Inheritance Tax Case - Sisters Lose Test Case

For 30 years, Joyce and Sybil Burden, aged 90 and 82, have been battling to ensure that when one of them dies the other does not need to sell the home they share in order to pay an inheritance tax bill without success. However, when civil partnerships became lawful they thought they might be able to use discrimination legislation to aid their case. Were they not related, they could have formed a civil partnership and no IHT would be payable when the first sister dies but as they are related they are not permitted to do so. They have lost their appeal in the European Court of Human Rights (ECHR).

Mary Hazlewood says "The ECHR held by 15 votes to 2 that the Civil Partnership Act does not breach the prohibition of discrimination under Article 14 by not giving them exemption from IHT. The court said that as a marriage or Civil Partnership Act union is forbidden to close family members it was right that the sisters were denied the exemption. The sisters have written to the Chancellor of the Exchequer every year since 1976 asking to be treated as a married couple. Although it is within the Government's power to make an exception it is unlikely they will choose to do so.

However, there are a number of steps individuals can take to minimise IHT which in some quarters has been described as a voluntary tax on those not wise enough to plan to avoid it. For a start, assets given away more than 7 years before someone dies are entirely exempt and many individuals give their assets and houses away to avoid the tax entirely. There are complex rules against "reservation of benefit" but with legal advice many lawful arrangements which completely avoid the tax are possible. Secondly, for spouses there is no IHT until the second spouse dies and even then that spouse has the benefit of both their and their spouse's IHT exemption band.

Thirdly, most of those who die do not pay IHT simply because they are well below the threshold. For 2008-2009 this is £312,000. It is only those with assets worth £312,000 or more who have IHT to pay.

Fourthly, even with recent legal changes it is possible to put some assets in trust to avoid the tax. Many individuals put their life insurance policies into trust for their children, which avoids IHT in most cases. In addition, life policies can be taken out and put in trust and the proceeds used to pay the tax.

Finally all the IHT does not have to be paid at once. HMRC allow payments over 10 years.

If you would like advice on reducing the impact of IHT on your estate when you die, contact Mary Hazlewood on 01329 822333

Lasting and Enduring Powers of Attorney

On 1st October, new rules on powers of attorney come into force. It is wise if people appoint a family member or other person to look after their affairs in case they are later unable to do so. Often this is on medical grounds if they develop a condition such as dementia. This can be arranged in advance and the power registered when it is time to take control of the person’s affairs.

John Guest says:

“Until 1st October individuals can sign an “Enduring Power of Attorney”. Until it is registered, they can change the person they nominate and it will only be operated when registered after they lose the ability to manage their affairs. From 1st October, a new system comes into force but along the same lines. However, it is more complex and involves two separate appointments – one for management of finances and one about medical and health matters. There may be some advantage, in terms of simplicity and lower costs, in setting up the old Enduring Power of Attorney now, before 1st October, after which new powers must be the Lasting Power of Attorney (“LPA”).

“Whether before or after that date however, either forms of power are a very wise precaution, particularly given the increasing numbers of older people who lose capacity, who live much longer than was previously the case and indeed, in some cases are subject to financial elder abuse by neighbours, carers and ‘new friends’.

Individuals can make two types of LPA :

• Property and affairs, similar to an EPA.
  
• Personal welfare, which can include provisions for giving or refusing consent to medical treatment in circumstances where the donor has lost the capacity to make such decisions themselves.

The LPA has resulted from the Mental Capacity Act 2005 which is just coming into force now.

There are five key principles in the Act:

• Every adult has the right to make his or her own decisions and must be assumed to have capacity to make them, unless it is proven otherwise;
  
• Every adult must be given all possible help and support to make their own decisions, and to communicate those decisions where necessary, before they can be assumed to have lost capacity;
  
• Just because someone makes what might be seen as an unwise decision, they should not be treated as lacking capacity to make that decision;
  
• Anything done or any decision made on behalf of someone who lacks capacity must be done in their best interests;
  
• Anything done or any decision made on behalf of someone who lacks capacity should be the least restrictive of their basic rights and freedoms.

For further information to sign an Enduring Power of Attorney before 1st October, or after that date an LPA, contact John Guest on 01329 822333

Powers of Attorney - Urgent Action Now!

