Make hay while the sun shines : Write a Will today

“We all work hard to build up our assets during our lifetime, not only to provide for a more comfortable life in our later years, but also to provide our loved ones with some financial security for the future after we have died. Unfortunately, far too many people consider making provision for what should happen to those assets too late, or simply assume that their estate will automatically pass to their loved ones”

So says Ben Davies, Partner and Head of the Wills, Trusts and Probate Department at Prince Evans Solicitors LLP.

“As we are all too often aware, life does not always allow us the luxury of time to address these matters later on. If you should you die without having first made a Will, your estate and possessions will be divided according to the laws of intestacy. Under these rules there are no guarantees that your estate shall be distributed as you would have intended.

For example, if you are married or in a civil partnership and have children, your estate shall not automatically pass in its entirety to your spouse contrary to popular belief. In this situation your spouse and children shall share your estate in unequal proportions. If you die without leaving a spouse or child your estate will pass to other members of your family, including your parents, sibling, uncles and aunts, nieces and nephews in turn according to the intestacy rules.

If it is the case that you are unmarried and are living with a partner where you may have children together, at present the intestacy laws do not recognise the rights of cohabitees. Your entire estate shall therefore pass to your children upon death, thus leaving your partner un-provided for. This is of particular concern where the house you are both living in, or assets and income that you both rely upon, are held in the sole name of one partner. A YouGov survey carried out on behalf of the children’s charity Barnardo’s found that 58% of adults in the UK do not currently have a Will in place. The poll also indicated that 74% of those persons without a Will were also cohabiting.

These problems can be prevented from arising by simply making a Will. Your Will can direct where you would like your assets to go upon your death and in what proportions.

Making a Will is also of particular importance when addressing the issue of Inheritance Tax. At present, there is no Inheritance Tax levied upon transfers between spouses on death. In the case of married couples or those in civil partnerships, making a Will can therefore not only ensure that your assets pass in their entirety to your surviving spouse as you may wish, but can also help to preserve each persons Inheritance Tax allowance. By putting together a Will that first passes residuary estates between spouses will have the effect of maximising the Inheritance Tax threshold available upon the death of the surviving spouse. In essence, Wills prepared in this manner ensure the most tax efficient way of transferring estates, which shall ultimately benefit your children whose inheritance will not be reduced by such a heavy Inheritance Tax burden.

A Will can also be used to create various types of trusts whereby assets can be “ring fenced” to provide for the future security of loved ones, especially children from a previous relationship. Using trusts in this manner assets can not only help to skip a generation, whereby all or part of the estate is left directly to children, but can also be used to provide an income for the surviving spouse and provide a right to reside in the matrimonial home during their lifetime. This is of particular importance where the home is held in the sole name of one person.

Vulnerable loved ones, such as those suffering from a long-term disability, can also be protected by incorporating particular trusts into Wills which enable Trustees to be appointed to look after a vulnerable person’s inheritance on their behalf, and ensure that they receive the care and support they require.

Having an accompanying letter of wishes alongside a professionally drafted and correctly executed Will can also be a way of addressing awkward family issues. These issues all too often arise where family members have fallen out, or where other personal issues may have arisen. Having a Will with an accompanying letter of wishes can set out the personal reasons why a particular person has not been provided for in the Will, and help to prevent claims being brought against estates under the Inheritance (Provision for Family and Dependents) Act 1975.

A Will is therefore something that everyone should certainly have regardless of their age or where they are on their chosen career path. It allows you to decide who should inherit your estate and gives you the opportunity to determine the most tax efficient way of distributing the assets you have worked so hard for. It also gives you and your spouse or partner peace of mind knowing that provision has been made for them and your children upon your death.

Making a Will is a very straightforward process and not as daunting or as time consuming as you may think. Instructing a solicitor to act on your behalf can also be a great comfort to you knowing that it has been prepared by a regulated, insurance-backed, trained professional who specialises in this particular area of the law”


Written by:

Huma Khan
Solicitor
020 8280 2714

Court of Protection Applications

With the ever increasing longevity of the UK population, the question of ageing and quality of life are becoming increasingly fundamental to people’s way of thinking. Some of us may feel an uncomfortable gap in the knowledge and skills we have to cope with the demands of longer living. WCourt of Protection Applicationshat do you do if you, a family member or a friend become unable to manage their own affairs?

