Using lifetime gifts to reduce inheritance tax

There are various ways in which you can minimise your liability to inheritance tax, so as to maximise the amount that you can leave to loved ones tax-free. Below we look briefly at lifetime gifts as a way of legitimately giving away wealth during the course of your lifetime and legally reducing any liability to IHT on death.

What are classed as lifetime gifts?

Lifetime gifts refer to any cash or assets gifted by a person while they are still alive, where everyone is allowed to give away a total of £3,000 worth of gifts each tax year without them being added to the value of their estate after they die. This is known as your annual exemption. There are also some gifts that do not count towards this exemption, including gifts between spouses, small gifts made out of your everyday income, or gifts to charity.

When it comes to gifts falling outside of these defined exemptions, referred to as potentially exempt transfers (PETs), these can also be excluded from the value of your estate, provided they were made more than 7 years outside the date of your death. In these types of scenarios, the extent of the gift is limitless. For example, if you gifted a loved one a large sum of money, even if this runs into tens or hundreds of thousands of pounds, this would be entirely tax-free, so long as you lived for more than 7 years after making this monetary gift.

Even where a valuable gift is made within 7 years of death, if taper relief applies it may still be subject to less inheritance tax than if the gift had not been made at all.   In circumstances where the value of the gift has exceeded the deceased’s basic nil-rate band allowance and the deceased has died between 3 to 7 years from the date of the gift, the tax payable on the surplus is on a sliding scale and the taper relief  varies from 32% to as little as 8%.  The longer you live having made a PET, the more likely your loved ones will avoid paying tax.

Are lifetime gifts the only way of reducing tax?

In addition to lifetime gifts, there are various other ways of reducing liability to inheritance tax. For those of you who are married or in a civil partnership, by law you can pass your money, possessions and property to your spouse or civil partner entirely tax-free. Further, any surviving spouse or civil partner can transfer any unused allowances, including the nil-rate band ‘and’ what is known as the residence nil-rate band, potentially doubling the amount of money that they can leave behind tax-free on their own death.

However, not all property owners can potentially benefit from the residence nil-rate band. Unlike the basic nil-rate band, which is the £325,000 tax-free threshold that applies to all estates on death, the residence nil-rate band is for those who bequeath a ‘qualifying residential interest’ that is ‘closely inherited’ by a direct descendant, such as a child or grandchild. Currently set at £175,000, the residence nil-rate band means that you can leave up to £500,000 tax-free to loved ones, provided that your estate includes a former home. For surviving spouses or civil partners, they can eventually pass up to £1 million tax-free.

When it comes to estate planning, expert advice should be sought. In this way, you can maximise the potential tax savings on death based on your unique circumstances.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its’ accuracy, and no liability is accepted for any errors or omissions. Before acting on any of the information contained herein, expert advice should be sought.

Congratulations to Sophie

We are pleased to announce that Sophie Schofield qualified as a Commercial Property Solicitor as of December 2022. The Partners and all staff at BSG Solicitors would like to congratulate her on this milestone achievement.

Sophie joined BSG in 2017 as a legal secretary after obtaining a first-class law degree from the University of Central Lancashire. She progressed into a fee earning role and commenced her training contract in 2020, working in various departments within the firm before electing to specialise in Commercial Property.

She has experience in a wide range of matters, including the sale and acquisition of commercial property and land, negotiating leases and agricultural law. In particular, Sophie will also be providing BSG’s Personal Guarantee and Independent Legal Advice offering to commercial clients.

Jo Higham, Head of Commercial Property commented:

“Many congratulations to Sophie. I am delighted to have her skills and experience as part of the BSG Commercial Property team. We are keen to grow the department in 2023 and I have no doubt that Sophie will play a major role in this.”

Sophie added:

“I would like to thank the firm for their support, not only during my training contact but since joining the business. I’m thrilled to have qualified and now look forward to furthering my experience and assisting our commercial clients across Lancashire.”

New-look Family Law Team At BSG Solicitors

BSG Solicitors have restructured their family law team based in Lancaster, appointing specialist Solicitor Barbara Richardson as Head of Divorce and Finance and chartered legal executive (CILEX) Sara Williams who has specialised in family law for 18 years. Specialist Solicitor Suzanne Willey heads the Children Team working alongside Solicitor Hannah Forsyth.

