Trust in financial planning

Making sure that you have your affairs properly planned is a crucial part of financial planning; and trusts can be a useful mechanism in leaving a legacy for your family and future generations.

This is the first in a series of articles on trusts – what is a trust, what are the various types of trusts, who are the parties involved and what are some of the advantages and disadvantages of establishing a trust?

Let’s start from absolute basics and discuss what a trust is.

You have to go back into the mists of time, to the medieval period to find the origins of the law of equity. However, trusts evolved as a way of separating the ownership of property between legal and beneficial ownership. In other words, the legal ownership was retained by one person (a trustee) and the benefit of that property was enjoyed by another person (the beneficiary). A simple example would be that a property is legally owned by a trustee, who allows the beneficiary to live in the property or receive the rent without ever having legal ownership of the property itself. It’s a separation of the ownership between legal and beneficial.

There are three parties (sometimes four) involved in a trust. The first is the settlor who establishes the trust, appoints the trustees (which may include him/herself) transfers an asset to the trustees and nominates the beneficiaries. The fourth possible party is a protector, who is sometimes seen with offshore trusts. However, let’s not complicate it at this stage.

In order for a trust to be valid, there needs to be three certainties. These were established in law by a famous case that occurred as far back as 1840 known as Knight -v- Knight; and that law still stands to this day.

The three certainties are the basic ingredients that must exist in order for a trust to be valid. These are, certainty of intention, certainty of object and certainty of subject. In very basic terms, the settlor must have intended to create a trust; you must be able to identify the assets of the trust (the subject) and the beneficiaries (the objects) must be named or identified or at least defined so they can be ascertained. If any one of these tests are failed, then the trust is unlikely to be valid.

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Sadly, coronavirus has made people think about death!

The Coronavirus pandemic has, sadly, increased the demand for people wanting to put their financial lives in order. Solicitors have seen an upsurge in demand for writing wills, for example.

I must admit that I feel uncomfortable writing this article, but we are being asked for advice on what clients should do in the knowledge that they might die sooner than they anticipated. So, I’ve decided to set out some of the issues that we would highlight as financial planners to a client who is close to death – often referred to as ‘deathbed’ planning.

Here’s a very simple list of things that should be thought about in those difficult circumstances:

  1. If you haven’t written a will, write one now; and if you have a will, make sure that it is reviewed by a suitably qualified solicitor.
  2. Review letters of wishes in relation to any discretionary trusts that you may have settled. These should be lodged with the trustees but not made available to the beneficiaries of the trust.
  3. Consider the exempt gifts, such as the Annual Allowance (£3,000 2020/21) and the small gift allowance (£250 2020/21).
  4. If you have a life expectancy of at least 2 years, you might want to consider investments that qualify for Business Property Relief or in agricultural land that attracts Agricultural Property Relief.
  5. Including a legacy in your will of at least 10% of the value of your net estate to a registered charity, reduces the inheritance tax (IHT) rate from 40% to 36%.
  6. Investing in woodlands may open up Woodlands Relief on the value of any trees or underwood growing on the land.
  7. Life assurance and pensions should be checked to make sure that trust deeds and nominations are in place to ensure that any benefits fall outside the estate.
  8. Check the joint ownership of assets, in case the equitable interest needs to be severed to ensure the disposition passes under the will to maximise IHT savings.
  9. Where the estate exceeds £2m, it may be worth making gifts to capture the ‘additional threshold’ available on a main residence. Even if the gift is a Potentially Exempt Transfer (PET) there may still be an advantage.
  10. Transfer assets owned by a spouse to take advantage of the Capital Gains Tax (CGT) uplift upon death. Make sure the will is reviewed though to ensure they are transferred back to the surviving spouse to ensure they receive the asset back at the uplifted probate value.
  11. Consider investing in buildings, land, works of art and heritage chattels that qualify for the ‘Conditional Exemption Tax Incentive Scheme.’ These are exempt from CGT and IHT as long as the owner agrees to look after them, allow public access and keep them in the UK.

Anyway, I hope the helps anyone who may be concerned about the current situation and would like to know what practical steps are available. Stay safe and stay healthy; and I’ll see you on the other side!

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Spring Statement 2019

The Chancellor found himself presenting his second Spring Statement sandwiched between a series of crucial Brexit votes. His speech was peppered with references to the need to achieve a smooth exit from the EU. Beyond that, Mr Hammond chose to keep the Statement a low-key affair.

The Spring Statement had no new tax proposals and indeed deferred any extension of Making Tax Digital (MTD). However, the Chancellor did introduce various consultations, early-stage discussion papers and calls for evidence. These covered a wide range of topics, stretching from a forthcoming review of the National Living Wage to the development of a low carbon Future Homes Strategy. One notable absentee from the Chancellor’s consultation list was the second part of the Office of Tax Simplification’s review of inheritance tax, which had been promised for Spring 2019.