Powers of Attorney are important documents. Many of our Clients sign Enduring Powers of Attorney (“EPAs”) to appoint people to deal with their financial affairs to cover any time when they are unable to do so either through physical or mental impairment.

An EPA is easy to bring into effect and also to operate when it is necessary for the attorneys to take over the financial affairs of the person concerned, and they are very popular with clients.

These are shortly to be replaced by Lasting Powers of Attorney (“LPAs”) which will come into operation on 1st October 2007. Existing EPAs will continue to have full force and effect and do not have to be replaced with an LPA unless Clients want to do so.

The Rules relating to LPAs are intended to create a more complex system to manage a clients’ affairs, but they can cover not only financial matters, but also welfare matters including decisions over personal care or medical or other treatment, which EPAs do not.

Unfortunately, the actual form of the LPA and the Code of Practice under which they will operate have not yet been finalised by Government even though the date for coming into operation has already been fixed.

It is clear, however, that LPAs will be more expensive to produce and operate than EPAs. We strongly recommend that Clients think carefully whether they should sign EPAs now whilst they are still available. By doing this, Clients are choosing the cheaper and simpler arrangement to cover their affairs.

Contact us on 01329 822333 for further details.

Making and Changing your Will

Many people fail to make a will, assuming their estate will go to their husband or wife if they die. However, those dying without a will may find in many cases their money goes to their wife and other relatives as determined by intestacy law. This may not be what they expected or wished. It is therefore sensible in most cases to set out your wishes in advance by making a will. This will also give you the chance to try to avoid inheritance tax, for example, by leaving some money immediately to your children, with the rest to your spouse. If the sum left to the children is less than the amount at which inheritance tax starts to apply, known as the “nil rate band” then no IHT will be payable. Whereas if all the money goes to the spouse, when the spouse dies and passes it to the children there will be more IHT to pay. Of course, some estates are too small to attract IHT and in others the spouse needs all the money but it is always wise to take some tax law advice at the time of making a will.

Mary Hazlewood says ; “The Finance Act 2006 became law this summer with some wide-ranging changes. Most tax professionals have advised their clients to wait until now to look at their wills and trusts as the proposed changes, which were set out in the budget, were subject to amendment before they became law. The changes mean that some trusts are subject to more tax than before, but are not as extensive as originally feared. If you have an existing life interest or accumulation and maintenance trust, this should be reviewed before the 6th April 2008 transitional period ends. You may need to review this earlier if one of those benefiting comes into their life interest before that date. If your will contains a trust (as many do) that should be looked at by experts in this area to see if any changes are needed.

New trusts can be subject to the new taxes. If you are likely to be putting into trust more than the nil rate band amount for inheritance tax (“IHT”) then you may be affected by the changes. Many people put their life insurance policies into trust for their spouse or children when they die, to avoid inheritance tax on the policy proceeds. Existing policies are mostly unaffected by the new Act but it is sensible to have them checked and also take advice if setting up a new trust for a life insurance product. Contact us on 013290822333 for further information.

Re-writing your Will

When did you last revise your will? Do you even have a will? Did you know that if you do not leave a will, then how your money and property on death is divided is decided by rules laid down by law. This could mean your children, spouse and even parents sharing in your assets when you might simply have wanted everything to go to your husband or wife? Now is a good time to consider planning these matters.

Mary Hazlewood says:

“We can prepare a comprehensive will for you and if your estate is valuable enough take full advantage for you of the inheritance tax nil rate band. For example a father could leave the amount of that “band” to his children and his wife receives the balance. That means that when she dies, say, 10 years later there is no inheritance tax to pay on what went to the children free of tax on the father’s death. The budget has tightened up some of the rules relating to trusts and at least 1m existing wills in the UK may need to be revised to take account of the changes. Many wills contain a “trust” clause which might be caught and should be checked. It appears you will still be able to write a life insurance policy into trust and then when you die the proceeds are not subject to inheritance tax so there is scope for some tax planning despite the changes. Also people’s circumstances change, their existing wills are revoked (e.g. on divorce) and a new will can be a good idea."

Contact Mary Hazlewood on 01329 822333 for further information.

Notes

1. The changes to trust law in the Finance Bill have received extensive press coverage.
2. Information on and access to the Bill is at e http://www.hm-treasury.gov.uk/consultations_and_legislation/leg_finance_2006/finance_bill_index2006.cfm