Summary Of Healys Private Wealth Seminar

On Wednesday 26 April 2017, Healys’ Private Wealth team presented an update on all the changes that have been implemented or planned for 2017 that affect the protection of wealth to a private audience consisting of a number of professionals.

The event was held at Hotel Du Vin in Brighton and was attended by a number of IFAs, Accountants and Wealth Managers.  Our Private Wealth team discussed:

The Residence Nil Rate Band – Is it really £1,000,000? – Christina Spencer

• overview of the new Residence Nil Rate Band;
• some tips and tricks on the pitfalls of the Residence Nil Rate Band; and
• a note on the confirmed increase in probate fees and what we should be advising our clients.

Domicile – Transitional Traps and Opportunities – James Wolfson

• overview of the changes in the tax rules for non-domiciles moving to or living in the UK, and those returning to the UK
• overview of inheritance tax changes to UK property owned by offshore entities.

The Best Laid Plans – Ben Parr-Ferris

• claims by relatives for provision from an estate and the court’s power to recover gifts and other property under the Inheritance (Provisions for Family and Dependants) Act 1975.

You can find a summary of each presentation below.  If you have any questions or require any further information on the topics discussed, please contact the Private Wealth team on 020 7822 4000 / 01273 685 888 or email privatewealth@healys.old-website.shout-loud.co.uk.

Summary of the presentations:

The Residence Nil Rate Band – Is it really £1,000,000?

Christina Spencer (Head of Wills, Trust and Probate at Healys) discussed the changes to inheritance tax which have occurred this month.

Christina explained in detail the Residence Nil Rate Band (RNRB) which was introduced on 6 April 2017 and how it provides a relief to inheritance tax where a very particular criterion is fulfilled.  We would summarise Christina’s advice as follows:

The RNRB is allowed to be used in addition to a person’s Nil Rate Band (NRB) of £325,000 and, provided an individual’s estate qualifies for the NRB and RNRB, your NRB with the RNRB could amount to a nil liability to inheritance tax of £500,000 by 2020.

We have seen that the public, and even professionals, have been misled by the media into thinking the RNRB will be a relief to inheritance tax up to the sum of £1,000,000.  However, this is not the case for most individuals and the RNRB can be easily lost if you have an out of date Will, or gift assets to, what the legislation might deem, the wrong people.

The RNRB is currently £100,000 for each individual but this will change on 6 April year upon year until 2020 where the RNRB will increase in line with the Consumer Price Index.  The relief (to start off with) will be:

• £100,000 in 2017-2018
• £125,000 in 2018-2019
• £150,000 in 2019-2020; and
• £175,000 in 2020-2021

The relief will also be available where someone downsizes or ceases to own their own home on or after 8 July 2015.  As such, a person does not need to own their home in order to qualify for the relief but they must have owned a residential property at some point from 8 July 2015.

The RNRB is available where:

• A person dies on or after 6 April 2017
• Deceased’s estate included a Qualifying Residential Interest (QRI) at their death; and
• The QRI was closely inherited by Lineal Descendants (LI)

Where property is not passed to LI’s, the RNRB is not necessarily lost as it can be transferred to a spouse or civil partner (hereinafter collectively referred to as spouse).  However, this will only be the case where the first spouse’s estate was valued at under £2,000,000 because after £2,000,000 the RNRB is tapered away.

There are also dangers of gifting your estate to your spouse as by doing so; their estate on their death will aggregate with yours which may push their estate over £2,000,000 thereby causing the loss of their RNRB which they might otherwise have qualified for.

A point of interest to many people is that the RNRB will not apply to buy-to-let property or to property which you live in but do not legally own.  For example, many clients who have married for the second time will often decide to live in one another’s property but for that property to remain in one name so as to ensure that their respective assets are kept separate for their respective children to inherit on their death.  This is all fine and well, but it could mean that one spouse loses their RNRB and the second spouse has the benefit of two RNRB’s even though the first spouse to die’s children are not inheriting anything from the second spouse; which many might feel is unfair.

Furthermore, the RNRB will not apply to unmarried couples even where they have cohabited for many years.  It is however possible that the surviving partner’s estate could qualify for the RNRB, provided certain conditions are met.

What is true is that from here on, everybody should be seeking estate planning advice and updating their Wills to ensure that their estate qualifies for the RNRB (where possible).  Solicitors (and indeed other professionals guiding their clients) will need to ensure that the drafting of their clients’ Wills does not create a form of trust which the legislation dislikes.  If this were included in the Will, then no-matter how much estate planning you do, the RNRB will not apply on both the death of the first spouse and the second, which could amount to a loss of relief to inheritance tax in the sum of £350,000 by 2020 and even more as time goes on.

Domicile – Transitional Traps and Opportunities

James Wolfson (Head of Tax, International Trusts and Wealth Management at Healys) addressed the private client audience on dealing with the planning opportunities and traps in respect of the reform of the tax rules applying to non-domiciled persons.

Some doubt as to the nature, effect and timing of these changes had been created the day before his presentation following debates in Parliament on 25 April 2017 in which it had been decided that a number of provisions should be removed from Finance Bill 2017 and a scaled down Bill was to be rushed through before Parliament was dissolved.

The passing and implementation of a number of the tax provisions which were dropped, many of which were due to take effect as from 6 April 2017, had a bearing on much of the subject matter of James’ presentation.

James pointed out that whilst it is unlikely that the changes will be dropped altogether, particularly if a Conservative government is re-elected, there was a concern that rushing the legislation through Parliament creates a period of uncertainty which would end sometime after the election, the final resolution of which may depend upon the outcome of the election.

He also pointed out that much of the legislation had already been “work-in-progress” and was to be clarified later in the year in the Finance Act 2017 with the effect from 6 April 2017.  He suggested that the retrospective effect of these changes would be more pronounced if they re-appeared in a second Finance Bill, perhaps in slightly different form from the first, and read back to 6 April 2017 through that period of uncertainty when there was no discernible legislative agenda.

James pointed out that in the run-up to 6 April 2017, many clients and advisors took actions to prepare for the extensive legislative changes anticipated to come into effect as from that date.

These proposed changes to the rules included provisions to:

• Treat individuals who were resident in the United Kingdom for 15 of the past 20 tax years to be “deemed domiciled” for all taxes (previously it only applied to inheritance tax).
• Treat individuals who acquired a domicile elsewhere, but were born in the United Kingdom with a UK domicile of origin, and upon returning to the UK (other than for short visits) as deemed domiciled for all tax purposes.
• Changes to the tax treatment of offshore trusts including the possibility of certain trusts becoming “protected settlements” provided they were not “tainted”.
• Charge inheritance tax on the value of non-UK companies, the shares of which derive their value from UK residential property which are no longer being treated as “excluded property” and certain loans and related security used to acquire such property being brought into the inheritance tax net.

James suggested that in the circumstances it would be best if the whole legislative regime was deferred for a year so that it falls within the 2018/2019 tax year with effect from 6 April 2018.  This would remove the uncertainty and the added retrospective, and Parliament would have more time to properly scrutinise and approve the changes.

James concluded that there remained much scope for non-domiciled persons to plan using offshore “excluded property” trusts, despite the tightened tax rules having created some technical difficulties and hurdles.  He noted that tax saving and deferral was less of a driver for offshore planning using trusts, and that advantages unrelated to tax, such as asset protection and generational succession planning (at a reasonable cost in tax), tends to be paramount.