Author Archives: Christopher Kelly

1. When a Freehold Claim Goes Flat

   30th August 2018 10:49 am Comments Off on When a Freehold Claim Goes Flat

   The majority of flat owners in England and Wales have a legal right to club together with their fellow tenants to purchase the freehold interest in their building.

   There are numerous, potential benefits associated with making these sorts of claims, including:

   • taking control of the management and maintenance of the building, and the associated expense involved
   • possible improvements to the open market value of the individual flats, and general investment appeal
   • granting themselves more generous leases

   A number of preconditions must be met, including the need for at least 50% of the flat owners to participate in the claim.

   The process can be quite costly and complex, so thorough preparation, together with expert valuation and legal advice is strongly recommended.

   If a valid claim is made to the flat owners’ landlord, the landlord must sell (unless there is a valid reason not to). The key sticking point is often the price.

   But, some landlords will take whatever steps they reasonably can to resist such claims…

   A challenging road ahead

   Flat owners making a claim are required to pass numerous hurdles on the way towards the Promised Land where they end up owning their own building. It can often appear as if the odds are stacked in the landlord’s favour.

   The owners must, for example, not only pay for their own legal and valuation costs but also the landlord’s (up to a point).

   The various legal steps leading towards completion of the purchase must also be followed, by and large, to the letter.

   Unscrupulous or not?

   Some landlords are large institutions, usually investment companies. They will own multiple properties, collectively providing returns from ground rents and other, administrative charges. Parting company with those buildings is far from attractive from their point of view. Any dilution of the number of properties in their portfolio will affect their bottom line.

   These landlords (and, more to the point, their solicitors) are, therefore, more likely to pay very close attention to their tenants’ (flat owners’) attempts to buy the building. After all, they have investments and potential profits to protect. They will look to identify any flaws in the tenants’ notice of claim (which must include various, prescribed information and be sent to the correct persons), as well as check that the flat owners/their lawyers have not missed any statutory time limits (of which, there are several).

   Certain landlords may also take up the entire time allowed to them to address certain obligations of theirs (landlords have, for example, two months to produce a reply/counter-notice to the owners’ initial notice of claim and further time is available for the price to be negotiated). Cynics will argue that this is to ensure they maximise the rent and other charges payable under the flat owners’ Leases for the longest period possible.

   Such practices are entirely lawful but some might question whether they are conscionable.

   Suffice it to say, if a group of flat owners slips up, at any point in the legal process, the consequences can be costly.

   Make sure you read our Guide to Buying the Freehold of Your Flat for further information about what is entailed when making a claim. And speak with John Appleby, a Leonard Gray partner and Property Law specialist, if you have any particular queries or concerns about your own flat. If you have not yet discussed a potential purchase with your neighbours, now may be the time to consider doing so.

2. Guide to Buying the Freehold of Your Flat

   10:26 am Comments Off on Guide to Buying the Freehold of Your Flat

   Understand the legal process, the required experts and the costs you will need to cover when buying the freehold of your flat.

   Guide To Buying The Freehold Of Your Flat

   

   This Guide is intended as a general overview of the law in relation to Buying the Freehold of Your Flat. If you have any difficulties downloading this PDF file then please call 01245 504904. We would be very happy to email it, or put a copy in the post.

3. Guide to Buying a New Build Home

   10:20 am Comments Off on Guide to Buying a New Build Home

   Understand the legal process, the issues to bear in mind and what to expect from your conveyancer when buying a New Build Home.

   Guide To Buying A New Build Home

   

   This Guide is intended as a general overview of the law in relation to Buying A New Build Home. If you have any difficulties downloading this PDF file then please call 01245 504904. We would be very happy to email it, or put a copy in the post.

4. The UK “Incapacity Crisis” – are you prepared?

   31st July 2018 4:45 pm Comments Off on The UK “Incapacity Crisis” – are you prepared?

