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Wills for cohabiting couples

Archive for the ‘Tax planning’ Category

Wills for cohabiting couples

Wednesday, May 24th, 2017

There’s no denying the huge steps forward seen in creating equality for same-sex couples in the UK during the 21st Century, first with the Civil Partnership Act 2004 and then the Marriage (Same Sex Couples) Act 2013. However, as heterosexual couples have marriage as the only option open to them to make their relationship formal, there have been suggestions of a new inequality having now been created. A legal challenge by mixed-sex couple Rebecca Steinfield and Charles Keidan to be able to enter into a civil partnership instead of a marriage was unsuccessful earlier this year, meaning it’s unlikely the situation will change for heterosexual couples in the near future.

If a man and a woman in a relationship don’t want to marry, the only other option currently available to them is cohabitation. There are key financial implications for such couples, however, in particular those relating to inheritance tax (IHT). Whilst such couples might describe themselves or be described by others as being in a ‘common law marriage’, this is not a legal term and as such does not give them the same rights as those who are married or in civil partnerships.

Heterosexual couples in this situation must therefore make sure they have carefully planned every detail of what will happen should one of them die. Without a will in place, the death of one partner would result in intestacy rules coming into effect, which would mean the surviving partner would not be provided for, potentially leaving them in serious financial difficulty. Anyone cohabiting with but not married to their partner is therefore strongly advised to have a will in place which clearly lays out what should happen to their assets in the event of their death, as well as making plans for the IHT which is likely to be due.

It is also worthwhile cohabiting partners looking at any pension or life policies they may have, as well as the death-in-service benefits offered by their employers, to ensure any payments in the event of their death will go to the right person. Whilst spouses and civil partners are commonly recognised in all these cases, cohabiting partners are likely to lose out without a formal nomination.

25% charge on QROPS transfers

Wednesday, March 29th, 2017

In the Budget earlier this month, the Chancellor Philip Hammond announced a 25% charge for people moving their pension abroad via a QROP (a Qualifying Recognised Overseas Pension Scheme). If you’re planning to spend your retirement somewhere warmer and sunnier than the UK then the news may have worried you somewhat – will it end up stalling your dreams of life after work spent overseas?

The charge will affect qualifying recognised overseas pension schemes (QROPS) and has been introduced in an effort to prevent people from moving their pension savings overseas in order to avoid paying UK tax. As such, there are a number of exemptions to the new rules, which should mean that anyone legitimately planning to move abroad when they retire will be able to do so without parting with a hefty sum from their retirement pot.

There are three situations where an individual will be exempt from paying the new 25% charge: if both the QROPS and the individual are in the same country following the transfer; if the QROPS is in a country within the European Economic Area (EEA); or if the QROPS is sponsored by an employer and constitutes an occupational pension.

HMRC has stated that “only a minority” of QROPS transfers will be subject to the new policy which further backs up the idea that the 25% charge has been introduced to deter people from abusing the QROPS system to avoid paying UK tax. As such, anyone with plans to retire to a warmer climate shouldn’t worry about losing a quarter of their pension to do so.

It’s also worth noting a further change to the QROPS system, however. HMRC has stated that “payments out of funds transferred to a QROPS on or after 6 April 2017 will be subject to UK tax rules for five tax years after the date of transfer, regardless of where the individual is resident”. It’s definitely worth seeking professional financial advice regarding QROPS if the changes to the rules surrounding overseas pensions are likely to affect you in any way, so please get in touch with us directly to ask any questions you have.

An extra year before Making Tax Digital becomes law

Thursday, March 23rd, 2017

As part of the Spring Budget, the Chancellor Philip Hammond gave an update at the beginning of March on the plans for rolling out Making Tax Digital (MTD), the scheme by HMRC to make digital record keeping mandatory and implement a number of changes to modernise the tax system.

The key announcement was that many unincorporated businesses will now have another twelve months to prepare for the changes, including moving record keeping systems online and delivering quarterly updates. Those businesses with an annual turnover under £83,000, the VAT registration threshold, will now have until April 2019 before MTD becomes mandatory for them.

This will no doubt come as a welcome extension to the rollout for many, as it will make it easier for small businesses to manage the cost of investing in new accounting software and training for accountancy departments. Businesses with an annual turnover below £10,000 are already exempt from MTD, as are individuals who earn less than £10,000 in secondary income, such as landlords.

