How does Stamp Duty Land Tax affect the purchase of residential property for trusts?

By | Registering land, Trusts | No Comments

A common question which arises when considering the purchase of properties where trusts are involved relates to Stamp Duty Land Tax (SDLT), following the introduction in 2016 of the additional 3% SDLT charge above the standard rates for purchases of “additional residential properties”.

Trusts are commonly created either during someone’s lifetime or through their will in order to protect family wealth. In order to ascertain whether the higher rates will apply to residential property held within the trust, it is necessary to consider the nature of the trust and the beneficiaries’ interests.

What is a Bare Trust?

Beneficiaries of a bare trust have a right to all of the capital and income at any time provided they are over the age of 18.

Any residential property purchased by the trustees will be treated as if the beneficiary had purchased it for SDLT purposes. It is therefore necessary to consider the circumstances of the beneficiary when ascertaining if the 3% surcharge would apply.

Provided the beneficiary does not own another residential property anywhere in the world, or is otherwise replacing his main residence, the surcharge will not apply. If however the beneficiary is under 18, the child’s parents are treated as purchasing the property for the purposes of the higher SDLT rates.

Life Interest or Interest in Possession

Beneficiaries have a right to live in the property or receive the income (less any expenses) from the property as it arises.  A life interest trust is commonly used in wills so that the surviving spouse/partner can continue to live in the property but the deceased spouse/partner’s share is owned by the trustees rather than passing outright to the surviving spouse. The question in relation to SDLT therefore typically arises when a surviving spouse/partner is looking to downsize.

For the purposes of SDLT, the beneficiary with a life interest, or interest in possession, will be treated as owning the property. Provided the new property replaces the life tenant’s main residence, the higher SDLT rate will not apply even if the trust owns other residential property.  If the trust owns a residential property and the trustees or the beneficiaries purchase another residential property and are not replacing the main residence, they will be liable to the higher rates.

What is a Discretionary Trust?

Under a discretionary trust, the trustees make decisions in relation to the distribution of income and capital (usually guided by a letter of wishes). As the trustees can choose who benefits from the trust, and how much a beneficiary should receive, no beneficiary has an automatic right to anything from the trust.

In this situation, the higher rates of SDLT will apply to all purchases (including the first purchase) of residential property by the trustees (where the consideration is £40,000 or more and the property is not subject to a lease with an unexpired term of more than 21 years) as the beneficiaries’ interest is considered to be too remote. Depending on the structure and terms of the trust, it may be possible for the trustees to consider their options before proceeding with the purchase.

If a beneficiary is looking to purchase a property for themselves, rather than the trustees, whether the surcharge will apply will depend on the beneficiary’s own circumstances.  

In summary

Trustees should seek advice on this when buying residential property, particularly as they are liable for submitting the land transaction return and paying the SDLT, and trust beneficiaries must take into account the nature of their interest when looking to buy a property themselves.

 

Lifetime Gifts

By | Gifts, Trusts | No Comments

Can I give away assets during my lifetime without falling foul of the inheritance tax rules or causing potential complications for my Executors upon my death?

 If done correctly, with understanding of the relevant rules and with plenty of forward thinking and planning, lifetime gifts can be an extremely useful way of ensuring assets pass to your chosen beneficiaries and can also be effective at reducing a potential inheritance tax liability upon death.

 Any gifts made to an individual will fall back into the estate of the person making the gift should they die within 7 years. Taking advantage of the 7 year rule can be a useful way of reducing a large estate where there are concerns about a potential inheritance tax bill on death.

 Of course, the future is uncertain and circumstances can change rapidly. Nobody can know how long they might live and whether they will live 7 years after making a gift. Despite this, the 7 year rule can still be an effective method for reducing inheritance tax as the gift becomes subject to taper relief after 3 years, and any inheritance tax is therefore reduced from 40% down to a potential minimum of 8%, compared with a set rate of 40% if the assets simply remain in the estate.