   Earlier this month, The Society of Trust and Estate Practitioners (STEP) published an article in relation to a new report from both Solicitors for the Elderly and Centre for Future Studies in which it was revealed that the UK is heading for an “incapacity crisis” with a wide gap between the number of people likely to lose mental capacity and the relatively small number who have arranged a Lasting Power of Attorney – Health and Welfare.

   The STEP article can be found here and makes for very interesting reading. It reviews the current increase in the diagnosis of dementia of an ageing population combined with a lack of planning and preparation for old age. In particular, the lack of people who have a Lasting Power of Attorney – Health and Welfare in place and the common misconceptions that both individuals and their families have regarding medical decisions and end of life care.

   What is a Lasting Power of Attorney?

   A Lasting Power of Attorney is a legal document which allows you to make a decision as to who steps in and helps you with your property and financial affairs should you lose physical or mental capacity. In addition should you lose mental capacity a separate Lasting Power of Attorney will assist with health and welfare decisions to be made on your behalf.

   Our Guide to Lasting Powers of Attorney sets out the two different types of Lasting Power of Attorney and the various roles to be fulfilled and steps to be taken to register a Lasting Power of Attorney.

   The key point to always be aware of is that a Lasting Power of Attorney, whether for property and financial affairs or for health and welfare, can only be put in place while a person has the mental capacity to do so. Unfortunately, when it comes to mental capacity and creating Lasting Powers of Attorney, you cannot close the stable door after the horse has bolted.

   If you would like to discuss any of the above issues then please feel free to contact us on 01245 504904 to book an appointment to discuss these in more detail.

   Finally, a small reward for those who have been prepared…

   Also in the news earlier this year was a Refund Scheme launched by the Ministry of Justice offering a partial refund on applications to register a Lasting Power of Attorney or an Enduring Power of Attorney which were made between 1st April 2013 and 31st March 2017. This Scheme was set up as a result of reduced processing costs for the Office of the Public Guardian in recent years.

   The amount you will recieve depends on when the application was made, as below:

   When you paid the fee	Refund for each power of attorney
   April 2013 to September 2013	£54
   October 2013 to March 2014	£34
   April 2014 to March 2015	£37
   April 2015 to March 2016	£38
   April 2016 to March 2017	£45

   (Source: Gov.uk, Feb 2018)

   To check whether you are eligible to claim or to make a claim, please follow this link.

5. Access to an Incapacitated Person’s Will

   29th June 2018 3:47 pm Comments Off on Access to an Incapacitated Person’s Will

   If you are appointed as an Attorney for Property and Financial Affairs via a Lasting Power of Attorney (LPA), then you will know that this role brings with it duties and responsibilities which are owed to the person who lacks capacity.

   One duty that you should be aware of is that, so far as possible, you should not interfere with the Donor’s succession plans if they have made a Will. Without sight of the Will an Attorney may not know the donor’s true intentions and may dispose of assets that have been left in the Will causing a loss to a beneficiary.

   Having knowledge of the contents of the Will and/or Codicils(s), means that the Attorney is in a position to act in the best interest of the person for whom they act. It can also allow the Attorney to safeguard particular assets that the donor intended to leave upon death.

   Example:

   Under the terms of Claire’s Will she left her house (worth £300,000) to her daughters Violet and Hayley, with the residuary of her estate (approximately £50,000) to her favourite animal charity, the Dogs Trust. She loses the ability to manage her affairs and her sister Sue begins acting for her under a Lasting Power of Attorney.

   Claire needs residential care and not knowing the contents of her Will, Sue decides to sell Claire’s house to pay for care fees. The effect of selling the house is that the gift to Violet and Hayley fails and they get nothing. The charity therefore benefits from the whole of the estate, which is presumably not what Claire would have wanted.