Barbara is accredited by Resolution in the areas of Complex Financial Property and Pensions on Divorce and is currently the only Resolution accredited pensions specialist Lawyer in Lancashire. She is also the Chair of the Lancashire and Cumbria Resolution Committee. She qualified as a Solicitor in 1995 and alongside late BSG partner, Andie Brown, she became a member of the Law Society’s Family Law Accreditation Scheme when it began in 1999.

Sara specialises in divorce and finance and deals with children and domestic abuse cases both privately paying and legally aided. She is a firm supporter of the CILEX route to becoming a Lawyer having co-founded the Lancashire Branch of CILEX and is the current Chair.

Suzanne has specialised in Children Law since qualifying 17 years ago. She is experienced in a wide range of family matters including care proceedings, private law children cases and domestic abuse cases. Suzanne is a member of the Law Society’s Children Panel and is accredited by Resolution in the areas of Children Law and Domestic Abuse.

Hannah is also  a member of the Law Society’s Children Panel and is experienced in dealing with highly complex matters, having had a case referenced in The Law Reports and other high-profile cases which have gone through the High Court due to their complexity. Her experience includes matters involving Special Guardianship Orders, neglectful parenting and non-accidental injury. 

Alex Byrne is a Solicitor with over 5 years of experience in Family law, both private law children cases and care proceedings, having previously worked for Bolton Council’s Legal Department. He deals with divorce, finance and children cases with varying degrees of complexity and he has a particularly keen interest in Human Rights Issues. He has also developed an in-depth knowledge relating to the dissolution of civil partnerships, same-sex relationships and cohabitation agreements.

The department has highly experienced support from Legal Assistants Vicky Atkinson, Laura Poole and Terri Whitlow.

Barbara Richardson commented:

“We’re extremely proud to have such a depth of legal talent at BSG Solicitors. To have two people on the Law Society’s Children Panel and two Resolution accredited specialists exemplifies the level of expertise we can offer to clients. From relatively simple matters to the most complex family law cases, we are on hand to provide the advice and support needed.”

Suzanne Willey added:

“We cover a wide geographical area for children law matters, from the South Lakes down to Preston and the Fylde Coast. There are now relatively few law firms with a legal aid contract for this type of work and we believe our knowledge and capability is second to none.”

ENDS

Pictured left to right:

Front row – Barbara Richardson, Alex Byrne and Suzanne Willey

Back row - Vicky Atkinson, Terri Whitlow, Laura Poole, Sara Williams, Hannah Forsyth

BSG Solicitors Celebrate Newly Qualified Solicitor

BSG Solicitors is delighted to announce that Alex Byrne has completed his training contract and has qualified as a Solicitor as of 15th December 2022. Alex will be continuing his career working in the firm’s family law department.

Whilst training Alex has gained experience in all aspects of divorce, separation, and financial settlements. He has also developed an in-depth knowledge relating to the dissolution of civil partnerships, same-sex relationships and cohabitation agreements. Alex joined BSG Solicitors in January 2020 and is a graduate of Lancaster University where he completed his law degree and a master’s degree in International Human Rights Law.

Barbara Richardson, Head of Divorce and Finance commented:

“Congratulations to Alex on qualifying as a Solicitor. His success is well deserved and is the result of many years of hard work. We’re delighted he has qualified with the firm and wish him the best of luck as he moves forward in the next stage of his career.”

Alex Byrne added:

“I am thrilled to have qualified as a Solicitor and would like to thank the firm for their support. To be part of a family law team with the depth of knowledge and experience we have is a privilege. I look forward to working with new and existing clients in 2023.”

Pictured L-R: Barbara Richardson, Alex Byrne, Suzanne Willey

BSG Welcome New Head of Commercial Property

BSG Solicitors has appointed Jo Higham as their new Head of Commercial Property. Jo has joined from Forbes where she was a member of the Commercial Property team in Preston for nearly five years.

She is experienced in the full range of commercial property matters including commercial leases for both Landlord and Tenant, refinancing and the acquisition and sale of commercial properties. Jo also specialises in licencing applications, including premises licences and SEV Licences.

Jo commented: “I’m thrilled to join the team at BSG, I am very much looking forward to meeting new and existing clients over the coming weeks and enhancing the offering in our Commercial Property department.”

Jo’s clients have included multi-national companies, developers, commercial landlords and tenants as well as charitable organisations.

Pippa Weld- Blundell, Partner and Head of Residential Property, said: "It’s great to welcome Jo onboard. She brings a wide range of expertise to the firm, not only in commercial property but also licensing matters. We’re delighted to have her and look forward to growing the team further in 2023.” 

