Private Client law

Workplace Pension Reform (WPR)

This information is based on draft legislation which may change.

In 2012, workplace pensions reforms (WPR) will be introduced which will impose duties on employers to make mandatory pension provision for employees.

Employers will have to automatically include certain employees in a suitable pension scheme within a timescale.

The scheme must pass a quality test.

Assignment of investment bonds by trustees to non-residents

Question

The Trustees of a typical nil rate band (NRB) discretionary trust set up under the Will are minded to wind up the trust by appointing everything out to two of the beneficiaries – the daughters of the deceased - as tax-efficiently as possible.

Who owns your law firm?

It is an interesting development, and one which I wish to share with a legal audience, that I have been contacted in recent months by several organisations who are looking to develop Law Firms that will be part owned by independent financial advisors (IFAs), or in fact any adviser authorised by the FSA, independent or not. This is in the anticipation of the 6th October, 2011 changes to Law Firm Regulation, leading to the ability of non solicitors to own Law Firms.

Life Assurance Bonds - Taxation of Trustees

This article continues the series on the subject of life assurance bond taxation and should be read with the earlier more general articles, as some of the basic points about the methodology of the tax calculation will not be repeated (top slicing, 5% withdrawals etc.).

Pensions - All change again

The coalition government has now confirmed, to a large degree, how pensions are likely to work – for at least the next couple of years anyway!

55% income tax on death

The biggest change – and one very relevant to private client practitioners - has been an increase in the tax rate, from 35% to 55%, for pension funds in payment via drawdown. This is the tax charge on death for those pensions that have been crystallised, and so the benefits have commenced, but have not been used to buy an annuity.

Snow news is good news

I am writing this introduction just before Christmas with snow on the ground and the airport terminals full of frustrated passengers. I guess they are not playing “White Christmas” at Heathrow! Now you will be thinking that as I know you won’t get to read this until the Spring, such comments are at best anachronistic. However, I want to use the weather conditions to illustrate the point that what may be good news for some investors can sometimes mean unpleasant consequences for others in the investment markets.

Alternative Business Structures

New ways of going about professional practice are not restricted to legal services.

This has been the case for independent financial advisers (IFAs) ever since the independent designation came about in the 1980s. Being independent for the first time meant that advisers had a duty to review the whole of the market and recommend the most suitable product from the market. Not many people liked it (except consumers, of course).

Life Assurance Bonds - Taxation on Encashment

This article looks at the broad tax situation when a life assurance bond is encashed, either as a claim because the sole or last surviving life assured has died, or because the executors require the liquid funds that would be released by a policy surrender.

Note that an assignment “for monies worth” will also give rise to a tax charge, although in most scenarios assignments of bonds or bond segments are arranged to pass on an entitlement, so that would be a rare occurrence.

LIFE ASSURANCE BONDS - THE TAXATION ASPECTS FOR THE ESTATE PRACTITIONER

- WHERE A NON-TRUST BOND OWNER IS THE DECEASED -

This article will consider the way the investment value of a life assurance bond (LAB) will be dealt with after the death of the owner (or co-owner) where the owner(s) are the original investors and there are no trusts or assignments.

Life Policies – the Democratisation of the use of Trusts

It is a not often discussed point that insurance company life policies and investment bonds are well suited to be used with trusts.

Many people, who otherwise would not have had access to trust planning, can invest into trusts to provide insurance protection in trust. In this way life policies have truly democratised trust planning for a large proportion of the UK populous. Does this sound far fetched? This short article will try to explain how it is so.

Discounted Gift Trusts (Part II): The Potential Disadvantages of a DGT into a Discretionary Trust

[In the last article we discussed how these work and their advantages].

The gifted Relevant Property (the settled trust fund minus the “carved out” discount) is now a CLT, not a PET as previously. If this Relevant Property value exceeds any exemptions and the settlor’s remaining NRB, there will be an immediate IHT charge on the excess at 20%, or 25% if the settlor pays the IHT.

Discounted Gift Trusts (Part I): The Tax Savings and The Tax Costs

For well over a decade discounted gift trusts have enabled thousands of clients to make Potentially Exempt Transfers (and latterly Chargeable Lifetime Transfers (CLTs)) while retaining a regular capital withdrawal from the gift. All without falling foul of the FA 1986 gift with reservation of benefit provisions.