 Every individual also has an annual tax free allowance for gifts of £3,000 and if utilised over a number of years can help to reduce the size of an estate and mitigate inheritance tax.

 In addition to this, there is no limit on gifts to individuals of up to £250.00 for things such as Christmas or birthdays or for regular gifts made out of income. Gifts may also be made in consideration of marriage of up to £5,000 depending on the relationship between the person making the gift and the person

 Please feel free to contact the SWW Trust Corporation for further information regarding the use of lifetime gifts in estate planning.

Trusts with a disabled/vulnerable beneficiary

By | Trusts | No Comments

Some trusts for disabled people or children receive special tax treatment. These are called ‘a vulnerable person’s trust’.

Who qualifies as a vulnerable beneficiary in these trusts?

A vulnerable beneficiary is one whom is under the age of 18 whose parent has died or a disabled person who is eligible for any of the following benefits (even if they do not received them):

  •  Attendance Allowance (either the care component at the middle or highest rate, or the mobility component at the highest rate)
  •  Personal Independence Allowance
  • An increased disablement pension
  • Constant Attendance Allowance
  • Armed Forces Independence Payment

A vulnerable beneficiary can also be someone who is unable to manage their own affairs because of a mental health condition – check with a medical professional that it is covered by the Mental Health Act 1973.

 What if there is more than one beneficiary?

If there are beneficiaries who aren’t vulnerable, the assets and income for the vulnerable beneficiary must be:

  • Identified and kept separate
  • Used only for that person

Only that part of the trust gets the special tax treatment.

Claiming special tax treatment

To claim special treatment for Income Tax and Capital Gains Tax, the trustees have to submit the Vulnerable Person Election Form https://www.gov.uk/government/publications/trusts-andestates-vulnerable-person-election-form-vpe1

If there’s more than one vulnerable beneficiary, each needs a separate form.

Information extracted from https://www.gov.uk/trusts-taxes/trusts-for-vulnerable-people

 Income Tax

In a trust with a vulnerable beneficiary, the trustees are entitled to a deduction of Income Tax. It’s calculated like this:-

1.       Trustees work out what their trust Income Tax would be if there was no claim for special treatment

2.      They then work out what Income Tax the vulnerable person would have paid if the trust income had been paid directly to them as an individual

3.      They can then claim the difference between these 2 figures as a deduction from their won Income Tax liability

Capital Gains Tax

Capital Gains Tax may be due if the assets are sold, given away, exchanged or transferred in another way and they have gone up in value since being transferred into trust.

Tax is only paid by trustees if the assets have increased in value above the ‘annual exempt amount, which is an allowance of £11,700 for people who have a mental or physical disability, or £5,850 for other trustees.

Trustees are responsible for paying any Capital Gains Tax due. If the trust is for Vulnerable people, trustees can claim a reduction, which is calculated like this:

1.      They work out what they would pay if there was no reduction.

2.     They then work out what the beneficiary would have to pay if the gains had come directly to them.

3.     They can claim the difference between these two amounts as a reduction on what they have to pay in Capital Gains Tax using form SA905 https://www.gov.uk/government/publications/self-assessment-trust-and-estatecapital-gains-sa905

This special Capital Gains Tax Treatment does not apply in the tax year when the beneficiary dies.

For more information on the matter contact the SWW Trust Corporation on 01522 581 570 for a confidential chat

What the SWW Trust Corporation can do for you

By | An update, Trusts | No Comments

Professional Attorneyship Services

The role of an attorney involves a great deal of responsibility, so make sure you think carefully about who you chose. You must be able to trust them to make all decisions in your best interests. SWW Trust Corporation can act as professional attorneys under a Property and Financial Lasting Power of Attorney.

We are professionals in this field and understand the importance of the continuity of financial assistance where an individual is unable to effectively deal with their financial affairs through a long-term illness, disability or, the loss of mental capacity.

