Tax, Trust and Probate Articles ~ Autumn 2009


Dealing With Your Affairs If You Are No Longer Able
A property and affairs Lasting Power of Attorney (LPA) is a power of attorney which allows you to authorise one or more named persons to make decisions on your behalf in order to manage your property and financial affairs if you are no longer able or willing to do so yourself.
What differentiates an LPA from the old-style Enduring Power of Attorney (EPA) is that once an LPA is registered with the Office of the Public Guardian, your attorney can act before and after you lack capacity. EPAs that were in place before these were abolished (1 October 2007) continue to be valid. Under an EPA, however, if the donor (the person who made the EPA) loses the mental capacity to make decisions on their own behalf, it is then necessary to go to court in order to obtain confirmation of the right to act.
The advantage of having an LPA in place is that it enables other family members or trusted friends to take over dealing with your affairs smoothly and progressively in the event that you lose the capacity or the will to do so. When decisions have to be made for you, your attorney must always act in your best interests.
If you are worried about how your affairs will be dealt with in the future, we can help you decide the best course of action. Contact <<CONTACT DETAILS>>.
Executor With Hand in Till Jailed
The UK has some of the strictest laws in the world to protect beneficiaries from rapacious executors and trustees. Recently, a woman who was the co-executor of a man’s will and trustee for his minor child was jailed for three years after making improper withdrawals from the funds under her care.
The circumstances were that a man had died at the age of 41, leaving a widow and minor son. The man’s pension fund was put in trust for the son and the man’s widow and sister were the trustees of the fund and his executors.
The sister forged the widow’s signature in order to make withdrawals of money from the trust account.
She was convicted of forgery and has had her personal assets frozen pending a confiscation order being made under the Proceeds of Crime Act 2002.
If you suspect that the executor of a will or trust of which you are a beneficiary is acting improperly or misusing the estate or trust assets, contact us for advice.
Partner Note
Reported at
Executor With Hand in Till Jailed
The UK has some of the strictest laws in the world to protect beneficiaries from rapacious executors and trustees. Recently, a woman who was the co-executor of a man’s will and trustee for his minor child was jailed for three years after making improper withdrawals from the funds under her care.
The circumstances were that a man had died at the age of 41, leaving a widow and minor son. The man’s pension fund was put in trust for the son and the man’s widow and sister were the trustees of the fund and his executors.
The sister forged the widow’s signature in order to make withdrawals of money from the trust account.
She was convicted of forgery and has had her personal assets frozen pending a confiscation order being made under the Proceeds of Crime Act 2002.
If you suspect that the executor of a will or trust of which you are a beneficiary is acting improperly or misusing the estate or trust assets, contact us for advice.
Partner Note
Reported at
Family Overturns Will That Benefits Carer
Elderly people can become suggestible and it is, regrettably, not uncommon for avaricious people to attempt to influence them for personal gain.
In a recent case in point, an elderly and wheelchair-bound lady altered her will a few months before she died so as to bequeath her £400,000 estate to the son of her carer. Her previous will had left her entire estate to her family.
The family contested the new will, claiming that the woman had fallen under the influence of her carer and was too mentally infirm to resist her.
In addition, more than £400,000 had been withdrawn from the woman’s bank account in the three years prior to her death. The evidence of undue influence was sufficient for the judge to rule that the woman’s earlier will, made in 2002, should stand. In addition, it is understood that following a police investigation into the depletion of the woman’s assets in the final few years of her life, papers have been passed to the Crown Prosecution Service.
Says <<CONTACT DETAILS>>, “This sort of circumstance is a nightmare for the family involved. If you are concerned about the possibility of people abusing the trust of your elderly relations, contact us for assistance. It is always better to avoid problems than to deal with the aftermath.”
Partner Note
Reported in the STEP News Digest, 3 August 2009.
Financial Provision – Same Address Not Necessary
When a person dies without making reasonable financial provision for someone who is dependent on them, the court may make an award to the dependent person. For a claim by the partner of the deceased to be successful, the claimant has to have lived with the deceased ‘as the husband or wife’ for at least two years prior to the death.