At Prince Evans, our aim is to provide you with advice and information on all your options in order to protect you, those you care about, and your estate. This advice may help avoid problems and prevent unnecessary costs, losses or expense being incurred. Our care and legal system is complex and confusing, so timely advice is vital to avoid later complications.

If someone is no longer able to manage their affairs, it is probably too late to make a Lasting Power of Attorney to appoint someone else to act on their behalf. If there is a continuing need to make decisions on the person’s behalf, you can ask the Court of Protection to appoint you as a Deputy. A Deputy was previously known as a Receiver.

In 2011, a DWP press release estimated that nearly one in five people currently in the UK will live to see their 100th birthday. In line with the aging population, there has been a huge increase in the number of Deputies appointed by the Court of Protection, with a four-fold increase in applications in the period 2008-2012 which continues to rise.

The most common reason for a Deputy to be appointed is the onset of dementia. In 2015, there were 850,000 people with dementia in the UK and it is predicted that there will be 1 million by 2025. At present, one in six people over the age of 80 have dementia. Other reasons for the appointment of a Deputy might be an acquired brain injury or a learning disability present from birth.

A Deputy is usually a family member or someone who knows the person well. A Deputy can make decisions about someone’s personal welfare and / or their property and financial affairs.

If there is no friend or family member who is suitable or willing to act as a Deputy, the Court of Protection can appoint a professional. The team at Prince Evans are delighted to offer this service when needed, with extensive experience in attending to affairs of the elderly.

You will have to be able to show to the Office of the Public Guardian that you are acting in the best interests of the person who has lost their mental capacity and the Court can cancel your appointment if it decides that your appointment is no longer in the best interests of that person.

The Office of the Public Guardian is responsible for supervising and supporting all Deputies and Attorneys and will require you to submit a report to them of the decisions you have made on behalf of the person without capacity each year.

Most Deputies are appointed to deal with property and affairs. Since 2007, there have been over 10 times more of these applications than for the appointment of Deputies for health and welfare.

The Court can also authorise a Deputy to sign a Will on behalf of someone lacking mental capacity. This is called a Statutory Will. The Court application is lengthy and complex, but it is often in the best interests of the person that their estate does not pass entirely under the intestacy rules. Prince Evans can also assist with this type of application, as well as applications for an order authorising a Deputy to sell property held jointly with someone else, on behalf of someone who lacks mental capacity.

If necessary, you can apply to the Court of Protection for an emergency order, which can be made in as little as 24 hours. You might need to do this if an urgent decision is needed to protect someone’s health or safety. It is also possible to apply for an interim order, for example, if urgent action is needed to pay someone’s care home fees.

Banks and building societies agreed a consistent approach to dealing with Deputies and Attorneys in 2013 and helpful guidance has been jointly developed by the Office of the Public Guardian (OPG), the British Bankers Association (BBA) and the Building Societies Association (BSA), working in collaboration with the Law Society, Alzheimer’s Society, Solicitors for the Elderly and Age UK, with appropriate guidance as to how to manage a bank account on behalf of someone else being available to download from all their websites.

Regrettably, applying to the Court of Protection to be appointed as a Deputy is a lengthy, paper-heavy and expensive process. Keeping up with the increased demand in this area of law, Prince Evans has significant experience and expertise to assist you both with a Deputyship application and also with the on-going administration of the Deputyship, once the Order has been issued.

The best solution is to plan ahead and complete both types of Lasting Powers of Attorney and have a Will prepared when you are in full health and of sound mind. This not only gives you peace of mind, but can lessen the heart ache your loved ones may face, if they are required to make decisions on your behalf.

Written by:

Geoff Randall 

Senior Associate
020 8280 1719
[email protected]

What happens to your digital legacies upon death

When an individual dies their assets are often left to family members, friends or charities in their Wills. Where there is no valid Will, the deceased’s assets are shared out according to the rules of intestacy. Someone that dies without having a Will is an intestate person. Married or civil partners and other close relatives can inherit under such rules. Therefore making a legally valid Will allows a person to protect their estate and determine in it who inherits what.