 

Benefits of appointing the SWW Trust Corporation

  • Help you make financial decisions regarding any or all of your property and financial affairs
  • We follow the statutory principles imposed by the Mental Capacity Act 2005
  • Will, as far as possible, help you make financial decisions with minimal intervention. This enables you to maintain control over your financial affairs for as long as possible with the reassurance that we are there to help you as and when you need us to.
  • Always act in your best interests taking into consideration your views, beliefs and any other factors you feel strongly about. This could mean closely working with your Health and Welfare Attorneys
  • Continuity – when appointing an individual, they may fall ill, not have time or, do not wish to act which could result in your liabilities not been paid on time. At a time when you are vulnerable this additional worry can be alleviated by having a professional attorney. SWW Trust Corporation have a dedicated team of inhouse professional attorneys which ensures continuity of service.

The things we can help with include the following: –

o   Opening, closing or operating any bank, building society or other account

o   Buying or selling property

o   Claiming or applying for benefits, pensions or allowances on your behalf

o   Deal with your tax affairs

o   Pay your mortgage or rent and household expenses

o   Insure, maintain and repair your property

o   Invest your savings to achieve the best return

o   Make gifts to your family for birthdays, weddings and at Christmas or continue making gifts to a charity that you regularly donate to

o   Pay for private medical care and care home fees

o   Obtain equipment to assist you in, as far as possible, to live independently

What is the Nil Rate Band and how does it affect Inheritance Tax?

By | Estate Administration, Inheritance Tax, Trusts | No Comments

According to Benjamin Franklin, there are two certainties in life; death and taxes. However, one eventuality that Mr Franklin most likely did not prepare for is the notion of a tax on death. In the United Kingdom, Inheritance Tax is an issue that haunts many families each year and has done since its formal introduction in 1984. The Inheritance Tax charge is entirely dependent upon the value of the net estate on death. When the calculation is made, it takes into account everything you own wherever situated, including any property, money, personal chattels all over the world.

As it stands the first £325,000 (known as the Nil Rate Band) of your estate assets can be transferred Inheritance Tax free to your heirs, unless you pass everything to a spouse, charity or civil partner, in which case the tax is nearly always nil. However, if your children or non-exempt persons (anyone who isn’t your wife, civil partner or charity) are the beneficiaries of the estate, everything in excess of the Nil Rate Band is taxed at a rate of 40%.

For example, Oliver has an estate of £400,000 on his death who he bequeathed to his friend, Dan. After deducting the Nil Rate Band of £325,000, Oliver’s estate is left with a taxable estate of £75,000, which is then taxed at 40% and brings a total tax bill of £30,000. It is important to note that it is not the entire estate which is taxed at 40%, it is only the amount which exceeds the available Nil Rate Band.

If in your will you decided to bequeath 10% of your net estate to a registered charitable organisation, then you would only be charged at 36% rather than the normal 40%.

There are some ways that you can protect your estate from tax, but they are not without risk. You can make life time gifts (known as Potentially Exempt Transfers), which if they are made over 7 years before the date of your death will be removed from your estate when calculating the Inheritance Tax. If you were to adopt this method of gifting away assets and hoping you live seven years, you must not withhold a benefit in order to have them removed from your estate. The most common example is gifting the family home to your children and then continue to reside in it until your passing. As you withheld a benefit of residence, the property is never out of your estate and the seven-year clock never begins. Furthering this, if you die before the 7 years is complete, then the gifts may become part of your estate and fall into the calculation for IHT.

If you are married, then you can transfer your assets to your spouse or civil partner in life tax free whether that’s in lifetime or on death. This was famously done by Bruce Forsythe who transferred an estimated £11,700,000 to his wife free of Inheritance Tax by taking advantage of the spousal exemption rule. If this is the case and all assets were transferred to the spouse through the will or intestacy, the second spouses’ estate would also then benefit from a transferable Nil Rate Band from the first spouse’s estate, which can only come into effect upon the second spouse’s death. Introduce in 2007, the personal representatives of the estate are able to transfer the unused proportion of the Nil Rate Band to the second spouse’s estate from the first spouses’ to offset against any potential IHT charge.