   Had Sue known the contents of the Will, she could have applied to the Court of Protection for either a statutory will to be made so that Claire’s wishes were followed, or obtained an order for sale which, under the Mental Capacity Act 2005, ensures the preservation of an interest in property which is disposed of on behalf of a person who lacks mental capacity under a Court Order, where that interest in property is the subject of a gift under the person’s will.

   What can an Attorney do?

   As an Attorney, you do not automatically have the right to access the donor’s Will if there is no prior consent. If the Will was prepared by a solicitor, there will be a duty of confidentiality owed to the Donor not to disclose the Will without consent. This continues even after the Donor has died.

   If an Attorney requires sight of the Donor’s Will they should request a copy in writing to the professional who prepared the Will. Upon receipt of such letter the professional will contact the Donor for their consent. Only if the Donor agrees to disclose, will the professional provide a copy to the Attorney.

   What happens if the Donor is incapacitated?

   If the Donor has lost mental capacity then consent cannot be obtained from them. An Attorney should provide sufficient evidence to confirm that the donor now lacks capacity to consent to the disclosure of their Will.

   When the Donor is already incapacitated, the Attorney can apply to the Court of Protection about these points:-

   • Disclosure of the Will. The Court of Protection can give consent on the Donor’s behalf.
   • Approval or directions about a particular transaction, especially if the asset is subject to a specific legacy in the Donor’s Will.
   • Execution of a Statutory Will to reflect the Donor’s current financial situation.

   Instructions at the time of making a Will and a Lasting Power of Attorney

   It is advisable for the issue of disclosing your Will to be discussed when making a Will and a Lasting Power of Attorney. Having discussed the consequences the person making the documents should provide instructions as to whether disclosure is to be denied, or the circumstances in which it is permitted.

   If there are specific instructions taken that the Will and/or Codicil(s) should not be disclosed, then no copies should be provided unless ordered by the Court of Protection.

   Concerns about an Attorney

   Where there is a reasonable belief that the Attorney may act or make a decision that is not in the best interests of the Donor, the solicitor may consider that it is not appropriate for the Will to be disclosed. For example:-

   • The Attorney wishes to transfer the Donor’s asset to his or herself
   • The Attorney has had an unexpected change in lifestyle
   • Care fees are not being paid
   • The Attorney refuses to disclose the residence of the Donor

   Where there are concerns, the solicitor can issue a Refusal Notice to the attorney and inform the Office of the Public Guardian of their concerns.

   Conclusion

   It is important to note that we are only talking about obtaining a copy of the Will. The original Will remains the Donor’s property and solicitors have no obligation to provide the original to anyone but the maker of the Will or the Executors upon death, unless a Court order states otherwise.

   If you are concerned that your Attorneys will not be allowed a copy of your Will or if you believe that specific bequests in your Will may fail in the future, please feel free to contact us on 01245 504904 to book an appointment.

6. The importance of the Divorce Petition…

   7th February 2018 3:23 pm Comments Off on The importance of the Divorce Petition…

   …and why it’s not that important who says what!

   The person starting a divorce is called “the Petitioner”. In their Divorce Petition, the Petitioner must prove that the marriage has ‘irretrievably broken down’. This is the only ground for divorce in England and Wales. To prove this, the Petitioner must rely on one of five facts. Where adultery has not occurred (or been admitted) and a period of separation in excess of two years is not applicable, the Petitioner must cite the Respondent’s ‘unreasonable behaviour’. This is the most common fact relied upon in Divorce Proceedings today. However, it can antagonise the other party at an already difficult time. Lawyers are encouraged to send a copy of the draft Petition to the other party prior to filing it at Court, with a view to agreeing the draft particulars. The trick is having the allegations serious enough to satisfy the Court and mild enough so as not to cause the other party to want to defend them. Even if the allegations are agreed, however, the Court may still reject the Petition!

