindful consideration.

Although where a will has been executed correctly, there is a general presumption that the testator has the required ‘knowledge and approval’ of the terms of the will, this may not be the case where that person:

  • is deaf and/or unable to speak;
  • cannot write or are paralysed;
  • is blind or illiterate; or
  • directed another person to sign the will on their behalf.

In these circumstances, the person relying on the validity of the will has to prove that the testator had knowledge of the will and approved its terms.  This must be supported by evidence.

If you have any concerns regarding the validity of a Will or if you have concerns regarding the preparation and execution of a Will, please contact Christopher Seddon, who is the head of our Private Client Team, for guidance and an initial free telephone consultation.

Email: cseddon@cheyneygoulding.co.uk

Telephone: 01483 796008

The Lasting Power of Attorney

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A Lasting Power of Attorney is a document that allows a person to appoint trusted individuals to make important decisions about care and finances on their behalf, in the event of a loss of mental capacity through an accident or illness such as dementia.

It is by far the most powerful and important legal document an individual can have, because it allows you to pass potentially life-changing decisions about your affairs on to a third party.

At Cheyney Goulding, we make a lot of LPAs for people and here are some top tips for getting the best out of them:

  • Plan early – While you have capacity, it’s vital that you get your affairs in order and choose the best people to manage your affairs, in case of an accident or illness. You cannot appoint an attorney once you lose capacity, and then your family will have to make expensive and time consuming applications to the Court of Protection.
  • Choose carefully – Think carefully who you want to appoint as your attorney and have an open conversation with them, so they understand your wishes and what their responsibilities will include. Consider appointing more than one person as your attorney so they can share the responsibility.
  • Consider appointing a professional – A family member might not always be the best person to act as your attorney, especially if you run a business. Instead, you can appoint a professional, such as a solicitor. They can act as a neutral third party and make unbiased decisions that are in your best interests. Bear in mind this usually involves a cost.
  • Think about different circumstances – Consider how you would like your attorney to manage your property and financial affairs in different situations. For example, are you happy for your property to be sold to pay for your care costs?
  • Address the difficult questions – Your attorney might have to make difficult decisions about your health and welfare. If you have specific wishes around your care plans, medical treatment, or end of life wishes, make sure you discuss this with them and make your choices clear in your document.
  • Seek professional advice – Shop-bought and online LPA kits may be suitable for those with very straightforward financial situations or with considerable legal experience, but for most people, seeking professional legal advice is the best way of ensuring that an LPA is effective, legally robust and safe.
  • Keep your plans current – Make sure you keep your LPA updated if your circumstances change. Your choices around the people you want responsible for your finances and wellbeing may change, such as following a marriage or divorce, when children reach adulthood, or if parents pass away.
  • The LPA dies with you! Remember that you still need to make a suitable Will to ensure that your estate passes to the right people at the right time when you die. The LPA can only be used during your lifetime.

This is a specialist area of the law, and we recommend that anyone considering an LPA obtains professional advice.

Please contact Christopher Seddon who is the head of our Private Client Team for guidance and an initial free telephone consultation.

Asset protection Trusts

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Can I protect my assets during my lifetime?

We are all keen to protect our assets for our loved ones, during our lifetime AND after our death. We want to do the best for our spouse/partner and children. However, there are many questions that need addressing before the right planning can be put in place.

What if my spouse remarries after my death?

Assets they have inherited from you could pass to their new spouse rather than to your children. Many people forget that when they marry, or remarry, their existing Will is usually revoked and they are intestate, meaning most of the estate will pass directly to the new spouse, not your children or other chosen beneficiaries.

What if I leave assets to my children and one of them then divorces?

Potentially 50% of the gift you have made to your child may end up with your ex in-law.

What about Care Home fees?

If a person owns assets valued in excess of £23,250 and they require long term care, they will usually be required to make a 100% contribution towards the cost of their care from income as well as from capital assets.

There are detailed rules that we can explain to you, but the sheer cost of care needs to be carefully considered.

Can an Asset Protection Trust help?

The use of a Trust can often solve many of these common problems. It can avoid the need for the family to get a Grant of Probate for the assets held in the Trust. This reduces cost and delay.  A side benefit from employing this kind of planning is that assets held within the Trust can frequently be protected from the impact of long term care fees, unless it can be proved that at the time the Asset Protection Trust (APT) was set up it was reasonably foreseeable that the donor would enter long term care. This would then mean that the Local authority would claim that there had been a deliberate deprivation of capital and an attempt to avoid paying Care fees.

Do I need a Will as well as an Asset Protection Trust help?