This could essentially double your Nil Rate Band to £650,000 on the second death, meaning that if you had an estate valued at £700,000 only £50,000 would be eligible for Inheritance tax. Without the transferable Nil Rate Band £375,000 would be taxable and the inheritance tax from that amount would be tripled to £150,000.

Furthermore, since 6th April 2017, estates can now benefit from the Residence Nil Rate Band for qualifying residential property which passes to lineal descendants on death. The current rate of the RNRB is £125,000 and is due to increase to a maximum of £175,000 in the tax year of 2020/2021. Fortunately, the RNRB is capable of being transferred on the same principle as the NRB in the hope that in 2021, couple will be able to benefit from both the Transferable Nil Rate Band and Residence Nil Rate Band and passing up to £1,000,000 to their heirs free of Inheritance Tax.

You can bypass the Nil Rate Band through some trusts such as a Pilot Trust or a Bereaved Minors Trust but to qualify for these trusts you need to meet certain criteria and there are other tax implications that can occur.

For more information on the subject or to understand trusts in greater detail, please call the SWW Trust Corporation on 01522 581 570 for a confidential chat

Preservation of Assets

By | Estate Administration, Funeral Planning | No Comments

When someone passes away, it is important to make sure that the relevant people, companies and organisations are informed. You will also need to ensure that any assets of the deceased are preserved until such time when they can be collected, sold or distributed.

Informing the appropriate companies and organisations about the death of a friend or relative can be an emotional task at an extremely difficult time. However, doing this as soon as possible will help prevent any overpayments to or from the deceased into or out of any bank accounts; particularly any overpayments of benefit from any government organisations. It will also allow companies to put any accounts on hold and will provide you with more time to deal with assets and any liabilities in the long run.

Companies you might need to inform include:

  • Any government organisations (HMRC, DWP, DVLA, Passport Office, local council)
  • Banks, mortgage, pension or insurance providers
  • Investment companies or share registrars
  • Utilities (gas, electricity, telephone, broadband, water & sewage, TV licence)
  • Any other companies who you think might need to know (care companies, landlords, subscriptions or memberships, employers, health professionals)

You may call, write to or email companies and organisations to inform them of a death and most will require a copy of the death certificate for their records.

Some organisations offer assistance to make the process as smooth and as straightforward as possible. For example, when you register the death, often the registrar will ask whether you would like to use the ‘Tell Us Once’ service. This is a service that allows you to report a death to most government organisations in one go and helps to prevent overpayments. The registrar will either complete this service for you at the time of your appointment, or will provide you with a unique reference number to access this service You can also access this service online at:

https://idp-death-tellusonce.direct.gov.uk/Death/Enrich/BeforeYouStart

Information you will need to assist you in reporting the death includes:

  • Date of birth
  • Date of death
  • Address
  • National Insurance number
  • Any relevant reference numbers
  • Occupation
  • Marital status

Once informed, any bank accounts will be frozen, which will help preserve and protect any funds.  However, this will obviously also mean that any direct debits or standing orders will not be paid, so it is important that you ensure that all affected companies are informed.

 

Whether the deceased owned or rented a property, it is crucially important that steps are taken to preserve both the property itself and the assets and personal possessions kept inside the property:

  • If the property is owned, make sure that adequate insurance is in place for the building and its contents. If the property is unoccupied, make sure the insurance policy provides cover for this.
  • Ensure that all door locks and windows are secure.
  • Make sure that keys are kept in a secure place and that you are in possession of any other sets of keys or at least aware of who else may has a set of keys to the property.
  • Do not allow anyone to enter or remove anything from the property without consent.
  • Make note of any valuable items at the property (remove these or store these in a secure place if possible)
  • Gather all relevant paperwork together which will assist you in contacting the relevant companies and organisations to inform them of the death.
  • Also gather all original documents such as birth certificates, death certificates, marriage certificates, divorce papers and any Deed poll documents.
  • In Winter months ensure that heating is left on low or the system is drained down to prevent water damage and comply with insurance.