Normally, such cases are straightforward – the dependant lives in the same property and has been maintained by the deceased. However, this is not always the case. Recently, a woman was allowed to bring a claim for financial provision despite the fact that her postal address had never been changed from her previous residence (which she retained) and that this was also shown as her address on the electoral roll.
After her partner died in 2007, she successfully argued that they had cohabited since 2002 and she had ‘gradually moved in with him’. The man’s family contested her claim. The case led to a great deal of detailed factual evidence being presented, but the decision seems to have been swayed in no small part by evidence of the couple’s domestic arrangements, for which there were several witnesses whose testimony supported the claimant. The man’s family were unable to produce evidence to rebut the assertion that the couple were living together as man and wife.
Says <<CONTACT DETAILS>>, “This case was unusual as normally such cases are about the extent to which one partner has provided for the other.”
Partner Note
Lindop v Agus and others [2009] EWHC 1795 (Ch). See
Funding the First Step On the Ladder
Even though property prices have fallen considerably in recent years, getting ‘on the property ladder’ has never been harder as lending criteria have been tightened considerably since the ‘boom’ days of 125 per cent mortgages.
Young people wishing to buy a home of their own are increasingly looking to their parents for assistance.
Even if you are able to do so, it is often difficult to know the best way to give such help.
Here are the pros and cons of the usual methods:
1. Lending the Money
This seems like an easy option, but it may not be! Firstly, one has to ask the question of whether the loan from the parents is to be by way of a mortgage or not. If by mortgage, this would normally be a second mortgage to ‘top up’ the first mortgage from a bank or building society. If so, the first lender has to agree to it and the charge must be registered to be fully effective. Also, the repayment terms (if any) must be agreed. On the plus side, if the loan is by way of mortgage and is made to a child whose relationship breaks up or your child gets into financial trouble, it is likely to be recoverable. If a loan is made on which interest is payable, this will be taxable on receipt. Also, any loan will remain an asset of your estate and will not therefore produce any saving of Inheritance Tax (IHT).
2. Gifting the Money
A gift of money will reduce your estate for IHT purposes by the amount of the gift, assuming you live seven years. However, once money is gifted, it is gone for good, no matter what happens.
3. Co-purchase
One possible method is to join in the purchase, by buying a percentage of the property. This will guarantee that you continue to own a part of the asset. In practice, this can create complications as it will be almost impossible to sell the property without your agreement, you will need to make arrangements to ensure that you avoid liability for the expenses of the property and, if the property is sold at a gain, you may well have a Capital Gains Tax liability at an unexpected time. The need to provide for tax on a gain might mean you find ‘rolling over’ your loan into a new, more expensive property impossible to do – an often unanticipated problem for people preparing the budgets for their move. Make sure also that life assurance arrangements are in place – otherwise, in the unlikely event that your child were to pre-decease you, you might have to assume responsibility for the entire mortgage.
4. Acting as Guarantor
Guaranteeing payment of a proportion of the loan can often be a good compromise. The liability is limited to the amount of the guarantee and also, as the sum outstanding falls, the liability under the guarantee can often be reduced (although in many cases this will not occur until the sum due becomes less than the sum guaranteed). There are various protections which can be built into these arrangements if required.
5. Set Off
One arrangement which can be negotiated is for the parents to make a deposit with the lenderand for the notional interest to be credited against the mortgage account. This is very advantageous where the depositor is a higher-rate taxpayer as the interest foregone would carry 40 per cent tax, whereas there is normally no tax relief on mortgage payments for the borrower. Such arrangements do require the money to be left on deposit for an agreed – and usually lengthy – period.
Other Considerations
One of the main considerations to bear in mind when making such arrangements is how they may affect relations with other members of the family. Another is your own financial circumstances. There are certain times of life when having large sums of money tied up may not be a good idea: one is when there is a need for long-term care and the means assessment makes a substantial contribution necessary because there is an assessed asset in the form of a loan to a child or a bank deposit in a set off account.