A digital legacy includes email accounts, music libraries, games, photos, videos, music and films legally obtained from iTunes and content in social media such as Facebook, Instagram and Twitter. Often people are confused about how to deal with these upon their death, however there are provisions that one can make so that these are left in accordance with ones wishes.
This information can be dealt with a clause within your Will.

Further, it is worth looking into the specific procedures that may already be in place that the social media, email accounts and other websites have to cover the death of a user. Some social networking sites have policies on what will happen to deceased’s customers accounts e.g. Facebook allows a user to nominate a friend or family member to access the account upon death. It is important to ascertain what happens upon your death to each account in which you have an interest so that provisions can be made.

In a world where precious memories are now stored online, not leaving specific directions can run the risk of such photos, videos, music libraries being lost forever. Personal Representatives further run the risk of not being able to close accounts that are held in the deceased’s name.

A helpful tool for Personal Representatives dealing with a deceased’s digital legacies is having a list of all accounts and social networking sites together with wishes of what should happen in the event of their death.

The Law Society’s Wills and Inheritance Quality Scheme Protocol, recommends “completion and maintenance of a Personal Assets Log, including digital assets and consideration of how to ensure that those dealing with the estate will be able to access those assets. This is preferable to leaving a list of passwords or PINs as an executor accessing your account with these details could be committing a criminal offence under the Computer Misuse Act 1990. It is enough to leave a list of online accounts and ensure this is kept current.”

Any documents that contain such important information must be carefully stored.

Each account has varying procedures as to what happens to an account upon death. In the event that provisions are not put in place upon death it may be that the accounts remain open for a period of time. This can cause some distress to family members. Other individuals may like for their accounts to remain open e.g. Facebook so that family and friends can leave tributes. It is important to leave clear directions and authority on how you would like such accounts to be managed.

Please contact Prince Evans Solicitors LLP for guidance on leaving your digital legacies.

Written by Huma Khan

[email protected] 

Mortgage interest relief restriction – Feature Blog by Mercer Hole

From 6 April 2017, tax relief for finance costs (including mortgage interest) relating to residential property businesses was restricted with the changes phased in as follows:

Tax year

% of costs deducted from profits

% of costs available as a basic rate tax reducer

2017/18

75%

25%

2018/19

50%

50%

2019/20

25%

75%

2020/21

100%

As a result, by 2020/21, these costs will no longer be an allowable deduction against rental income but instead a 20% income tax reduction will be given.

These rules only apply to individual landlords owning residential property and not to companies, commercial properties and furnished holiday lets.

Example: Phillip (a 40% taxpayer) owns a buy-to-let property purchased with a mortgage. We can see the effect of this change by comparing Philip’s tax position in 2016/17 with 2020/21:

As you will see, Phillip’s tax liability has increased by £540 and the effective tax rate on the rental profit has increased from 40% to 53.5%. Phillip only has relatively modest interest outgoings however and these changes are likely to significantly impact larger property businesses funded with debt.

Who is affected?

This restriction impacts all taxpayers who incur finance costs in relation to their rental business and not just higher rate taxpayers. This is because basic rate taxpayers may find that, once the finance costs are disallowed, they are higher rate taxpayers. These changes can also increase the overall tax payable where the rental business is loss making. These complications are best illustrated in the next example.

Example: Theresa (normally a 20% taxpayer) receives business profits of £24,000 and annual rental income of £33,000. As the property has a large mortgage with annual interest of £35,000, the rental business is loss making. Her tax position for 2016/17 and 2020/21 will differ as follows:

(It is assumed that the 2016/17 tax bands and allowances will apply for 2020/21).

As a result of the restriction, Theresa is now a higher rate taxpayer. Theresa’s property letting business has made a loss of £2,000 but in 2020/21 she pays income tax of £2,800 in relation to this loss-making business! She will also lose most of her child benefit because her total income is over £50,000.

However, as her interest costs are greater than the letting income by £2,000, she will be able to carry forward a tax reduction of £400 (20% x £2,000) to set off against a future income tax liability.