Does a deputy or attorney get paid for what they do?

One of the most frequently asked questions around becoming a deputy or attorney, is whether or not a person can be paid for doing this role. The short answer is “no”, although a deputy or attorney may be able to pay themselves for any out-of-pocket expenses reasonably incurred in discharging their functions. They may also, subject to permission, be able to claim the cost of any care provided.

Below we look at what type of expenses and costs can be claimed as a deputy or attorney, and what steps can be taken to ensure that these are deemed reasonable.

What are the rules around expenses incurred by deputies or attorneys?

Even though managing another person’s affairs can be time-consuming, where that person lacks the mental capacity to do this for themselves, this is not a role for which a deputy or attorney can usually charge for their services. That said, a deputy or attorney is not expected to be out-of-pocket for what they are required to do, where all kinds of costs may be incurred, from postage costs for admin tasks to the cost of fuel when running errands, such as collecting benefits or doing banking.

Needless to say, reasonable expenses will also cover the cost of recouping any money spent by the deputy or attorney in paying a third party, such as paying a cleaner to clean the person’s house or paying a builder to carry out repairs to that property. Importantly, however, the deputy or attorney must be able to justify any costs incurred, for example, they must have done their due diligence for any property repairs, such as sourcing several different quotes from reputable and reliable firms.

What are the rules around the cost of care provided by a deputy or attorney?

When it comes to care costs, the position is far more complex.

Whilst it may be possible to claim a gratuitous care allowance for the cost of providing care to the person lacking mental capacity, or even case management services, such as liaising with relevant professionals or managing and overseeing support workers, a deputy or attorney should always seek permission from the Court of Protection first. This is because the deputy or attorney does not have the authority to remunerate themselves in this way, or any other family member, where to do so without the court’s express permission would be in breach of their fiduciary duty.

Instead, the court must be asked to assess the reasonableness or level of remuneration which the deputy or attorney, or any other family member undertaking care and case management services, should be awarded. This is a figure to represent the commercial cost of care as the ceiling, reduced by 20% to reflect the fact that these payments are not subject to Income Tax.

What records should deputies or attorneys keep of costs incurred?

In all scenarios, either when claiming expenses or seeking permission for care costs, careful records must be kept by the deputy or attorney of any costs incurred and tasks undertaken. Being able to provide clear proof and justification for claims made is absolutely paramount when it comes to what is reasonable, including when expenses were incurred and when tasks were undertaken, together with any evidence of this. In this way, there can be no questions over what is legitimate.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its’ accuracy, and no liability is accepted for any errors or omissions. Before acting on any of the information contained herein, expert advice should be sought.

Dealing with a bankrupt beneficiary

Acting as a personal representative carries with it significant responsibilities, especially when it comes to distributing the deceased’s estate to the right beneficiaries. Below we look specifically at the rules relating to bankrupt beneficiaries, together with the potential consequences of getting this wrong.

What happens if a beneficiary is bankrupt?

When dealing with the estate of someone who has died, either as a named executor of the deceased’s Will, or as an administrator where a person has died intestate, it’s important to check whether any of the beneficiaries have been declared bankrupt. This is because, where a person has been made bankrupt, any assets to which a beneficiary would otherwise be entitled should not be handed over directly to the bankrupt beneficiary, but to the trustee in bankruptcy instead.

The trustee will essentially take over the financial affairs of the bankrupt individual, including taking control of any inheritance received where, with the exception of paying that person any living expenses, these funds will be used by the trustee to pay off creditors in order of preference.

What are the consequences of distributing assets to a bankrupt beneficiary?

The executor or administrator of an estate has a legal duty to distribute the residuary estate to the right beneficiaries. This would normally be the named beneficiaries under the terms of any Last Will and Testament or, alternatively, those beneficiaries entitled to inherit under the rules of intestacy.

However, in the context of any bankrupt beneficiary, the correct person to which any funds should be given becomes the trustee in bankruptcy, not the beneficiary themselves.  As such, if an executor or administrator mistakenly distributes all or part of the deceased’s estate directly to a bankrupt beneficiary, and that beneficiary refuses or is no longer able to return the money, the trustee could bring a claim against them to recover the amount paid. In other words, where a personal representative pays the wrong person, and that money cannot be recovered from that person, the personal representative will become accountable.