Once you have done all of this, you will have the relevant paperwork and information to allow you to begin dealing with the administration process for the deceased’s estate.

For more Information call SWW Trust Corporation on 01522 581 570 for more information

Basic requirements for making a Will

By | Trustees and Executors | No Comments

To write a Will there are 5 basic requirements that must be met when writing a legally binding Will.

Must be aged 18 or Over

You must be by law be considered an adult (18) to write a will in the UK. This can be seen to be questionable in modern society as there are many things you can do from aged 16 including serving in the forces, having sexual relations and also buying a lottery ticket to name a few. Despite all the things you can do under the age of 18, writing a will is not one of them.

Have Sufficient Mental Capacity

You need to be able to demonstrate having mental capacity when making a Will. The correct test for capacity is the common law test established in Banks v Goodfellow [1870]. Although the test is about 150 years old it is still citied as the most appropriate test for mental capacity. The testator will need to know what they are doing and the consequences of the actions, know what they own and also know any moral claims they should consider.

Have the Necessary intention to create a will

The Testator must have the necessary intention to make the will, approve and know all the contents and approve of all the instructions given for the preparation of the Will.

Be Free from undue influence or duress

The Testator must not be under pressure from someone else to make a will. It is advisable to have time alone with the testator to ensure that they are not under any pressure from other people to make the will

The proper legal formalities must be met

In accordance to the Wills Act 1837 Section 9 the legal requirements are; In Writing, including brail, word processing etc. It must be signed by the Testator with intention to do so, a rubber stamp or inked thumb print are acceptable as a signature. Two Witnesses must be present as the Testator signs and then each witness must sign the document.

What would happen if Kim Kardashian died without a Will?

By | Missing Will, Trusts | No Comments

If you die without a will then your estate (all your belongings upon death) would be distributed according to the rules of Intestacy. This means that there could be potential beneficiaries who don’t get anything from your estate at death. Kim has an estimated estate of $175,000,000 which makes her one of the richest reality stars of all time

As Kim Kardashian is married to Kanye West he would be the first person entitled to the estate. If they had no children, then he would receive absolutely everything. If they were married in the UK it would mean they could make life time transfers to avoid any inheritance tax as spouses can transfer all their assets to their partner tax free. If the whole estate was to be taxed in the UK they could face an Inheritance tax bill of approximately $70,000,000!

However, as they have North, Saint and Chicago the distribution of assets would be different. Kanye would receive personal possessions, the first £250,000 together with interest on that amount from the date of death; and one half of everything that remains. The children would receive the other half of anything that remains.

If Kanye was to die leaving Kim widowed before her own death, then the children would receive everything shared equally.

If the children were all dead at her time of death or if she had never had children, then her assets would go in full to all living parents. This would mean that Robert Kardashian and Kris Jenner would receive half of Kim’s estate each.

If all of the above were not alive or had disappeared beyond trace then Kim’s siblings Kourtney, Khloe and Rob would be entitled to the estate split equally between them. If there were no full siblings, then the estate would be split between her half siblings Kylie and Kendall

If these descendants were not available then the estate would go to her Grandparents if they were alive, and following this to aunts and uncles and if there was nobody related to Kim still alive then her vast estate would go to the Crown if she was a UK Citizen.

Having a will or a trust gives the Testator (person who is making the will) the option to split their estate as they wish. Kim may want Kylie and Kendall to benefit from her estate after death but through the rules of Intestacy they would receive nothing at all.

If you want to ensure your estate is distributed the way you want it to be, then call our team of experts at the SWW Trust Corporation on 01522 581570 for a chat on how we can help protect your assets

What now for the contestants of Love Island?

By | Divorce, Estate Planning, Trusts | No Comments

Last night’s final saw Jack Fincham a stationary sales man from Essex and his girlfriend Dani Dyer the daughter of TV ‘Hardman’ Danny Dyer leave Love Island with £50,000 in their bank and a romance which has had the public supporting since they coupled up on the first opportunity. They have moved on to become boyfriend and girlfriend and even have Jack offer Dani to come live with him once they have left the island (without asking his mum at the time).