Whatever you do, you should always take legal advice to make sure that you have considered the pros and cons carefully and put any necessary paperwork in place. Contact <<CONTACT DETAILS>> for advice on your individual circumstances.
IHT and the Recession
The recession hasn’t brought much favourable comment, but falling asset values do present opportunities for savings on Inheritance Tax (IHT). Here are some ways that you can save IHT when asset prices are depressed.
Lifetime Gifts
In general, the value for IHT purposes of an asset transferred is its value at the date of transfer. Giving away assets as lifetime gifts when prices are low means that a subsequent increase in value will belong to the new owner. Consideration should be given to transferring assets when values are low and the ‘best’ assets to transfer are those which are most likely to show gains.
Falling Property Prices
The IHT on the value of a property can be paid in instalments over 10 years. If, however, a property is sold within four years of death at a price below the valuation fixed for probate, then the executor can elect for the IHT liability to be recalculated based on the reduced value. Only the executor can make this election, so if the property is passed to a beneficiary and then sold, the election is not available. When a property is sold, the IHT due becomes payable immediately. Arranging the sale of a property just to save IHT requires careful thought as the costs associated with such a transaction are not inconsiderable.
Where a house is transferred to a beneficiary, the base cost of the asset will be the IHT value. Therefore, when the value of such an asset falls, a subsequent sale by the beneficiary may lead to a loss for Capital Gains Tax purposes.
Other Issues
The other main issue to consider as one gets older is the possible need to fund the cost of long-term care. This is a much greater threat to the wealth of most families than IHT, since the system is, in practical terms, confiscatory. Planning to protect family wealth and to fund future care needs must be approached with careful thought and knowledge of the relevant law. <<CONTACT DETAILS>> can advise you on this sensitive matter.
Partner Note
There is a good article on this topic in the STEP Journal, June 2009 pp 78-9. See
The Law Society has recently issued a new briefing note on the gifting of assets. See .
IHT Nil Rate Band – Keep Your Hands On the Old Will
You may think that after an estate has been probated and the assets have passed to the surviving spouse or civil partner, that is the end of the matter and the paperwork (including the will) can be consigned to the shredder after a suitable period of time.
However, leaving aside the need to retain some documents (e.g. those which might have a tax impact if there is a subsequent query from the tax authorities), it is important to retain the will and the estate tax paperwork.
The reason for this is that the way Inheritance Tax (IHT) now works is to allow the beneficiaries of a surviving spouse or civil partner to make use of the ‘unused percentage’ of that person’s late partner’s IHT ‘nil rate band’, no matter when he or she died.
The way it works is as follows. Assume, for example, that a husband died and left a net estate of £50,000 at a time when the IHT nil rate band allowance was £150,000. That leaves 2/3rds of the IHT nil rate band unused. If his wife subsequently dies when the IHT nil rate band has risen to £200,000, her IHT nil rate band will be increased by 2/3rd of that amount (i.e. £133,333).
The newspapers have recently contained several stories concerning the estates of widows of men killed in the Second World War that have avoided substantial amounts of IHT because the original documentation relating to the husband’s estate in each case could be produced to justify a claim.
Partner Note
See, for example
In Brief
Good News for Disabled Transport
Vehicles which can accommodate 12 or more people are not ‘cars’ for VAT purposes, which means that VAT registered buyers can recover the VAT on the purchase price. However, many minibus-type vehicles cease to be able to carry 12 passengers if they are modified to accommodate a wheelchair.
HM Revenue and Customs have now changed the definition so that a vehicle which seats fewer than 12 passengers solely because it has been adapted for wheelchair users will no longer be regarded as a car. This treatment was operated previously by concession, but not all buyers of wheelchair-adapted minibuses knew about it.
If your organisation has failed to claim VAT on such a vehicle, contact us for advice.
Partner Note
Reported in Accountancy, July 2009.