   The recent case of Owens v Owens [2017] EWCA Civ 182 set out the importance of striking the correct balance. The ‘Statement of Case’ contained within the Petition must be strong enough to prove that the marriage has irretrievably broken down, even where the parties wish to avoid inflammatory examples as to the reason for their separation. In this case, the Wife petitioned for Divorce (following a 39 year marriage) on the basis of her Husband’s unreasonable behaviour. The Husband defended the Petition. He said that he did not agree the marriage had broken down irretrievably and that the couple still had a “few years left to enjoy together”. This led to protracted litigation and ultimately, following a Hearing, the Judge dismissed the Wife’s Petition on the basis that he did not think that the Husband had behaved in such a way that the Petitioner could not reasonably be expected to live with him (even though he agreed that the marriage had broken down)! Basically, the Judge thought that the Husband sounded perfectly reasonable to live with. The Judge in fact described the Petitioner’s examples of her Husband’s unreasonable behaviour as ‘minor altercations of a kind to be expected in a marriage’. Understandably, the Wife appealed this decision; however the President of the Family Court in England and Wales dismissed her appeal in March 2017 indicating that “Parliament has decreed that it is not a ground for divorce that you find yourself in a wretchedly unhappy marriage, though some people may say it should be”. In August 2017, Mrs Owens was granted permission to appeal to the Supreme Court, but if that’s not approved must stay ‘locked into a loveless and desperately unhappy marriage’ until she and Mr Owens have been separated for a period in excess of five years (when she will not need to rely on his consent).

   The case of Owens has set tongues wagging (although it is not a new concern) and highlighted the urgent need for reform of the fault-based Divorce process in England and Wales. At present, one must find ‘fault’ with their partner in order to prove that the relationship has broken down irretrievably. Most lawyers believe that this only adds fuel to the fire when trying to facilitate an amicable separation and does not support the Law Society ‘Family Law Protocol’ that matters should be dealt with in a non-confrontational way.

   Ultimately most couples, at the time of petitioning for divorce, are in agreement that the marriage has broken down and cases defending divorces are rare and mostly unsuccessful. But – in the event that the only way you can obtain a Divorce is to cite your spouse’s ‘behaviour’, it should be remembered that the behaviour set out in the Petition is purely a means to an end and does not influence the financial or children matters (generally speaking). Most lawyers are committed to agreeing mild particulars which are not inflammatory but which are, in most cases, satisfactory to a Judge.

   Considering that the Law in this area has not seen reform since the beginning of the 1970’s, you would no doubt agree that it’s long overdue. Parliament issued a written statement on 15 February 2017 confirming that they had ‘no current plans to change the existing law on divorce’; however, with the outrage sparked following Owens v Owens, we’re hoping it won’t be too long before Parliament agrees to reconsider the rules of this archaic blame game!

7. Do I need a Grant of Probate?

   31st January 2018 2:48 pm Comments Off on Do I need a Grant of Probate?

   Most people dread the idea of having to apply for a Grant of Probate, but many have no idea what it actually is. Some assume it is a standard process, whilst others perceive it as another hurdle that is being put in their way to delay the grieving process and administration of an estate even further.

   The fact of the matter is whatever you may think about the need for applying for a Grant of Probate, it is not always required. The requirements for such a Grant of Probate have nothing to do with whether the deceased left a Will or had a Lasting Power of Attorney during their lifetime; it is purely based on what assets need to be dealt with and how those were held at death.

   What is a Grant of Probate?

   Before the Executor or Administrator can claim, transfer, sell or distribute any of the deceased’s assets they may have to apply for a Grant of Probate (or Letters of Administration). You can apply for a Grant of Probate if you are the ‘Executor’ of the Will or you can apply for Letters of Administration if the deceased left no Will.Once the Grant of Probate or Letters of Administration has been issued the Executor or Administrator will then have the legal authority to deal with the estate, either in accordance with the deceased’s Will or the Intestacy Rules, whichever may apply. (Please note that the Intestacy Rules and Grants of Letters of Administration are outside the scope of this article and will not be dealt with at this time)

   Is a Grant of Probate necessary?