Knock-on effects

As interest is disallowed in the rental accounts, this increases overall taxable income. This could have a number of effects, such as pushing an individual into a higher rate of income tax and/or capital gains tax, reducing their personal allowance (if their income now exceeds £100,000), affecting their entitlement to child benefit (as illustrated above) and restricting the amount on which they can claim tax relief for pensions.

Incorporation of rental business

Highly leveraged landlords of residential properties are likely to be the worst affected by these changes. As this restriction only applies to individual landlords, some taxpayers are considering incorporating their property letting businesses, which is further driven by the fall in corporation tax to 17% by 2020.

However, there is scope for significant capital gains tax and SDLT charges to be triggered on incorporation, if relief is not available. There are also other considerations, such as the added administration and possibly higher rates of interest on company borrowings. Please refer to ‘Residential properties – time to incorporate’ written by my colleague David Hadley.

New acquisitions

For new acquisitions, an appropriate ownership structure should be considered beforehand. Although there may be tax savings by holding property via a company where there is debt funding, the bigger picture needs to be considered, including profit extraction and long term exit planning.  There is no ‘one size fits all’ solution and we therefore recommend you seek our advice prior to the acquisition.

If you would like to discuss any of the issues raised here, please get in touch with Alice Pearson or your usual contact at Mercer & Hole.

Written by Alison Palmer

The case of Ramsay v HMRC (2013) – Feature Blog by Mercer Hole

Is property letting a business for Capital Gains Tax (CGT) purposes?

The incorporation of a business will usually involve the disposal by a sole trader or partnership of chargeable assets such as land and buildings or goodwill to a company.

The disposal will typically be treated as taking place at market value for CGT purposes on the basis that the parties involved are connected persons. However, there is a statutory relief for business incorporations where certain conditions are satisfied.  As a result of this relief, any CGT charge on the whole or part of the gains is postponed until the person transferring the business disposes of the shares. In other words, there is an effective rollover of the gains on the disposal of the assets against the cost of the shares.

One of the potential difficulties with incorporation relief is the determination of what constitutes a ‘business’. The problem is that there is no statutory definition of the term for CGT (or income tax) purposes. As a result, in Ramsay v HMRC (2012), the First-Tier Tribunal judges were asked to consider the position.

The Tribunal had to consider whether the taxpayer’s activities in connection with the letting and administration of the property simply amounted to the passive receipt of rent (ie an investment activity) or whether those activities were sufficient to constitute a business. The Tribunal decided that the activities carried out by R were ‘normal and incidental to the owning of an investment property’ and arose out of necessity for the landlord of a property let out as flats.

In the event, R appealed against the First-Tier Tribunal’s judgment and the Upper Tribunal has recently found in her favour. Crucially in Ramsay v HMRC (2013), it was confirmed that the word ‘business’ should be afforded a broad meaning for CGT purposes. The judge concluded that R was carrying on a business and so rollover relief was held to be in point.

For those seeking certainty, it may be worth considering an advance application to HMRC under the non-statutory business clearance service.

Written by: Mark Cassidy

PRINCE EVANS SOLICITORS LLP REWARDED FOR HELPING TO SECURE VITAL FUNDS FOR CANCER RESEARCH UK

Prince Evans Solicitors LLP on Uxbridge Road in Ealing has been recognised by Cancer Research UK after facilitating over £301,000 worth of gifts from people choosing to leave a legacy to the charity in their will.

Ben Davies, Partner and Head of Wills and Probate at Prince Evans Solicitors was presented with a bronze certificate to acknowledge the firms ongoing support.

As part of Cancer Research UK’s Free Will Service offered to people aged 55 and over, Ben Davies Team gives guidance for those wishing to write a will or update an existing one, and gives clients the opportunity to leave a legacy gift for Cancer Research UK.

The charity receives no government funding for its research and relies heavily on the generosity of people leaving gifts in their wills. Over a third of its research into the prevention, diagnosis and treatment of cancer is funded through supporters leaving a legacy to the charity.

A legacy gift can be anything someone wishes to leave in their will. Traditionally this is money but it could be anything that has a monetary value like an estate or specific item. Anything left to Cancer Research UK can be marked to be ring-fenced for research into a specific cancer type or research within a local area.