In Brief
‘Senior Moment’ Delays Will Distribution
The division of the estate of a man who had a ‘senior moment’ when providing information for his will had to be sorted out in court recently.
When Leslie Fawdon drafted his will, he left half of his estate to his nephew, described as ‘Mark Parkinson’. He had no nephew of that name, but he did have a great-nephew named Justin Parkinson. Furthermore, no one named Mark Parkinson had ever lived at the address mentioned in the will.
The court decided that Mr Fawdon had intended to benefit his great-nephew and awarded him a half share in the estate.
The moral is that you should check your facts before you write your will – or any other legal document for that matter.
Partner Note
Reported in the STEP News Digest, 3 August 2009.
In Brief
Should ERNIE Have Your Cash?
Although not well publicised, in April this year National Savings and Investments reduced the notional interest rate it applies to fund prizes on Premium Bonds from 1.8 per cent to a mere 1 per cent. As a result of this reduction, the minimum prize was reduced from £50 to £25 and only one £1 million monthly prize is now drawn. On 1 October, the notional interest rate on the prize fund is being increased again – but only to 1.5 per cent.
In their heyday, Premium Bonds were a reasonable place to hold cash and large holdings offered a reasonable probability of a competitive tax-free annual income.
With only 1 in 24,000 bonds winning a prize each month, ERNIE would now seem to be a relatively poor place in which to hold your money.
Contact <<CONTACT DETAILS>> if you would like to discuss tax planning and wealth protection.
Partner Note
NS&I Press Releases, March and September 2009.
In Brief
Suspended Sentence for Widow Who Forged Will
A widow who forged a will when her late husband died intestate was recently given a suspended jail sentence and ordered to pay £3,500 in prosecution costs after she pleaded guilty to the crime of ‘using a false document’.
When the woman’s 67-year-old husband died, she persuaded two witnesses to sign the back-dated document, which she attempted to pass off as her late husband’s final will and testament.
“The woman’s actions may well have been no more than an attempt to make the administration of her late husband’s estate easier and more orderly,” says <<CONTACT DETAILS>>, “but she committed a criminal offence. It is straightforward and inexpensive to make sure you have a valid will and the downsides of failing to have one are clear.” 
Partner Note
STEP News Digest, 14 September 2009.
In Brief
Too Good to be True is Too Good to be True
Yet again, we hear a report of the Financial Services Authority and the police investigating a firm that was promising investors returns of between 6 and 13 per cent per month. It is said that £80 million may be involved.
Assets including Ferraris, Bentleys and jewellery have been impounded by the police and three men have been detained. The authorities suspect the scheme was a ‘Ponzi’ scheme similar to that run by disgraced financial advisor Bernard Madoff, recently sentenced to 150 years in prison in the USA for his fraud. A Ponzi scheme works by paying the supposed ‘profits’ to investors out of the cash coming in from new investors. When new money ceases to be invested in a sufficient quantity to pay the fictitious investment returns on the money previously invested, the scheme collapses.
The reality is that returns far above prevailing market rates are seldom achievable.
Lifetime of Care Leads to Settlement
A woman who cohabited with a farmer for more than 30 years has been awarded a share in his assets following his death, after a court case in Northern Ireland.
The woman formed a relationship with the farmer (who was then in his early 40s) when she left school. Although their relationship was not publicly acknowledged, it was recognised by the court that the woman had committed herself to the relationship and had thereby ‘effectively debarred herself from prospects of marriage or lifelong partnership with other men in the district to her own detriment’.
The estate was worth £800,000 and, under the terms of the will, the farmer’s brother and sister stood to inherit it. However, the court accepted the application from the woman that she was the dependant of the farmer and awarded her £250,000 from the estate so that she could buy herself a house and land.
When a person is dependent on someone who dies, in some circumstances he or she can claim a share of the deceased’s estate if they are not provided for under the will.
If you are worried about what will happen to you should your partner die, contact us for advice.