See attached our full Spring Statement summary below…

Spring Statement 2019


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Budget 2018

In a longer than usual Budget speech, and in a slightly more jocular than usual mood, the Chancellor laid out the government’s vision for post-Brexit Britain.

With a raft of measures aimed at shoring up businesses, infrastructure and the health service, Mr Hammond used the better than expected public finances to present an upbeat programme. Leaving some of the major announcements for last, this was a Budget to mark the coming of the end of austerity.

Some of the main announcements were:

  • The personal allowance will be raised to £12,500 from April 2019, one year earlier than planned. The higher rate threshold will also rise to £50,000 from April 2019, also a year earlier than planned, and will remain at the same level in 2020/21.
  • The lifetime allowance for pension savings will increase to £1,055,000 for 2019/20 in line with CPI.
  • The national living wage will increase from £7.83 an hour to £8.21.
  • The annual investment allowance (AIA) will increase to £1 million for all qualifying investments in plant and machinery made on or after 1 January 2019 until 31 December 2020.
  • For entrepreneurs’ relief, the minimum period throughout which the qualifying conditions for relief must be met will be extended from 12 months to 24 months from 6 April 2019.
  • From 1 April 2020, companies will be subject to a 50% limit on the proportion of annual capital gains that can be relieved by brought-forward capital losses. Companies will have unrestricted use of up to £5 million capital or income losses each year.
  • Business rates bills will be cut by one-third for retail properties with a rateable value below £51,000 for two years from April 2019.
  • Capital gains tax lettings relief will only apply where the owner of the property is in shared occupancy with the tenant. The final period exemption will also be generally reduced from 18 months to nine months.
  • The VAT registration threshold be maintained at the current level of £85,000 until April 2022.
  • From 1 April 2020, the amount of payable research and development (R&D) tax credits that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NICs liability for that year.
  • From 6 April 2020, when a business enters insolvency, HMRC will be a preferred creditor for taxes collected by the business for the government such as VAT, PAYE income tax, employee NICs, and construction industry scheme deductions – but not such taxes as corporation tax and employer NICs.
  • Large social media platforms, search engines and online marketplaces will be pay a 2% tax on the revenues they earn which are linked to UK users from April 2020.
  • Fuel duty was frozen, alongside beer and spirits.

As usual, announcements that may be relevant to our individual clients will be considered within our normal review process. Please do get in touch if you have any queries.

Full summary available below

Budget Summary 2018

Budget Summary 2018

Tax Tables 

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What is a Lasting Power of Attorney (LPA) and what are the potential benefits of holding one.

What is an LPA?

A Lasting Power of Attorney (LPA) is a legal document that lets you (the ‘donor’) appoint one or more people (known as ‘attorneys’) to help you make decisions or to make decisions on your behalf.

An LPA would give more control over what happens to you if you had an accident or an illness and can’t make your own decisions if you lack mental capacity. The donor needs to be 18 or over and have mental capacity when making an LPA.

Two types of LPAs which would give power to your attorney enabling them to make decisions such as:

Health and welfare

– Daily routine; washing, dressing, eating etc

– Medical care

– Moving into a care home

– Life-sustaining treatment

It can only be used when you are unable to make your own decisions.

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Wondering where to start with retirement planning?

The first 5 steps for pension and retirement planning.

1. Be financially independent

Your ‘personal’ pension is ‘personal’ for a reason. Start to take an interest in your own savings and pension for the future. As you start to expand your knowledge of the different saving streams which can be used towards your retirement your confidence will grow. Professional advice will help guide you down the right path for financial independence, and we would hope this will enable you to understand the requirements to maximise your retirement pot.

2. Start saving now

It’s never too early to start saving for your retirement; it doesn’t matter how much you can afford to contribute towards your pension as every little bit helps. The Annual Allowance for pension contributions is £40,000 per year therefore anyone that hasn’t had their Annual Allowance tapered can make the maximum contribution, although certain rules apply. The £40,000 per year includes any contributions towards your company pension; if you can afford to put the maximum amount in to your pension it may be worth opening a personal pension.

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Money Purchase Annual Allowance (MPAA) does this affect you?

What is MPAA?

The MPAA is in connection to the annual allowance for pension contributions which is £40,000 however you can carry forward unused pension contributions for the previous three years. The MPAA was introduced on 6th April 2015. It was £10,000 in tax years 2015/16 and 2016/17. MPAA was reduced to £4,000 from 2017/18, It remains at £4,000 in 2018/19.

What are the MPAA rules?

Once the MPAA has been triggered, this will affect every tax year onwards including the year which the MPAA was triggered.

What will trigger the MPAA?

– Take income from a flexi-access drawdown (FAD) plan.

– Take an uncrystallised funds pension lump sum (UFPLS). Taking a certain amount some tax free and some taxable or the whole amount out of your pension.