A bankrupt beneficiary is under a duty to declare their inheritance to the trustee in bankruptcy, where any failure to do so constitutes a criminal offence. However, it is easy to envisage cases where a beneficiary, unexpectedly in receipt of funds that they thought would be swallowed up by their bankruptcy, may decide to conceal their sudden windfall and/or spend it before the mistake is discovered. In this scenario, the executive or administrator would unfortunately be held liable for the unrecovered sums, in addition to the trustee in bankruptcy’s legal costs in claiming this back.

How can a personal representative avoid liability around bankrupt beneficiaries?

The best way to avoid liability around bankrupt beneficiaries is to seek legal advice, costs which can be recouped by an executor or administrator from the deceased’s estate. In this way,  experienced solicitors can undertake the task of establishing whether any beneficiaries are undischarged bankrupts at the time of the deceased’s death, or if any beneficiary was made bankrupt before the estate administration was finalised. If so, any legacy should be paid directly to the trustee in bankruptcy.

Only if the amount passed to the trustee in bankruptcy exceeds the amount owed to the bankrupt’s creditors, can anything be paid to the beneficiary. However, even in these circumstances, everything should still be paid over to the trustee, tasking them with paying any remaining sum to the beneficiary.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its’ accuracy, and no liability is accepted for any errors or omissions. Before acting on any of the information contained herein, expert advice should be sought.

The responsibility and risks of being an executor

Many people will feel privileged to act as an executor, being trusted with the responsibility of dealing with someone’s estate after they’re gone and ensuring that the deceased’s wishes are honoured. However, with this responsibility comes significant personal financial risk if an executor makes a mistake. So what are the responsibilities of an executor and what happens if they get this wrong?

What are the responsibilities of being an executor?

After someone has died, the executor to an estate has the role of administering that estate and ensuring that the beneficiaries receive everything to which they’re entitled under the terms of the Will. It is, therefore, important that any executor acts in the best interests of the beneficiaries at all times and the correct procedures are followed.

This means that each executor will need to identify and value all of the assets in the estate. They will then need to calculate and pay any Inheritance Tax that may fall due and apply for a Grant of Probate. Once the grant is received, any assets can be sold, all debts can be discharged and, once estate accounts have been prepared and approved, the residuary estate can be distributed to the beneficiaries.

What are the risks associated with being an executor?

Administering and distributing a deceased’s estate can be complex, involving various risks to the executor if they get this wrong, including but not limited to:

• Clearing debts: the executor must ensure that all of the deceased’s debts are identified and paid, where any failure to clear outstanding debts may mean that a claim can be made against the executor in the future, even if they were unaware of the existence of the debt due to an innocent oversight or genuine mistake. The risks to the executor are also exacerbated where there are insufficient funds to pay off all debts, as creditors must be paid in strict order of priority.

• Identifying beneficiaries: the executor must ensure that all beneficiaries who are entitled to inherit are identified. This is not always straightforward, for example, where the deceased’s Will provides for their estate to be shared between ‘all of their children’, but it is not clear how many or who these children are. This type of uncertainty is commonplace in the context of modern families, comprising several descendants from different marriages or relationships. Again, any failure to identify a beneficiary may mean that an executor is held personally liable to the extent of any legacy that any given individual would’ve been entitled to receive.

Other risks can arise around claims made against the estate from individuals who believe that they’re entitled to a share, disputes arising between those with an interest in the estate, or even where an executor mistakenly pays a bankrupt beneficiary, rather than the trustee in bankruptcy. In all of these scenarios, there is the potential for personal liability on the part of the executor.

How can the risks of being an executor be avoided?

The job of winding up someone’s affairs after their death is one that involves both responsibility and financial risk for an executor. It is, therefore, imperative that an executor seeks early legal advice, ensuring that the correct procedures are followed to minimise any exposure to personal liability — from advertising for creditors to checking for any bankrupt beneficiaries.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its’ accuracy, and no liability is accepted for any errors or omissions. Before acting on any of the information contained herein, expert advice should be sought.

Dealing with hidden assets on divorce

On the breakdown of a marriage, it is not uncommon for the wealthier spouse to seek to hide their assets in an effort to try to defeat any claim on divorce. However, any party who tries to conceal their financial worth can expect the court to flex its’ judicial muscles, when this comes to light.

Below we look at the importance of disclosure during financial remedy proceedings and what steps can be taken by the court in favour of the financially weaker spouse to deal with underhand tactics. 

What are the rules relating to disclosure on divorce?