Partner Note
Reported by the BBC, 8 September 2009. See
Meeting the Cost of Long-Term Care
One of the often forgotten issues in retirement planning is the possibility of having to fund long-term care at some future time. Such care is means-tested and most care home residents of means will pay in full for their care. With an ageing population and severe pressure on government finances, this situation is only likely to get worse.
At present, a resident in a council care home must use their own capital to pay for their care until the capital is reduced to £23,000. After that, a contribution is made on a reducing scale until the resident’s capital is reduced to £14,000. This is done by the local council assessing each additional £250 of capital as producing an income of £1 per week. When the capital is reduced to £14,000, no further contribution is necessary.
The value of a house is not taken into account as capital for the first 12 weeks of residential care and is not taken into account at all if your spouse or civil partner continues to live there.
“Paying for care is a much greater threat to the wealth of most families than Inheritance Tax,” says <<CONTACT DETAILS>>. “Fortunately, with sufficient advance preparation, family wealth can be preserved from the ravages of care costs. If you are concerned that having to pay for care in the future will prevent you from leaving a reasonable inheritance for your family, contact us to discuss this worrisome issue.”
Partner Note
One possible solution is to purchase an insurance policy against future care costs. These can only be purchased when care is needed and involve the assessment of life expectancy on an impaired-life basis.
New Guidance on Residence
Following changes in the tax legislation governing the income tax payable by non-domiciliaries, and some relevant tax cases, HM Revenue and Customs (HMRC) have issued a new guidance booklet (HMRC 6). This replaces the old guidance, which was contained in booklet IR20.
One of the main changes in approach is that HMRC are now taking a harder line on what has to be done to qualify as being non-resident. To cease to have UK residence, not only must you leave the UK, but you must, in effect, reduce your connection to the UK to a minimal level.
The new leaflet should be read carefully by anyone considering moving abroad who wishes to ensure that they become non-UK resident for tax purposes. HMRC’s guidance states that ‘you should always look at the pattern of your lifestyle when deciding whether you are resident in the UK. Things you should consider would include what connections you have to the UK such as family, property, business and social connections. Just because you leave the UK to live or work abroad does not necessarily prove that you are no longer resident here if, for example, you keep connections in the UK such as property, economic interests, available accommodation, and social activities or if you have children in education here. For example, if you are someone who comes to the UK on a regular basis and have a settled lifestyle pattern connecting you to this country, you are likely to be resident here.’
One particularly odd feature to note is that HMRC now seem to regard the whole of UK territorial waters and airspace as being in the UK for the physical presence test.
For advice on tax planning and wealth protection, contact <<CONTACT DETAILS>>.
Partner Note
The guidance booklet HMRC 6 can be found at
Saving IHT the Easy Way
No one likes to pay tax unnecessarily and Inheritance Tax (IHT) can be especially problematic, as it must often be paid ‘up front’ when administering an estate.
It is quite common for people to decide to mitigate the effects of the tax by writing an insurance policy on a ‘whole of life’ basis to pay the estimated IHT. This can be very tax-efficient if done correctly. Such policies can be written by paying periodic premiums or a lump sum to an insurer. The payments made will reduce the value of the estate on which IHT is calculated.
However, by writing such a policy in trust, a significant saving may be made because, by so doing, the proceeds of the policy can be kept out of your estate for IHT purposes. For example, if you were to write a policy for £50,000 which was payable to your estate (i.e. written on an ‘own life’ basis, with the proceeds payable directly to you or your spouse), then up to £20,000 of IHT could be due on the value of the policy. If, however, the policy were paid into an appropriate trust, there would be no IHT charge as the beneficial ownership of the policy would lie outside your estate.
Pensions which contain a provision that the value of the pension can be paid as a lump sum if you die before taking the pension, or which contain death benefits, can also normally be written in trust and kept out of your estate for IHT purposes.
Saving IHT does not have to be complex. For individual advice on IHT planning, contact <<CONTACT DETAILS>>.