Love Island for those who have not watched it is effectively Big Brother but about dating. The contestants varied from Alex a doctor from A&E to Hayley a model who thought that Brexit meant we wouldn’t have any trees left. The show is not without controversy with Ofcom receiving over 2500 complaints about how the show edited footage to cause drama in the villa.

The purpose of the show, aside from providing entertainment for the public, is to help the contestants find love. There are some very important things to know about relationships when considering wills and trusts and the effects that happen with relationships.

Not all the contestants found love and sadly, not all people in life will find ‘the one’. Two thing that can be guaranteed in life are death and taxes!

Jack and Dani were strong favourites to win after coupling up on the first opportunity and not looking back since. What is next for the couple? Ladbrookes are offering odds of 2/1 for them to get engaged this year. Last year’s contestants Jess and Dom after being swept up in romance got married live on Good Morning Britain not even a year after hooking up on the island.

With marriage comes complications and benefits from an inheritance point of view. If you were to have a will before then it would become invalid following a marriage. An advantage of marriage is the benefit of a dual inheritance tax allowance of £650,000 (provided they gift their estates to each other). With last years winner’s Kem and Amber, worth approximately £750,000 and £600,000 respectively, this could help keep the taxman away from their estate. With them both breaking up and not being married upon Kem’s death his estate will only benefit from a single tax allowance of £325,000. This would leave £425,000 which will be taxed at 40% which means his beneficiaries could miss out on £170,000.

If they were married and Amber was to die, then Kem would have received her estate of £600,000 tax free as they were married. The same rules also apply to civil partnerships.

With Jack and Dani having 1,600,000 and 2,100,000 Instagram followers each they are the couple of marketers dreams and will have a huge cash influx through promoting clothes, health and lifestyle products and maybe even pens in Jack’s case. This, alongside all of the paid work on TV and in local venues, will have the couple worth more then they could have possibly imagined. There are many trusts that the couple could look into putting their assets in for a wide range of circumstances, including tax planning and unscrupulous beneficiaries. It doesn’t matter on the size of your estate, or what you have. Everything you own has some value and making sure that upon death it goes to the right person is something that you should think about. With the tragic death of Sophie Gradon from Season 2 it shows that even the young are in need of a will or trust.

After death a Will or a trust can ensure that your assets go to who you want them to, with the vast majority of the couples from Love Island breaking up it shows that relationships change, and your will or trust should change to suit your relationships at the time of your death.

If you want any more information on how you can protect your assets and ensure it goes to who you want it to give the SWW Trust Corporation a call on 01522 581 570 for a free confidential chat.

The Grant Application

By | Estate Administration, Registering land | No Comments

Once you have all valuations for the assets and liabilities in the estate as at the date of death, you have everything you need to begin putting together the application to obtain the Grant of Probate or Grant of Letters of Administration.

The Grant of Probate or Grant of Letters of Administration (collectively known as Grant of Representation) is the legal document issued by the Court (Probate Registry) providing the Executors, Administrators or Personal Representatives of the estate with the legal authority to deal with the deceased’s estate.

A Grant is not always required and there are some instances where the administration of an estate can be carried out without obtaining a Grant. For example:

  • Where a property is held in joint names (joint tenants) and passes by survivorship to the other joint owner(s)
  • Where there are joint bank accounts and only a death certificate is required in order to have the deceased’s name removed from the account and transferred into the survivors sole name
  • Where the amount in any solely held bank accounts is small (banks and building societies have limits as to the value of assets that they will release without seeing a Grant)

There is a common misconception that you if you have a Will, a Grant of Probate will not be required, which is certainly not the case. The need for a Grant is dependent upon the types of assets in the estate and the value of those assets.

Where there is any property owned solely by the deceased or where they own a specified share in a property (as tenants in common), then a Grant will always be required in order to sell or transfer that property/share of that property