A Will is essential planning, but an Asset Protection Trust (“APT” for short) can work alongside the Will to give you a myriad of benefits. It is designed to protect your assets during your lifetime, as well as giving you the peace of mind that your estate can pass on securely and intact to your spouse and the rest of the family (or other named beneficiaries) after your death.

The Trust in effect ring fences your assets. In most cases this means protecting your family home, although sometimes savings can also be safeguarded. Just like a safety deposit box, assets can be added and removed from the trust during your lifetime to a limited degree.

You would usually be named as the main beneficiary and retain control of the assets within the trust while you are alive and have capacity, so you are free to move home or release equity from it.

As well as protecting the assets during your lifetime the trust can continue to work after your death. The trust can continue to hold assets safely within it and pay them out to in accordance with your wishes. Although there are no inheritance tax benefits for your estate, second generations onwards can benefit hugely in this respect. The trust itself can continue to protect your family for up to 125 years and is extremely flexible. This means that the benefits are not just for you but also for your children, grandchildren and even great grandchildren.

Is there any limit on how much I put into the APT?

You can put assets to the value of your Nil Rate Band (presently £325,000) into the APT, but anything additional to that creates an immediate charge to lifetime Inheritance Tax (20% of the value over the current Inheritance Tax nil rate band placed within the Trust).

However, after seven years more assets can be added, with a similar restriction. Once more you must be careful that this does not constitute a deprivation of capital and assets.

 What type of assets can be placed within the APT?

Most people put their share of their home into the ATP. Sometimes savings can also be protected in the Trust.  We can advise on this.

Practical aspects of the Trust.

Throughout your lifetime you retain full benefit from all the assets within the APT. You can also choose who your Trustees are from time to time, so you stay in control. You can live in your house and enjoy it. If you are not able to live in your own home the house can be sold or rented. Upon your death, assets within the APT can pass directly to the beneficiaries named in your Trust, or remain protected by the Trust, be loaned to your beneficiaries, then repaid to the Trust on their death or divorce. The Trust can then loan the assets out again. This protects the assets and has great IHT benefits.

Potential benefits of the Trust.

FINANCIAL PROTECTION FROM RELATIONSHIP PROBLEMS

Many people are concerned about the effects of remarriage after first death and the risk of “sideways disinheritance”, where assets are allowed to move out of the bloodline and benefit a non-family member. This trust, however, allows you to benefit your spouse, without the risk of losing assets to his or her new spouse or children in the future.  By ring fencing your assets within the trust prior to marriage/cohabitation, you can make it much harder for these assets to be taken from you in the event of a relationship breakdown. This will also protect your children and grandchildren from losing their inheritance should their relationships fail in the future.

RING FENCING YOUR ASSETS

The trust provides better protection for everybody than a straightforward gift to your children would. The capital value of the property does not pass to them until after you have died and so if anything happens to any of them (for example divorce, bankruptcy or if they die before you), then your rights in relation to the property are protected and they have nothing that can be claimed against.

PROTECTION FOR YOUR DEPENDANTS WHO ARE RELIANT ON STATE BENEFITS

When assets are inherited by someone that is dependent on state benefits, receiving an inheritance will often result in the loss of this income. The trust protects the assets so your beneficiary will still qualify for state support. This is a particularly useful benefit of the trust where a beneficiary has a condition that will prevent them from supporting themselves in the future.

PROTECTION FROM INHERITANCE TAX

Assets held within an APT do not form part of the taxable estate of your beneficiaries. This means that assets passing to your son or daughter will not be taxed on their death, potentially saving your grandchildren from large amounts of inheritance tax. Your grandchildren will inherit from your trust, not from the estate of their parents.

It is, however, very important to remember that the APT is not a tax planning tool during your lifetime, and assets protected by it will not fall outside your estate for inheritance tax purposes. This is because you are named as the main beneficiary during your lifetime, and you therefore have what is known as a “reservation of benefit” in the assets held in the trust.

There are also restrictions on the value of assets that can be placed in the trust during any seven-year period. The trust itself will be registered with HMRC, and any tax return will be based on the assets held in the trust not your personal income.

On the 10th anniversary of the trust it will be assessed for a periodic charge. If the assets in the trust exceed the inheritance tax threshold on that date, a tax charge will apply. This is something that we can advise on in detail.

PROTECTION FROM CARE FEES

Many people feel that it is unfair to work throughout their lives only to have their home and savings at risk if they have to go into care in later years. A side effect of the APT is that assets properly held within the trust created at the right time can be protected from such care fees. It is essential that the trust be created at a time when it was not reasonably foreseeable that you would need to go into care.