Life Assurance Bonds - An Introduction to the Taxation Aspects for the Estate Practitioner

Background

Life assurance bonds are assets found in more and more estates, having been heavily sold by financial advisers, especially banks, during the last 10 or 15 years. In some cases they will be a simple investment held by the deceased, but more competent financial planners and tax advisers may have used life assurance bonds and their cousins, capital redemption bonds, with specific forms of trust.

How to complain about financial advice

As part of the administration of an estate, many probate practitioners have asked my firm to advise on the potential for redress as a result of a financial product that they feel was unsuitable. This process starts with understanding what the particular product does, how it was set-up, and what it was meant to achieve – and thus if it was demonstrably unsuitable. This is not always as straightforward as it seems.

Extra Flexibility for IHT Mitigation Plans

One way of getting some immediate reduction in the value of an estate for IHT purposes while retaining an income from the asset value donated is to use a discounted gift scheme (covered in another article on this web site). However, it can be argued that the discount turns out to be of no value if the donor survives the usual target 7 years. So a price has been paid and after 7 years may seem to have been a high one: being locked into a possibly inflexible investment product, usually a life assurance bond, and having a fixed income stream, which may not be required after all.

Pension Scheme Death Benefits - Inheritance Tax Issues

On considering how a pension fund death benefit will be treated under the Inheritance Tax rules, it is firstly necessary to establish if the capital arises from a source that is crystallised, HMRC jargon for post retirement, or one that is still in the accumulation phase. It is sometimes further necessary to categorise the source as an occupational pension (employer controlled) or a personal pension (member controlled, even if sometimes employer sponsored).

Trustee Investment Advice and the Financial Crisis

Any practitioner involved in reviewing trust investments over the past 12 months will know how sensitive an issue this has become.

The Association of Private Client Investment Managers’ (APCIMs) benchmark indices, used for trust funds that have an income and/or growth objective, have fallen by over 30%.

Pension scheme death benefits and 'protected rights'

Part of an employed person’s State pension is related to their earnings. The two main earnings related pensions are the old State Earnings Related Pension Scheme (SERPS) and the State Second Pension (S2P) which replaced SERPS in 2002. Some people also have Graduated Pension rights built up prior to 1978, but these are now trivial as the value has not been inflation proofed.

Death Benefits to Dependants & Charity

Background

Recent figures have shown that an increasing number of clients with large pension funds are deciding to keep these funds invested, taking retirement income by drawdown, rather than spending the entire fund on a fixed annuity income.

Do Discounted Gift Schemes Work?

Inheritance Tax mitigation schemes involving the issue of life assurance bonds are worthy of a sceptical assessment, not least because the commissions paid by insurers to financial advisers who recommend such bonds can be as high as 7.5% of the capital value invested, which will be a potential motivation for self employed advisers and bank employees with targets to meet.

Where to invest for income in a low interest rate world

Trustees with an obligation to generate an income for entitled beneficiaries have customarily been able to pick from National Savings products and gilts at the bottom of the risk range, cash deposits for liquidity and to buffer fluctuations in capital prices, corporate bonds or structured products and equity income shares where some volatility of capital values over the shorter term is acceptable.

Equity Release - The Devil is in the Detail

Large numbers of elderly clients continue to regret having taken out these restrictive and costly plans. Meanwhile, the heavily resourced PR Departments of the product providers continue to produce veneer thin analyses, published in the press as “expert guides”, in support of these plans.

Sadly, the many costs and disadvantages of equity release are not discussed in these newspaper articles, and the conclusions are dressed up as independent “tips” and “guidelines” for the elderly. Alas, the market has not changed, and great caution should still be observed in advising on and using an equity release product.

A look back at investment markets in 2008

The reasons why 2008 was the year in which global equity markets collapsed are complex. However, we can now understand the basic causes.

Probate – Finances on the First Death of a Married Couple

The Primary Objective -- Income

On death it is the immediate income and cash position of the surviving spouse that is the most pressing personal concern. The spouse is often worried about their own financial security and what income and assets he/she will actually be left with.