The ever difficult decision as to the division of property assets on the breakdown of a cohabitation relationship continues to cause inevitable pain. The Court of Appeal has reversed the first instance decision in Jones v Kernott. As Lord Justice Wall said:

“This is a cautionary tale, which all unmarried couples who are contemplating the purchase of residential property as their home, and all solicitors who advise them, should study. The facts are not in dispute and are unusual only in the sense that a great deal of time has elapsed since the parties separated.”

The interesting article by John Woolley in Money Marketing entitled Double by-pass confuses points on perpetuity dated 19 April 2010 and the ensuing debate on the Trust Discussion Forum on this issue gives rise to some rather technical issues to be explained to clients thinking of using a pilot discretionary trust to receive their pension death benefits should the trustees of their pension scheme choose to exercise their discretion according to the member’s letter of wishes. It also calls into question the true benefit of making a by-pass trust for this purpose.

The Emergency Budget produced a modest 45 Budget notes to kick-start the Chancellor’s five year plan to rebuild the British economy. Somewhere in the mix are the 6 issues of interest to private client practitioners which are the subject of this summary.

What should you advise a client to do? The Government has just announced in the Budget 2010 that the Nil Rate Band (NRB) is frozen at £325,000 until 2014/15. The Conservatives announced some time ago that they intend to raise the NRB threshold to £1 million whilst retaining the transferable NRB (TNRB). Even with the current budget deficit the Conservatives maintain they will adhere to this policy, it might just be delayed.

Meanwhile, we have the Government’s statistics for the amount of money in millions of pounds generated by the various taxes both direct and indirect which shows just how small a contribution to the fiscal pot IHT makes. For 2009/10 it represented 2,251 million which sounds a lot until you hear that Beer duties bring in 3,151 million and it is likely that there are more HMRC staff administering IHT than Beer duty!

If the government’s coffers are definitely half full and considerable public sector retrenchment is ahead whichever political party gains power after the election one does have to wonder why we continue with IHT when a mere 2% on income tax would bring in more at the current time or even 3.5% on VAT.

It is this political uncertainty which is surely keeping clients from undertaking tax planning at the current time coupled with their need to retain as much capital as possible to fund their future in a low interest world. How do we suggest clients should approach Will drafting and estate planning against this backdrop?

A trustee will usually retire voluntarily under the statutory powers contained in the Trustee Act 1925. However, it is possible that the retirement may come about because:

• all the beneficiaries (being of full age and capacity) require it,
• by the exercise of an express power contained in the trust deed; or
• by order of the Court

Trusts come in all shapes and sizes but the longer a trust lasts and the larger the potential value of the assets the more likely it is that the beneficiaries will look closely at how the trustees are managing it and this in part depends on their skills in observing the powers they have but also looking ahead to ensure they have sufficient powers.  Some recent cases illustrate the need for vigilance.

The STEP provisions 1st Edition were in need of updating to reflect both changes in the law and practical problems in administration.  It seems hard to think that since the 1st Edition was published we have had the Trusts of Land & Appointment of Trustees Act 1996, the Trustee Act 2000 and the FA 2006.

The Bill has now been heard by the House of Lords and has passed to the House of Commons which will not now be able to consider it further until after 12 October 2009.

The Finance Bill received Royal Assent on 21 July 2009 and as a result the new s.6 and Schedule 2 to the Finance Act 2009 brings in the provisions for an additional rate of income tax and an additional rate for dividends. The consequential amendments include increases to the trust rate and the dividend trust rate. By aligning the trust rate and the dividend trust rate with the highest rates of personal taxation this means that the trust rate increases to 50% from 40% with effect from 6 April 2010 and the dividend trust rate increases from 32.5% to 42.5%.

The so-called simplification of Will drafting by the introduction of the Transferable Nil Rate Band (TNRB) has complicated matters for some clients. Where the clients have been married (or been in a civil partnership) before particular care is required in assessing the use or transferability of the previous spouse/CP unused nil rate band. The Will drafter should focus on where any unused nil rate band may be wasted and whether the client appreciates the options open to him. For a simple checklist to consider in such circumstances please click below.

CHECKLIST - download pdf here

© Gill Steel, LawSkills Ltd. 2009

HM Revenue & Customs (HMRC) are introducing a series of toolkits for agents to provide guidance on risk management (compliance from HMRC’s perspective), and to set out how agents can reduce the likelihood of mistakes occurring in returns.

HMRC believe that using the toolkits will help agents to ensure the completeness and accuracy of returns and thus reduce the potential risk of an HMRC enquiry or inspection.

In a Budget which has been criticised on all sides the Chancellor Alistair Darling has for once not taken the opportunity to alter much which affects the Wills, Probate and Trust practitioner who does not deal with offshore matters. The three headline items are:

• the significant increase in income tax rates on trusts with no interest in possession
• the expansion of the geographic area to which Agricultural Property Relief applies and
• the bringing of IHT into line with the new compliance regime