   The simple answer is that a Grant of Probate is not always necessary and it will depend on the following factors:-

   • Jointly held assets

   If someone has died and you are trying to work out if a Grant of Probate is needed, a good place to start is to make a detailed list of all the assets he/she owned. You then need to confirm if these assets were held in the deceased’s sole name or in joint names with someone else. Property assets that are owned jointly can be held one of two ways; as “Joint Tenants” or as “Tenants in Common”.

   If any property is held in joint names as “Joint Tenants” with someone who is still alive, the asset will automatically pass to the co-owner by survivorship. If this applies to all the deceased’s assets, a Grant of Probate will not be required.

   If any property is held as “Tenants in Common” then the property will not pass by survivorship. The property will therefore pass to whoever is legally able to inherit under the deceased’s Will (or Intestacy Rules). This may mean that a Grant of Probate is required. Bank accounts and other assets held in joint names also tend to pass to the other holder by way of survivorship, bypassing the need for a Grant of Probate.

   • The Value of the Asset

   In order to apply for the Grant of Probate, you will also need to know how much each asset is worth, as at the date of death, together with the balance of any debts outstanding. These figures are important as they will be required on the relevant Probate application forms, if a Grant of Probate is required. It is also worth remembering that the Probate application form must be accompanied by the relevant Inheritance Tax form, even if no Inheritance Tax is due.

   If the deceased person owned an asset in their sole name, a Grant of Probate may not be needed if it is worth very little. That’s because most banks and financial institutions will release funds if the deceased held or owned less than £5,000. However, each bank has its own minimum threshold and it’s worth checking the position with them.

   It is also worth mentioning that when an estate has an overall low value (generally less than £15,000), it can sometimes be referred to as a “Small Estate” and dealt with under a separate procedure set out by the organisation with whom the investments are held and a Grant of Probate will not be required in that instance. It is always worth checking this with the organisation.

   If the deceased owned assets worth more than the above then usually you will need to apply for a Grant of Probate. Advice should always be sought as to whether this will be necessary.

   How long does the Probate process take?

   This will depend on what assets need to be dealt with and how complex the estate is. For some people applying for the Grant of Probate can be quite time consuming and with other commitments getting in the way, it can feel like months have passed with little being achieved. For some, however, the process takes time due to the complexity of the estate and additional assets being found along the way. Remember that date of death values for all assets will need to be entered on the Inheritance Tax forms when applying for a Grant of Probate, which can take time to collate. On average, a Grant of Probate takes around three to six months to obtain following death.

   However, other complications can cause the process to take considerably longer, such as if the Will is contested, or the deceased did not keep clear records of all their assets. If Inheritance Tax is due then the majority, if not all of the liability, will need to be discharged before the Grant of Probate can issue providing the legal authority to deal with the assets in the estate.

   Summary

   You are not alone. We are here to help you tackle the process in applying for a Grant of Probate and we would always suggest obtaining legal advice in the first instance.

   If you would like to discuss any of the above issues then please feel free to contact us on 01245 504904 to book an appointment to discuss these in more detail.

8. The 5 most frequently asked questions about Divorce

   21st January 2018 3:16 pm Comments Off on The 5 most frequently asked questions about Divorce

   1. How much will it cost?

   The cost of lodging a Divorce Petition at Court is £550. The Petitioner must pay this Court fee but can ask that the Respondent makes a contribution towards the costs. A Cost Order will be made at a later stage by the Court, but the amount the Respondent is to contribute is usually agreed between the parties in advance.On top of the Court fee, there are solicitor’s fees. Solicitors charge an hourly rate to their clients and will provide an estimate of costs at the outset of the divorce. This will detail how you will be charged, and at what rate. Depending on the solicitor’s hourly rate, a divorce will cost on average between £650-£850 (plus VAT and the Court fee). The Petitioner can ask the Respondent to assist in paying these fees.