– Convert capped drawdown to FAD and then draw some income.

– Take more than 150% Government Actuary’s Department (GAD) from a capped drawdown plan.

– Receive a stand-alone lump sum when entitled to primary protection and TFC protection is more than £375,000.

– Receive a payment from a flexible lifetime annuity (ie. one where payments can decrease).

– Receive a scheme pension from a Defined Contribution (DC) arrangement where it’s being paid directly from those DC funds to less than 11 other members.

– In addition, anyone in flexible drawdown before 6th April 2015 is subject to the MPAA from 6th April 2015 (irrespective of whether they have taken an income withdrawal before then).

The above relate to a member and their own funds – these triggers don’t apply where benefits are being paid to a dependant/beneficiary. Complexity is created if you have both a defined benefit (DB) and DC personal pension. Even having one employee/employer crystallised benefit limits your contribution to £4,000 with no ability to use carry forward.

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Incapacity Crisis: Why you need a Welfare Power of Attorney

The number of people living with dementia worldwide in 2015 was 47 million; by 2030 that figure will reach 75 million.  A new case is diagnosed every 3.2 seconds.  

With these shocking statistics it is not surprising that there is a widening gap between the rising number of people likely to lose capacity and the relatively small number who have arranged a Health and Welfare Lasting Power of Attorney (H&W LPA).  Only 928,000 H&W LPAs have been registered with the Office of the Public Guardian. This suggests there are 12 million people at significant risk of losing mental capacity who have not made proper arrangements for their care in old age.

The majority of people are still avoiding important conversations and practical actions to make their preferences known about their end-of-life care and final affairs.  We do need to talk about end-of life care and how we would want to be treated if we found ourselves in circumstances where our quality of life is extremely poor.  Often people tell us they simply want to be comfortable, hydrated and well cared-for.  However, if they have not legally empowered trusted individuals to make these wishes known, it could be that this is not what actually happens.

Part of the reluctance to make our wishes known is the misconception that the `next of kin,’ (which is a term widely used in health & social care decisions) has an automatic right to act on behalf of an incapacitated relative.  In fact, the term has little basis in law, the next of kin are not automatically empowered to make any decisions. The authority to make decisions still lies the professional within the health or social care system.

H&W LPAs are useful documents offering protection and control as they allow you to appoint your chosen attorneys. Conversations with relatives are important, but it’s also necessary to empower those chosen people in writing.  The best way to do this is to express your wishes in an H&W LPA; this eliminates doubt and gives legal validity to your choices.

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What is tapered annual allowance and how does it potentially affect you?

What is the Annual Allowance for pension contributions?

There is an annual limit on the total amount of pension contributions that each person can make without incurring a tax charge (this includes employer and employee contributions) which is called the Annual Allowance. Where the total employer and/or individual contribution exceeds the Annual Allowance a tax charge will apply. The rate of tax will be determined by your taxable income in the tax year. For the 2018/19 tax year the Annual Allowance has been set at £40,000.

What is tapered annual allowance?

Tapered annual allowance comes into effect when a person’s total ‘adjusted income’ is over £150,000 and their ‘threshold’ income is above £110,000.

So, what is ‘adjusted’ and ‘threshold’ income?

In simple terms, ‘adjusted’ income is total taxable remuneration including pension contributions from both the employee and the employer. ‘Threshold’ income ignores pension contributions. Consequently, if your ‘adjusted’ income is above £150,000 and your ‘threshold’ income is over £110,000, your annual allowance will be tapered down.

Tapered annual allowance came into effect after the 2016/17 tax year. Anyone who fell into the catchment area stated above would have their Annual Allowance. Unless a person’s income stays below the relevant thresholds year on year or stays at £210,000 or above year on year, they could find their annual allowance changing each year.

Confusion is often caused when calculating the adjusted and threshold income, particularly when deciding whether particular types of income need to be included. Care needs to be taken when preparing these calculations

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Inheritance Tax (IHT) payments to HRMC climb over £5 billion!

The table below shows the total amount of IHT collected each year by HMRC over the last 7 years. The total for 2010/11 was £2.7 billion compared to £5.2 billion in 2017/18. This trend is likely to continue.



How does IHT work?

IHT is typically based on the total value of a deceased person’s estate. When someone dies, the first step is to establish whether the estate is `excepted’ or not. There are three types of `excepted’ estates.

Three types of excepted estate

Low-value estates

A low-value estate is where the total value of the estate is below the nil rate band of £325,000. (2018/19)

Exempt estates

This is where the total value of the estate is below £1,000,000 and there is no IHT due because of a spouse, or civil partner exemption and/or charity exemption.

Foreign domiciliaries

These are the estates where there can be no liability to IHT because the gross value of the estate in the UK does not exceed £150,000

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