Second Tax Amnesty for Offshore Accounts
Taxpayers with unpaid taxes arising from income on foreign bank accounts have been given a second chance to ‘come clean’ with HM Revenue and Customs (HMRC), after a second tax amnesty was announced at the end of July 2009. The amnesty also covers taxes due but not declared on gains arising from asset sales and had been widely ‘trailed’ in the press earlier in the year.
Taxpayers who voluntarily make a disclosure of previously undeclared income before 12 March 2010 will pay a reduced penalty of 10 per cent, unless they are a customer of a foreign branch of one of the major High Street banks. A previous amnesty for their customers was offered in 2007. Customers of those banks will pay a 20 per cent penalty under the new amnesty.
HMRC have confirmed that there will be no further amnesty offered. With penalties of up to 100 per cent of the tax charge payable and serious cases being treated as criminal, anyone who has failed to make a full disclosure previously should think again.
HMRC are pursuing a strategy of signing protocols which allow them to obtain information from foreign tax authorities and are also demanding information on UK account holders with assets held abroad from banks and financial institutions which have a presence in the UK.
If you have ‘unfinished business’ with the tax authorities, contact us for advice.
Partner Note
For more details see
Wives Dispute Home Ownership
It is not uncommon on divorce for one ex-spouse to remain in the family home and the other to retain an interest in it after moving out. The importance of having documentation in place relating to the arrangements agreed upon in this situation is obvious, as otherwise problems can result.
Problems are especially common in the event that the ex-spouse who has retained the house remarries. Recently, the court was called upon to disentangle the position resulting from just such a circumstance after an ex-husband, who had retained the previous matrimonial home and then remarried, died intestate.
The man’s ex-wife claimed that the property belonged to her by survivorship, because she had remained on the deeds. The administrator of the estate claimed that the man’s ex-wife had agreed to dispose of her half share in the property for £10,000 in 1997 and sought what lawyers call a ruling for ‘specific performance’, which means the court ordering a person to do something they have agreed to do under contract. It was not disputed that the agreement had been made, but the ex-wife claimed that it was unenforceable. Firstly, she claimed that only £9,000 of the sum due to her was paid. The court rejected this claim on the basis of evidence presented. Secondly, she claimed that the very loose wording of the agreement meant that it was void because its terms were uncertain. It referred to obtaining the ‘agreement of the bank’ to the arrangement but no bank mortgage was in place. The judge considered that this was a reference to the building society with which the property was mortgaged and referred to the need of the ex-husband to have his former wife’s potential liability under the mortgage eliminated.
The man’s ex-wife also claimed that he had agreed to give her half the value of the house (less the £10,000 already paid) if he remarried, but no written evidence could be produced for that claim. In 2006, he had offered to pay his ex-wife £2,000 plus half the balance due on the mortgage and to obtain her release from the mortgage, in return for her signing a transfer of her interest in the property to him, but this did not take place. In the draft transfer, however, no mention was made of the £10,000 previously paid,
More telling was the fact that the agreement referred to the couple’s son as being the inheritor of his father’s estate if ‘anything should happen’ before the contract was complete. The ex-wife argued that this was instrumental in obtaining her consent to the agreement and was another reason why it was unenforceable.
Lastly, the court was concerned as to the fairness to the man’s second wife, who continued to live in the property, of the delay caused by his former wife in bringing the action to force the transfer. This, the court felt, was a sufficient reason to refuse to rule that the second wife would have to buy out the ex-wife’s half share.
The court ruled that the property was held by the first and second wives in equal shares, but that the first wife had no right of occupation, despite being entitled to a half share of the sale proceeds on a future sale.
Says <<CONTACT DETAILS>>, “The real tragedy of such cases is that they occur at all. Had everything been done on a proper footing at the outset, with the benefit of legal advice, this case would never have ended up in the courts. In spite of the fact that the man’s estate was small (so, in accordance with the intestacy laws, the second wife inherited the whole estate), a valid will would also have simplified matters greatly.”
Partner Note
Heath v Heath & Anor [2009] EWHC 1908 (Ch). See

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