Clare Moore, Director of Legacies at Cancer Research UK, explained: “We all reach a stage at some point in our lives where we start to look ahead and consider what will happen to our financial affairs in the future, when we may no longer be around.

“At Cancer Research UK, we work with a number of local solicitors including Prince Evans to offer local people aged 55 or over the chance to make an all-important first will or to update an existing one. The service has grown in popularity over the past couple of years and while it is provided free of any obligation, the vast majority of people choose to kindly leave a gift to the charity.

“By offering Cancer Research UK’s Free Will Service, Prince Evans Solicitors have become well informed about our work and are very supportive of our life-saving research. Whenever their clients express a desire to support us, Prince Evans staff act with great sensitivity as they explain the various options and allow individuals or families to make the right choice in their own good time.

“It’s quite astonishing to think that by simply combining enthusiasm with the highest professional standards Prince Evans Solicitors has helped secure over £301,000 worth of legacy gifts, which will go a long way towards helping our scientists, doctors and nurses to beat cancer sooner.”

Cancer survival in the UK has doubled since the early 1970s and Cancer Research UK’s work has been at the heart of that progress. Every step taken by its doctors, nurses and scientists relies on donations from the public and the kindness of supporters who choose to leave a gift in their will.

The Free Will Service has been running successfully for over 20 years across a network of solicitors in the UK. Anyone who wishes to use the service is asked to consider leaving a legacy gift to Cancer Research UK but is under no obligation to do so.

For more information about leaving a legacy gift and Cancer Research UK’s free will service, visit www.cruk.org/freewillservice or call Prince Evans Solicitors 020 8567 3477

For further information, please contact [email protected] 020 8567 3477 About Cancer Research UK

  • Cancer Research UK is the world’s leading cancer charity dedicated to saving lives through research.
  • Cancer Research UK’s pioneering work into the prevention, diagnosis and treatment of cancer has helped save millions of lives.
  • Cancer Research UK receives no government funding for its life-saving research. Every step it makes towards beating cancer relies on vital donations from the public.
  • Cancer Research UK has been at the heart of the progress that has already seen survival in the UK double in the last 40 years.
  • Today, 2 in 4 people survive their cancer for at least 10 years. Cancer Research UK’s ambition is to accelerate progress so that by 2034, 3 in 4 people will survive their cancer for at least 10 years.
  • Cancer Research UK supports research into all aspects of cancer through the work of over 4,000 scientists, doctors and nurses.
  • Together with its partners and supporters, Cancer Research UK’s vision is to bring forward the day when all cancers are cured.

For further information about Cancer Research UK’s work or to find out how to support the charity, please call 0300 123 1022 or visit www.cancerresearchuk.org. Follow us on Twitter and Facebook.

Divorce – How to protect your assets

If you’re getting a divorce or ending a civil partnership, you will need to ensure your rights and assets are protected. In some cases, you may have to act quickly to protect your finances, especially if the break-up is acrimonious.

Here is a quick guide on how to ensure your assets are protected when going through a divorce.

Property

If the family home is owned in your spouse’s sole name, you can register your interest in the home to make sure it cannot be sold or re-mortgaged without your knowledge.

If the property is in both your names, as ‘joint tenants’ you may want to change the way its owned. This will prevent your spouse automatically inheriting your share of the property if you were to die before the divorce, or before the dissolution has been finalised.

If your spouse owns property other than the family home you may be able to register a ‘restriction’ at the land registry. This will prevent your spouse from selling the property or securing debt against it.

Mortgage

You may need to speak to your mortgage lender, depending on whose name is on the mortgage to explain what has happened and to discuss how you will manage the mortgage repayments.

It is important to note that if you have a joint mortgage, you are both equally liable for the whole loan.

If you are unable to keep up the mortgage payment it is vital that you seek advice, as this could damage your credit rating, which could make it harder for you to borrow in the future.

Joint Account / Loans

If your break up is acrimonious and you have joint accounts and or loans with your spouse, you should contact your bank or loan provider to explain what has happened.

Consideration may need to be given to whether you need to change the way the account is set up so that both of you have to agree to any money being withdrawn, or to freeze the account.

