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Month: June 2021

Unhappy families – challenging inheritance issues

Written by admin on . Posted in Inheritance Tax, Lasting Will & Testaments, Wealth, Wills & Probate. No Comments on Unhappy families – challenging inheritance issues

The outcome of a recent High Court case is a warning for anyone challenging a will. 

As inheritances become more valuable, the number of disputes about wills have increased. Court cases rose by almost 50% to 188 in 2019 compared to the previous year according to the latest Ministry of Justice figures. Many more are settled or abandoned along the way. The cases which do reach the High Court tend to be those involving the ‘right’ mix of large sums and elevated emotions. An example that appeared in April 2021 is Miles v Shearer.

Tony Shearer died in October 2017, leaving nearly all of an estate worth about £2.2 million to his second wife, Pamela. His two daughters, Juliet and Lauretta, born in the early 1980s to his first wife, received nothing. This prompted them to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975.

Lauretta wanted a payment from her father’s estate to cover:

  • The cost of a home, so that she could move out of her mother’s property;
  • Fees for training as a dog behaviourist, to enable her to support herself; and
  • The expenses of caring for her autistic daughter.

Juliet sought funds to:

  • Reduce her mortgage by about £245,000, so that it would become affordable for her on a repayment basis: and
  • Buy out her ex-husband’s share of a flat in which she was living – about another £100,000.

In 2008, shortly after his divorce, Tony gave £177,000 to Juliet and £185,000 to Lauretta. At the time he made clear there would be no further financial support to his daughters. This was an important factor in the case as it reinforced the decisions Tony made in the creation of his will.

The judge rejected the claims of both daughters, stating that neither had established a need for maintenance to be funded from their father’s estate. Two lessons can be drawn from the case:

  • Make your intentions clear in advance to try to reduce potential disappointment and the likelihood of legal action when a will is finally read.
  • Tony’s will achieved what he wanted to happen. Had he left matters to English intestacy laws, Pamela would have received only £125,000 and personal chattels outright, with Juliet and Lauretta immediately jointly receiving half the residue (less about £285,000 of inheritance tax).

Photo by Morgan Housel on Unsplash

 

Wheat, Chaff and Umbrella Companies – Separating Them Out

Written by admin on . Posted in Employment Tax, IR35, Tax. No Comments on Wheat, Chaff and Umbrella Companies – Separating Them Out

Contractors have turned to umbrella companies as a hassle-free way of providing their services to clients following the recent changes to the off payroll working rules. They receive no tax savings, but pass on some administration and pay less than a standalone limited company would charge. However, not all umbrella companies are equal.

The main advantage to using an umbrella company is that the off payroll working rules will not apply. All of your earnings become subject to PAYE in the hands of the umbrella company. HMRC has published a useful guide explaining how and what you will be paid when working through an umbrella company (www.gov.uk/guidance/working-through-an-umbrella-company).

Employment

You, as the contractor, will be an employee of the umbrella company, and the umbrella company will therefore pay you for the work carried out for clients, whether contracted directly, or via an employment agency. Gross pay is calculated after various costs, such as:

  • the umbrella company’s administration costs;
  • employer NICs;
  • workplace pension contributions; and
  • holiday pay.

As an employee, you are entitled to 5.6 weeks of paid holiday pay a year, and the umbrella company must pay you for this if you leave with holiday entitlement accrued.

However, holiday pay must normally be taken in the year it is accrued and cannot be carried forward. This is one area where an unscrupulous umbrella company can cost you, with some simply pocketing pay for unclaimed holidays.

Tax avoidance

Most umbrella companies are compliant with tax rules, but some use tax avoidance schemes. Be wary of an umbrella company that:

  • Claims they can help you keep more of your earnings than others; or
  • Asks you to sign an annuity, loan or other agreement involving a non-taxable element of pay, especially if this involves a different organisation to the umbrella company.

Moreover, avoidance schemes may come with a high, non-refundable, fee.

HMRC has published guidance to identifying schemes that wrongly claim to increase take-home pay.

Photo by Tim Matras on Unsplash

 

Business Relief, IHT and Holiday Homes

Written by admin on . Posted in Inheritance Tax, Tax, Wealth. No Comments on Business Relief, IHT and Holiday Homes

There are various tax advantages to a rental property being treated as a furnished holiday letting, but inheritance tax (IHT) business relief is generally not one of them. Even though the law supports HMRC’s view, property owners regularly appeal against their refusal to give relief.

The tax advantages

The most immediate benefit is full tax relief for finance costs. For normal rentals, relief is restricted to the basic rate, so a higher-rate taxpayer with a £250,000 mortgage at an interest rate of 2.5% will receive extra tax relief of £1,250 annually.

When it comes to disposing of a property, business asset disposal relief and holdover relief will be available.

Business relief

Some £225,000 in IHT was at stake in the recent appeal by the executors appointed by Sheriff Graham Loudon Cox against business relief being denied. Although the late taxpayer worked hard to ensure guests enjoyed their stay in his three furnished holiday flats, the First Tier Tribunal dismissed the appeal, finding that there was nothing exceptional about the business to elevate it beyond being one of mainly investment.

And that is the essential problem. The level of additional services provided must be sufficient that the activity is considered as non-investment. This needs to be more than just:

  • cleaning;
  • providing heating and hot water;
  • a welcome pack; and
  • being on call to deal with queries and emergencies.

These are considered as simply incidental or ancillary activities. The extra services which would have helped the appeal, such as dog-sitting, childminding, transport, breakfast and supper, were not provided to guests with sufficient regularity. Owners of holiday lets could consider making use of the CGT reliefs by gifting furnished holiday property to the intended beneficiaries during their lifetime. The property then drops out of charge to IHT after seven years.

Details about the reliefs available for furnished holiday lettings, and the qualifying conditions, can be found here.

Photo by Outsite Co on Unsplash