When a marriage irretrievably breaks down, and the division of martial assets cannot be agreed, the court may need to make an order. To do this, and to do so fairly in all the circumstances, the parties will be required to provide the court with what is known as ‘financial disclosure’. This is the process whereby both parties to a marriage are ordered to disclose details of their income, property and assets. This should include assets held jointly and individually. It should also include assets acquired prior to, during and even after the marriage has ended. In this way, the court can assess the parties’ respective economic needs, obligations and responsibilities in the context of their financial worth on divorce.

In some cases, there may be assets that one spouse knows nothing about. Still, even if one party has no knowledge that a particular asset exists, this must be disclosed to the court. This is because the parties are legally required to provide full and frank disclosure of their entire financial circumstances.

What are the consequences of non-disclosure on divorce?

There are various ways in which a financially stronger spouse may attempt to defeat or reduce a claim made against them on divorce. These can include converting assets into cash, temporarily transferring assets to family members, placing assets into sham trust mechanisms and moving assets offshore. However, whilst attempts to deploy these kinds of tactics can occasionally be pulled off, the courts have wide-ranging powers when it comes to dealing with anyone who is not playing fair. These include:

• Assessing an award based on the inferred wealth of a party, even if assets can no longer be located

• Notionally ‘adding back’ an asset to the matrimonial pot, as if the asset transfer had not taken place

• Varying or reversing the transfer of assets into a trust or other corporate structure

• Awarding a larger proportion of English-based assets in recognition that these are easier to locate.

 The courts can also revisit an order once made, setting this aside and ordering a party to pay any legal costs arising from resolving issues about previously undisclosed assets. More importantly, if a party is found by the court to have deliberately hidden assets, they could be potentially prosecuted for fraud.

If you know or suspect that your former spouse is seeking to hide or dissipate assets on divorce, expert legal advice should be sought immediately to help protect your position financially.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its’ accuracy, and no liability is accepted for any errors or omissions. Before acting on any of the information contained herein, expert advice should be sought.

Equity Release FAQs

Equity release schemes are aimed at those 55 or over looking to free up some equity in their property, while continuing to live there and without making monthly repayments. Needless to say, there are both benefits and drawbacks to these types of schemes, where answers to the following frequently asked questions will help homeowners to make an informed decision.

What is equity release and how does this work?

A growing number of people in later life are finding themselves ‘property rich but cash poor’, where equity release is the process by which a homeowner can extract some or all of the wealth tied up in their property by way of regular payments or a cash lump sum.

There are two main types of equity release schemes:

• a lifetime mortgage: where a loan is secured against the property, but ownership retained, and the loan repaid from the homeowner’s estate once they die. The interest on the loan can either be repaid at regular intervals, or rolled up and repaid on redemption of the loan;

• a home reversion plan: where part or all of the property is purchased by the scheme provider, but the seller will be permitted to live in the property rent-free under a lifetime lease. When the property is sold, typically after the seller dies or moves into long-term care, the provider will be entitled to their percentage share by way of repayment.

What are the benefits of equity release schemes?

There are various benefits to equity release, although the advantages involved will depend on the nature of the scheme. In broad terms, equity release schemes will:

• give you tax-free cash, with the freedom to spend this on anything you want

• allow you and others to benefit from your wealth during your lifetime

• enable you to continue living in your current home, without the upheaval of moving.

The ‘no-negative equity guarantee’ offered by lenders approved by the Equity Release Council also means that the amount of money borrowed against the value of your home, plus any rolled-up interest, can never go above the value of that property.

What are the drawbacks of equity release schemes?

There are various drawbacks with equity release, although again the disadvantages will depend on the nature of the scheme. However, in broad terms, equity release schemes will:

• be unlikely to pay you the full market value for your home, where you will receive far less money, comparatively, than you would from selling the property on the open market

• diminish the value of your estate, where this will reduce the amount of inheritance that your beneficiaries would otherwise receive after you die

• potentially reduce your right to means-tested benefits, including funding for social care.

Which equity release scheme is right for me?

For each of the two equity release schemes, there are various options available, where it’s important that both the immediate and future needs of the homeowner are matched with the right type of scheme. The importance of seeking expert advice from a qualified professional cannot be underestimated, so that you fully understand the long-term implications, with sufficient knowledge of the risks, rewards and legal obligations under your preferred scheme.

Legal disclaimer

The matters contained herein are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its’ accuracy, and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should always be sought.