   2. How long will it take?

   The divorce process itself usually takes between 4-6 months, but this is dependent upon the parties and the Court. The Petitioner has control over the speed of the divorce, but if the Respondent fails to cooperate, this can delay matters. 

   3. Does my spouse have to agree to the divorce?

   In order to prove the irretrievable breakdown of the marriage, the Petitioner must rely on one of five facts – only one of which requires the consent of the Respondent (two years’ separation with consent). The other four facts (adultery, behaviour, desertion and 5 years’ separation) do not require consent; however, the facts of adultery and desertion do require evidence in support

   4. Will I have to go to Court?

   In most cases, attendance at Court will not be necessary. The divorce process is carried out on paper providing that there is no dispute as to who will be responsible for bearing the cost of the divorce.In the event that there is a dispute, the Court will set down a short hearing at which the Respondent will be required to make representations as to why they should not have to pay or contribute in some way to the divorce costs incurred by the Petitioner. In the case of a fault-based petition (adultery or behaviour), the Court are most likely to award some, if not all, costs to the Petitioner.

   5. If I am the Respondent to a “behaviour” petition, will that impact my financial settlement?

   It’s difficult not to get “hung up” on a behaviour Petition, and some parties end up spending a lot of money arguing about what should or should not be included. In most cases, however, behaviour will have no bearing on the financial outcome of the case.

   In rare circumstances, the Petitioner may be able to argue that the behaviour of the Respondent should be considered when determining financial matters; however the conduct, whether personal misconduct or financial misconduct, must be so bad that it would be inequitable to disregard it. Personal misconduct might include attacking the other party with a weapon, whereas financial misconduct might be excessive gambling, unjustified spending, or where one party has tried to “hide” assets from the other, to avoid a financial claim.

   Both parties should be aware, however, that in most circumstances, the conduct cited in a behaviour petition will have absolutely no bearing on the financial outcome of the case.

   If you would like to discuss any of the above issues in more detail then please feel free to contact us on 01245 504904 to book an appointment.

9. Is it time to update your Will?

   30th November 2017 2:11 pm Comments Off on Is it time to update your Will?

   Have you made a Will?  Yes?  That’s great, but is it up-to-date?

   Many people make their Wills, sigh with relief that they don’t have to contemplate their own mortality any further, and quietly get on with the very important business of living a full and enjoyable life.  That is fine, as long as the Will you have made still meets your requirements. There are many reasons why that may not be the case:

   Beneficiaries

   The first and probably the most obvious question is, are you still happy to leave your estate to the stated beneficiaries?  For example, if you named a child in your Will rather than using the more generic “my children” and you have had further children since the Will was signed, those younger children would not be included as beneficiaries.  The same can be said of named grandchildren and you may wish to update your Will if further grandchildren have arrived since you signed your Will.

   If you have left legacies of either specific items or sums of money, are you still happy for these people to receive these items or sums?

   Executors and Guardians

   It may be that people appointed in other roles, such as Executors and Guardians, need to be replaced as time goes by.  You may consider the appointment of these people to be less important as they are not direct beneficiaries, however, if these people are now less suitable, it can cause huge problems.  For example, you may have appointed your parents to be the Guardians of your infant children in your Will.  This may have been appropriate when the children were little angels but if you are now struggling with the daily horrors of teenage tantrums and your parents are now a decade older, are they still the right people to be Guardians at this stage in their lives?

   The key question to ask is, are the people you appointed in your Will still suitable now, considering not only physical and mental health but also geographic proximity? For example, you may have appointed a close and trusted friend to the role of Executor or Guardian but that friend may have moved away and become far less involved in your life than they were then.

   Marriage

   Are you aware that if you marry, the act of marriage automatically revokes your Will? This is the case unless the Will is specifically written in contemplation of the marriage and is the case even if you are completely happy with the content of the Will made prior to the marriage.  You would therefore have to update your Will after the marriage to ensure that your wishes are carried out.  If you do not do this, your estate would be dealt with in exactly the same way as if you had never made a Will and your estate would be distributed in accordance with the Intestacy rules.