If you have a credit card account and your spouse has a second card for the same account, you will be responsible for paying for their spending as well as yours. You should therefore consider either asking your spouse to give you the card back or alternatively contact the card company to block the card or remove your spouse from your account.

Businesses

There is a requirement on parties to provide full financial disclosure prior to any divorce settlement. If you own your own business, make sure you do not transfer assets out of the business. This can be seen as a strategic move to limit or avoid your spouse’s financial claims.

Any attempt to dissipate your assets will be frowned upon by the court and you could be held accountable of litigation misconduct.

Pensions

In divorce, the pension can be the biggest asset after the family home. It is vital therefore that you find out what type of pension(s) you have and the rules associated with each pension scheme. Consider also obtaining the CETV (Cash Equivalent Transfer Value) for each of your pensions at an early stage as pension providers can take many weeks to provide this information.

What to do if your spouse tries to hide assets

The courts have a wide variety of powers available to them to ensure that there is full and frank financial disclosure. If you suspect that your spouse is hiding assets by either, selling, transferring or getting rid of them, you may be able to apply to the court to stop them.

If you would like to find out more about how to protect your assets during a divorce, please contact Muna Saleem, Partner and Head of the Family Team for a free initial consultation on [email protected]

On the sale of commercial property, is VAT payable on the price?

Buyers and Sellers should not overlook VAT when drafting a sale and purchase contract of commercial property. This issue was considered by the Court of Appeal in CLP Holding Company Limited v Singh. The Court had to review the provisions of a sale contract in order to decide whether the buyer was liable to pay VAT to the Seller in addition to the agreed sale price.

Under a contract entered into in 2006, the seller agreed to sell to the buyer a commercial property for the Purchase Price and which was defined as £130,000. There was no mention of ‘plus VAT’ in the contract. The contract was in a standard form incorporating the Standard Conditions of Sale (4th Edition). These are known as the ‘general conditions’. There were also special conditions, but these did not deal with the question of VAT.

General condition 1.4 stated the buyer was liable to pay any VAT for which the seller was liable. The general conditions also provided all sums payable under the contract were exclusive of VAT.

In the lead up to completion, the solicitors for the buyer raised some requisitions on title and one asked for a completion statement. In its reply, the solicitors for the seller said the amount due on completion was ‘the balance of the purchase monies’ . In the period leading up to exchange, no specific enquiries were raised about whether the seller had opted to tax, or whether VAT would be payable on the price. It appears the buyer decided not to raise the usual standard industry enquiries which specifically deal with these issues.

On completion, the balance of the purchase price was paid, without VAT; the transaction completed and the buyer was registered as the proprietor of the property.

Subsequently it transpired the Seller had indeed opted to tax, and consequently was liable to account to HMRC for the VAT on the sale. After HMRC made an assessment on the seller for VAT, the seller in turn asked the buyer for the VAT, and submitted a VAT invoice to the buyer. The buyer refused to pay. After a long delay, the seller finally issued proceedings and the dispute found its way to the Court of Appeal.

The Court concluded VAT was not payable in addition to the Purchase Price. The court reached this conclusion having regard to all the circumstances of the parties’ relationship and the relevant facts surrounding the transaction as known to them. In addition, the Court relied on the following reasons

1 the seller had never told the buyer that an option to tax had been made
2 the buyers were individuals and there was never a suggestion that VAT might be payable
3 the price had been agreed a long time before completion. Also the buyers had already deposited the Purchase Price of £130,000 long before completion
4 in a reply to a requisition asking for a completion statement, the seller’s solicitors had stated the amount due on completion was ‘The balance of the Purchase Price’ with no mention of VAT.
5 Finally, the special conditions state the purchase price was ‘£130,000’.There was no mention of VAT. There was a conflict with the general conditions – which stated all sums were exclusive of VAT. The Court decided where there was any conflict with the general conditions, then the special conditions must prevail.

Accordingly, the case demonstrates the importance of a seller and a buyer expressly addressing the VAT position on any sale contract in the special conditions on the sale of a commercial property.

Please contact Ivan Barry Partner, Member of the LLP and Head of Commercial Property for more information at: [email protected]