Since the capital value of the property will no longer belong to you, if you go into care you can rightly say that you do not own your home, if you are asked. They may ask if you ever owned your property and when you gave it away. If they can show that you gave it away just to avoid payment of care fees, they can count it as yours anyway. However, they do have to show that this is why you gave the property away. The longer the gap between the gift of the property and you going into care, the harder it is for them to show this, especially if at the time of making the gift it was not reasonably foreseeable that you would go into care.

However, there are very strict rules against anyone deliberately depriving themselves of assets, and this type of trust cannot be used if the primary motivation is to avoid care fees.

In those circumstances the local authority may decide that a particular individual “deliberately deprived themselves of assets for the purposes of avoiding paying for care” and, in such a case, they would assess the contribution as if the settlor still had the assets.

If assets have been transferred (whether to a trust or outright) with the intent of avoiding using them to pay for care the local authority can try to recover theme from the person to whom the assets were given or put a charge over it.

Local Authorities can review medical and other records and so any pre-existing medical condition or even comments made while in discussion with Local Authority, social workers or carers, could become relevant at a later date.

However, if the APT was set up at the right time and in the right circumstances, for example when the person was in good health, living independently and with no prospect or intention of long-term care, then there should be no problem.

PROTECTION FROM BANKRUPTCY

If you are in business and would like to safeguard your personal assets from future business debts, the trust can keep them safe. However, you cannot protect assets that are already at risk. It does not prevent you from being declared bankrupt, but it can protect the assets within the trust itself. This also applies to subsequent generations of your family, preventing loss in the event of your children or grandchildren who suffer financial difficulties.

PROTECTION AGAINST ESTATE CLAIMS

If a claim is made against your state it can take many years to defend and cost thousands of pounds in legal fees. Assets held in and APT would normally not be subject to this type of claim.

NO PROBATE NEEDED.

You do not need Probate for the assets in the APT, which saves your family from potential lenghty delays, as well as the expense of probate fees.

LENDING RATHER THAN GIFTING ASSETS

The trust also allows you to “lend” your assets to your spouse after your death. These assets can then be repaid to the trust either on the death of your spouse, or on some other specified event (such as remarriage). The assets will then pass under the terms of your trust

There are various implications of doing this settlement, as follows:

You will no longer own the capital value of your property and so you would not be able to sell it and spend the money however you would like.

In summary, an APT can:

Protect assets for family members who can’t look after assets themselves

Protect assets from business creditors or divorcing spouses

Prevent an inheritance from affecting someone’s entitlement to state benefits

Provide for young children in an income tax efficient way

Provide for both a current spouse and children from an earlier relationship

Protect family members’ estates from large inheritance tax bills when they die

Reduce your spouse’s tax burden when you die.

We would be delighted to offer you a free initial meeting so that we can discuss what planning may assist you and your family. Please contact Christopher Seddon (cseddon@cheyneygoulding.co.uk) or another member of our team.

This article is for general commentary only and does not constitute legal advice.  If you would like to discuss any of the issues discussed in this article, please get in touch.

Cheyney Goulding LLP, solicitors in Guildford, Surrey

What is the residence nil rate band?

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And how will it affect me and my loved ones?

Inheritance tax (IHT) is charged on your death at the rate of 40% based on the value of your assets. Everyone benefits from something called “the nil rate band”. This means that at the moment a 40% tax rate applies if your estate exceeds £325,000.

However, since 6 April 2017, a further additional residence nil rate band (RNRB) connected with your house can sometimes be claimed, meaning that less IHT may be paid when the family home is left to children, grandchildren and some other individuals.

The exact wording of your Will, and the way you own your property, can potentially affect the ability to claim this additional relief, so it is crucial that everyone reviews their Will, or, if they do not have one, make sure a Will is put in place as soon as possible. to make sure that your family can claim the RNRB when you or your spouse, or civil partner, die.

How will the RNRB impact my estate and family?

If you leave your interest in the family home to direct descendants, such as your children or grandchildren, or even some other individuals such as stepchildren or foster children, your estate may well be able to claim the tax benefits offered by the RNRB. This is in addition to the existing £325,000 Nil Rate Band,

This can mean that by having the correct wording in your Will and using the RNRB,  many thousands pounds worth of additional assets could pass to the next generation without a charge to IHT.

Although the RNRB cannot be claimed on the estate of someone dying before 5 April 2017 there are still further benefits available, as your surviving spouse or civil partner may be able to carry forward RNRB which can be used when they eventually die.