   Divorce

   Generally, it is a good idea to update your Will if you divorce.  Somewhat strangely, divorce itself does not automatically revoke a Will in the same way that a marriage revokes a Will but instead treats the former spouse as if they had died as at the date of the divorce.  Again, roles such as Executorship may now not be fulfilled and you may also want to now consider alternative beneficiaries.

   Nil Rate Band Discretionary Trusts Provisions

   Prior to 2007 it was not possible to transfer the Nil Rate Band (currently £325,000) between spouses.  This meant that in order to optimise the Inheritance Tax position, Wills were routinely made containing a Nil Rate Band Discretionary Trust where assets to the value of the Nil Rate Band were put into a Trust on the first death and effectively “loaned” to the surviving spouse for their life, thus using the first spouse’s allowance. However, from 2007 the Law changed which now allows the unused Nil Rate Band of the first spouse’s estate to be carried forward and transferred to the second spouse’s estate on the second spouse’s death.  This is explored further in our Guide to Inheritance Tax Planning and Solutions.

   Whilst these Nil Rate Band Discretionary Trusts were very useful at the time for Inheritance Tax purposes they may now no longer be necessary and in some cases it is sufficient to simply allow for the surviving spouse to inherit everything in the first instance, saving the additional work in bringing the Trust to an end after the first death. However, these Trusts do still serve a purpose for protecting assets against care fees and we would always suggest that you seek legal advice before making any changes.

   The New “Residential Nil Rate Band”

   From April 2017, there is now an additional “Residential Nil Rate Band” allowance of £100,000 available to be applied against Inheritance Tax (rising to £175,000 by April 2020). This allowance can be applied to property passing to “lineal descendants” of a “qualifying residential interest”.

   These new rules are rather complicated and are considered not altogether fair.  For example, a grandchild may be considered a “lineal descendant” but if your Will provides that they cannot inherit until they reach a specified age, the Residential Nil Rate Band will not be available against that gift and you may wish to consider changing the way in which you distribute your estate to maximise the allowance. This is also explored further in our Guide to Inheritance Tax Planning and Solutions.

   Summary

   Our advice to all of our clients is that you should keep your Will under review as time goes by and if your personal circumstances change. Even if that means just reading through the Will once every 3 – 5 years just to make sure that it still meets with your wishes.

   If you would like an appointment to review or update your Will or simply to discuss any of the above issues then please feel free to contact us on 01245 504904 to book an appointment.

10. Inheritance Tax Update

    9th October 2017 4:34 pm Comments Off on Inheritance Tax Update

    Currently for Inheritance Tax (“IHT”) purposes, the first £325,000 of a person’s estate passes tax-free on death and any sum above this “nil rate band” is taxed at a rate of 40%. A spouse or charity inheriting is not liable to pay any IHT.

    Payment of IHT only applies when your children or other non-exempt beneficiaries inherit your estate and the estate value is in excess of both your nil rate band allowance and, regarding your property, the “residential nil rate band” which we will explore further below.

    Transferable Nil Rate Band

    There is a limited exception where there is an unused allowance of IHT left over from the first spouse’s death to be transferred and used in the second spouse’s estate. In many cases this will mean there will be two nil rate bands available on the second death, meaning that estates with value of up to £650,000 will be free from IHT.

    Any gifts to non-exempt beneficiaries made on the first death will be deducted as a proportion from the transferred nil rate band. Also, any lifetime gifts made may by either spouse to non-exempt beneficiaries will reduce the values of the nil rate band available. For example:

    Mrs Smith died in late 2003. The nil rate band applicable to her estate would have been £250,000 at that time. Mrs Smith left £25,000 to her son under the terms of her Will and had also made a lifetime gift in early 2003 to her daughter (after annual exemptions) of £25,000. The rest of her estate was gifted to her husband, Mr Smith.

