IHT Planning Matters Limited

1 Hopefully this quarterly commentary on all things relating to Inheritance Tax ( IHT ), a ran-dom collection of thoughts, government pronouncements, legislation, comment and opin-ions continues to be of interest. Our readership continues to climb and if any of your col-leagues/business contacts would want to be added to the circulation list or should you wish to unsubscribe (!), please let me know. As always, your feedback/further illumination or any of the articles here would be most welcome and if you would want back copies, these are on our website ( ). Welcome to the 11th three monthly Newsletter Issue 11 January 2016 IHT Planning Matters Limited IHT Planning Matters Limited Ingleside House 43a Upper Selsdon Road South Croydon Surrey CR2 8DG Phone: 0800 023 2449 Mobile: 07717 740055 Fax: 0870 191 8364 Email: This issue: Welcome 1 Budget Speech date an-nounced 1 Succession plans for a family company 2 IHT statistics 2 Chancellor s Stamp Duty changes are ill advised 2 A recent HMRC warning 3 Can accountants deal with probate?

2 3 The taxation of trusts/dividend allowance 3 Acceptable tax Planning or unacceptable tax avoidance? 4 Main residence tax free thresh-old 4 Reader s Questions 4 DIY Wills leave Muslims exposed to more IHT 5 IHT toolkit 5 The Lasting Powers of Attorney, Enduring Powers of Attorny and Public guid-ance (Amendment) Regu-lations 2015 5 Margaret Thatcher gift/artwork sold by force by Nazi regime 5 Our 15% pay away of agreed fees to profession-al introducers 6 Our one off fee for initial consultation 6 Our usual modus operandi 6 Future seminar commit-ments 7 Budget Speech date announced This will be on Wednesday 16th March 2016. Succession plans for a family company There was an interesting article in The Sunday Times on 13th December that caught my eye. It purported to comment on a recent discussion paper published by the Financial Reporting Council and highlighted the huge importance of a boardroom succession plan.

3 The paper s author(s) stated The absence of a (boardroom) succession plan can under-mine a company s effectiveness and its sustainability. It can also be a sign that the com-pany is not sufficiently clear about its purpose (or) the culture and behaviours it wishes to promote in order to delivery its strategy . Research apparently suggests that succession Planning should be an integral part of set-ting company strategy but it tends not to be prioritised and is sometimes ignored. This may be because the subject raises awkward and sensitive questions about the present and the future and how best to get there. Our own seminars (presented by Peter Legg) on Succession Planning and the Family Busi-ness usually involve large audiences of accountants, Willwriters, financial planners, solici-tors and business owners.

4 We are of the view that these are the most important issues affecting smooth succession: very few businesses survive to the third generation; the family will grow faster than the business can meet the (widened family s) life-style requirements. An obvious challenge; the tax tail should not wag the dog/values driven/not tax driven; there will inevitably be multiple ambitions / differing aspirations from the direc-tors / the shareholders / the employees / family members; generally, the older generation will have a more conservative attitude / scared of Page 2 IHT Planning Matters Limited there will be worry over shared decision-making. Not parent/child (as before) but adult / adult. Parents / children must accept they are now business partners; whose choice is it anyway?

5 Collective or collaborative? management / ownership / succession all need to be planned in parallel, with dif-ferent experiences and wide age range taken into account; don t leave succession too late, do it when it doesn t need to be done; dialogue, not monologue on succession issues. All need to agree on revised ar-rangements; there must be an openness to learn from those who may be better informed on particular aspects of the business; there needs to be a concept of egalitarianism / solution-mindedness. IHT statistics The annual yield from IHT currently runs at 4 billion. This represents an increase from 2012/2013 of 15% (no doubt due in part to fiscal drag the freezing of the tax free threshold at 325,000). The average IHT bill payable on an estate is 170,000.

6 Just under 18,000 families pay IHT, the largest number recorded since 2008. With the rise both in the stock market and in property values, future IHT receipts are only going one way. Chancellor s Stamp Duty changes are ill advised The Institute of Fiscal Studies ( IFS )has criticised the changes to the Stamp Duty Land Tax ( SDLT ) regime introduced in the recent Autumn Statement. From 1st April 2016, higher rates of SDLT will be charged on the purchase of additional residential properties (above 40,000) such as buy-to-lets and second homes. The higher rate will be 3% above the current SDLT rate. The additional levy will not apply to caravans, mobile homes or houseboats. The IFS director Paul Johnson said: The increase .. of nearly 1 billion on second homes and buy-to-let properties is ill-designed, not least because it reintroduces, albeit on a small scale, a cliff edge into the Stamp Duty schedule a mere year after the Chancellor made much of abolishing cliff edg-es in the Stamp Duty schedule.

7 The Association of Residential Letting Agents described the measure as catastrophic news for the private rental sector . Additionally, as announced in the July Budget, from 2017, landlords will only receive the basic rate of tax relief of 20% on mortgage payments. Buy-to-let landlords will also be affected by a future change to the Capital Gains Tax ( CGT ) rules, which means that from April 2019 they will have to pay any CGT due within 30 days of selling a property, rather than waiting until the end of the tax year. The IFS denied that the Autumn Statement signalled the end of austerity , suggesting that very significant spending cuts would still need to be implemented before the end of the Parliament. Page 3 IHT Planning Matters Limited Warned that If you have money or property abroad, you could owe tax on it.

8 From next year we will begin to receive offshore account and trust information from over 90 jurisdictions. If you have declared all your income, you have nothing to worry about it. Come to us before we come for you. Visit A recent HMRC warning The taxation of trusts/dividend allowance Currently, when a dividend is paid to an individual, it is subject to different tax rates com-pared to other income by reason of a 10% notional tax credit being added to the dividend. So for an individual who has dividend income which falls into the basic rate band, the ef-fective tax rate is nil as the 10% tax credit covers the 10% tax liability. For higher rate (40%) and additional rate (45%) taxpayers, the effective tax rates on a dividend receipt are 25% and respectively.

9 To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed. From 6th April 2016: the 10% dividend tax credit is abolished, with the result that the cash dividend re-ceived will be the gross amount potentially subject to tax; a new Dividend Tax Allowance charges the first 5,000 of dividends received in a tax year at 0%; for dividends above 5,000 new rates of tax on dividend income will be for basic rate taxpayers, for higher rate taxpayers and for additional rate taxpayers. Fears were expressed that the new (complex) rules would apply not only to individuals but to trustees too. It was not until publication of the draft Finance Bill 2016 that it became clear that the new rules will not after all apply to trustees.

10 With accountants income fee being reduced annually by incursions into an accountant s typical workload by other professionals, forward-looking accountants welcomed the an-nouncement by the Legal Services Board (The Probate Services (Approved Bodies) Order 2009) that accountants could undertake probate. This, for too long the natural preserve of solicitors, was long overdue. It is accountants who deal with tax/the calculations of IHT and applications for a tax repayment, accountants who are used to dealing with HMRC on a daily basis, accountants who are best placed to provide valuations (particularly share valuations) and argue with HMRC specialists, accountants who deal with the preparation of Estate Accounts, etc. Of course, this innovation was resisted by The Law Society but does present a useful source of additional fee income for accountants who have picked up the gauntlet.