At the moment, subject to some conditions, your family can benefit if:

  • You leave an estate valued at less than  £2 million. This is likely to rise with inflation from 6 April 2021. The RNRB is tapered down for estates worth more than this.
  • You leave your home to “qualifying beneficiaries”.

Even if your estate exceeds £2 million it is still prudent to have your Will reviewed as, with proper planning, it may still be possible to arrange your affairs so that the RNRB can be claimed.

How much is the RNRB worth?

Tax year Residence Nil Rate Band Standard Nil Rate Band Combined nil rate bands for both spouses (or civil partners)
Before 2017-18 £100,000 (can be carried forward for surviving spouse or civil partner’s use). £325,000 £850,000
2017-18 £100,000 £325,000 £850,000
2018-19 £125,000 £325,000 £900,000
2019-20 £150,000 £325,000 £950,000
2020-21 £175,000 £325,000 £1,000,000

The table below shows the RNRB levels that the government has announced (which can be added to the main nil rate band to increase the amount of assets in your estate that will be taxed at 0%). The combined nil rate bands could be worth as much as £1 million by 2021.

Selling your home.

The good news is that even if you sell your home or downsize usually the RNRB is still available (provided that you sold your home on or after 8 July 2015) and at least part of your estate is inherited by a qualifying beneficiary.

I live in a property I have already gifted to my children.

If you have already given away your home to your children, it does not automatically disqualify your estate from claiming the RNRB. If, for example, you are continuing to live in the house, and are not paying any rent, it may still be possible to claim the RNRB, and likewise if you live with your children in the house together. However, make sure your Will is reviewed to avoid problems later.

I own more than one property.

As long as one of them has been your residence during your lifetime, your executors can decide which one will benefit from the RNRB.

Review your will or make one for the first time

As you can see the Residential Nil Rate Band has made an enormous difference to the way we plan our Wills, and how we leave our assets to our loved ones. We strongly recommend that you review your will (or make a will if you don’t have one). The conditions for claiming the RNRB are complicated, and we would be delighted to explain them to you, to ensure that your family can benefit from the enhanced nil rate band when you or your spouse or civil partner die.

It is particularly important to be aware that your existing will may well need to be updated to make maximum use of this new tax-saving measure.

Examples of common situations

The surviving spouse wants a life interest in their spouse’s share in the house.

John and Mary, a married couple, jointly own their home. They have four adult children. John’s will states that Mary should have a life interest in his half of the home after he dies and for the four children to inherit his half when Mary dies. Mary’s will mirrors Paul’s. If Paul dies before Mary his estate will not benefit from the RNRB, but Mary’s estate can carry forward his unused RNRB as well as using her own RNRB.

Home already sold

Douglas is a widower with two adult children. His wife died in 2014. He sold his home in August 2015 and now lives in a rented, warden-assisted flat. Even though he no longer owns a property, he can benefit from the RNRB if he leaves some of his estate to his children. He can also carry forward his wife’s unused RNRB even though she died before 6 April 2017.

Unmarried and no children

Michael is not married or in a civil partnership. He owns his home jointly with his partner Sarah who is a widow. She has two adult children from her marriage. Michael cannot benefit from the RNRB because he does not have any children and has not adopted Sarah’s children. She can potentially benefit could benefit from the RNRB IF she leaves her interest in the family home to her children. It would be different if Michael and Sarah were married as Michael could use his RNRB because Sarah’s children would be his stepchildren.

Home already gifted

If, for example, a parent has already gifted her home to her daughter some time ago, the RNRB will be available if the parent but continues to occupy the property without paying rent and dies on or after 6 April 2017.

Assets worth over £2 million

Let’s say Tim and Patricia jointly own a house worth £1 million. They have two adult children. Tim has investments worth £1 million and Patricia likewise. Tim’s will gives his entire estate to Patricia if he dies first. Patricia’s will mirrors Tim’s. Tim will not be able to benefit from the RNRB when he dies because his estate will pass to his wife rather than his children. If Patricia survives Tim and inherits everything, her estate could be worth more than £3 million, so the RNRB cannot be claimed on her death. In these circumstances we can help you take the necessary steps to avoid this. For example, Tim and Patricia could revise their wills so that part of the estate of the first to die is inherited by their children, even if their own rights are fully protected until their own demise.

We would be delighted to offer you a free initial meeting so that we can discuss what planning may assist you and your family. Please contact Christopher Seddon (cseddon@cheyneygoulding.co.uk) or another member of our team.

This article is for general commentary only and does not constitute legal advice.  If you would like to discuss any of the issues discussed in this article, please get in touch.

Cheyney Goulding LLP, solicitors in Guildford, Surrey