    In this case, the estate passing to Mr Smith is exempt from IHT. However, 20% of Mrs Smith’s nil rate band has been used (i.e. £50,000 as a percentage of £250,000) so 80% of the nil rate band could be transferred to Mr Smith’s estate in the future and applied against the nil rate band at that time.

    Mr Smith then died in 2015 leaving an estate of £600,000 in total. His own nil rate band is available at £325,000. The 80% of Mrs Smith’s nil rate band is also available to transfer and is worked out as 80% of £325,000, equalling £260,000.

    The total nil rate bands available to Mr Smith’s Executors to offset against IHT would be £585,000 (£325,000 plus £260,000). As such the balance, over and above £585,000 being £15,000 would be taxed at 40% resulting in a IHT liability of £6,000.

    It is important to bear in mind that if a married couple divorce or a civil partnership is dissolved the transferability of a nil rate band then ceases.

    Residence Nil Rate Band (“RNRB”)

    Since April 2017, there is also an additional RNRB of £100,000 (increasing to £175,000 by 2020) which now applies in estates where, broadly, a home is being left to children/grandchildren. As with the nil rate band (detailed above) this can also be transferred between spouses and used on the second spouse’s death. It is important to note that whilst the nil rate band can be applied to any assets, the RNRB can only be applied against one property in which the individual has lived in during their lifetime and is either owned at death or was sold after the 8th July 2015.

    i) Who is Entitled to the RNRB?

    The RNRB applies to deaths on or after 6th April 2017 where the individual has a “qualifying residential interest” which is to be “closely inherited”.

    A “qualifying residential interest” is an interest in a dwelling which has been the deceased’s residence at some time during their ownership. This interest is limited to one residential property. It is therefore down to your personal representatives to nominate which residential property should qualify if there is more than one in the estate.

    To be “closely inherited”, the qualifying residential interest must either pass to a lineal descendant outright or on certain types of trusts. A lineal descendant will be a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants, including their spouses. A child of a cohabitee is not a step-child for these purposes.

    ii) What is the IHT Allowance Under the RNRB?

    The RNRB was introduced from 6th April 2017 at an allowance of £100,000 and will increase as follows:-

    2017/2018                            £100,000

    2018/2019                            £125,000

    2019/2020                            £150,000

    2020/2021                            £175,000

    2021/2022 onwards              Increase in line with the Consumer Prices Index

    NOTE: If the value of a person’s net estate exceeds £2m the RNRB is reduced at a rate of £1 for every £2 above the £2 million threshold.

    iii) Transferring the RNRB

    Where a person dies and their estate has not had the benefit of the RNRB then any unused RNRB can be transferred to the deceased’s spouse or civil partner’s estate. This even includes when the first spouse died before 6th April 2017, even though the RNRB wasn’t available at that time. This is irrespective of how long ago the death occurred, what the deceased owned and who inherited the estate at that time.

    iv) When is the RNRB Not Available?

    Some examples are where the RNRB will not be available include:

    • Individuals without children or other lineal descendants or those who are cohabiting. For instance, leaving a property to a sibling or nieces/nephews will not qualify.
    • Individuals who rent their home and have chosen to invest their money, for example into an investment portfolio / buy-to-let properties.
    • Individuals leaving their estate, including a property, upon the terms of a Discretionary Trust, even if all of the potential beneficiaries are lineal descendants.
    • Individuals leaving a property to grandchildren under a typical grandparent settlement such as “to such of my grandchildren as shall attain the age of 21” as this is not a relevant property trust.

    If you would like to discuss any of the above issues then please feel free to contact us on 01245 504904 to book an appointment to discuss these in more detail. More information on these issues and IHT generally can also be found in our Guide to Inheritance Tax Planning and Solutions.