The decision by the chancellor to delay making MTD mandatory for small businesses has been praised by many in the financial and accountancy sectors, including the Chartered Institute of Taxation (CIOT), the Association of Chartered Certified Accountants (ACCA) and the Low Incomes Tax Reform Group (LITRG). However, some have suggested that the move to April 2019 may not go far enough, with calls to make the move to digital taxation as flexible as necessary to allow businesses to adapt to the new systems in a way that will not impact negatively on their finances.

Meanwhile, the additional year is unlikely to impact larger businesses which have already begun implementing new systems in preparation for MTD. This means that, despite the deferral for small businesses, 2017 is still set to be a pivotal year in the implementation of digital tax by HMRC. If you’ve not already begun looking at what your business needs to do to prepare for MTD, or even if you have started the process, it’s a good idea to ensure that you’re in a position to move to digital tax sooner rather than later.

An extra year before Making Tax Digital arrives

Wednesday, March 15th, 2017

As part of the Spring Budget, the Chancellor Philip Hammond gave an update at the beginning of March on the plans for rolling out Making Tax Digital (MTD), the scheme by HMRC to make digital record keeping mandatory and implement a number of changes to modernise the tax system.

The key announcement was that many unincorporated businesses will now have another twelve months to prepare for the changes, including moving record keeping systems online and delivering quarterly updates. Those businesses with an annual turnover under £83,000, the VAT registration threshold, will now have until April 2019 before MTD becomes mandatory for them.

This will no doubt come as a welcome extension to the rollout for many, as it will make it easier for small businesses to manage the cost of investing in new accounting software and training for accountancy departments. Businesses with an annual turnover below £10,000 are already exempt from MTD, as are individuals who earn less than £10,000 in secondary income, such as landlords.

The decision by the chancellor to delay making MTD mandatory for small businesses has been praised by many in the financial and accountancy sectors, including the Chartered Institute of Taxation (CIOT), the Association of Chartered Certified Accountants (ACCA) and the Low Incomes Tax Reform Group (LITRG). However, some have suggested that the move to April 2019 may not go far enough, with calls to make the move to digital taxation as flexible as necessary to allow businesses to adapt to the new systems in a way that will not impact negatively on their finances.

Meanwhile, the additional year is unlikely to impact larger businesses which have already begun implementing new systems in preparation for MTD. This means that, despite the deferral for small businesses, 2017 is still set to be a pivotal year in the implementation of digital tax by HMRC. If you’ve not already begun looking at what your business needs to do to prepare for MTD, or even if you have started the process, it’s a good idea to ensure that you’re in a position to move to digital tax sooner rather than later.

Are tax bills set to rise?

Wednesday, February 15th, 2017

A recent report from the Institute for Fiscal Studies (IFS) suggests that the amount of tax paid in the UK is set to rise to levels not seen for thirty years. Plans by the Chancellor, Philip Hammond, to increase tax rates and reduce public spending in order to fill the £34 billion hole in the budget, will mean that over 37% of the UK’s national income will come from tax receipts, a figure not seen since 1987.

According to the IFS, the Chancellor’s decision to scrap the plans of his predecessor, George Osborne, to balance the country’s books by 2020 means that austerity measures are likely to continue beyond Hammond’s self-imposed new target of the end of the next parliament. Whilst the report estimates that the UK economy will see growth of 1.6% this year, this will slow to 1.3% in 2018.

The weaker pound following the Brexit result last year will help performance in the export and manufacturing sectors, but this will be counteracted by higher costs for consumers. The report also forecasts that the UK economy will be 3% smaller in 2030 than it would have been had Britain remained in the EU.

The report also looks at the impact upon public services, with real spending on this area having fallen by 10% since the 2009-10 financial year. The NHS has been hit particularly hard in recent years: in the five year period between 2009-10 and 2014-15, health spending has seen the slowest rate of growth since the 1950s.

Despite cuts in these and other areas, the Chancellor is relying most heavily on revenues from income tax to reduce the deficit. An increase of 24% in income tax receipts is being sought by the government from now until 2021-22. Half of these will come from an additional 140,000 people paying the top rate of tax on their earnings, despite the government’s promise to raise the threshold for the higher rate to £50,000 by 2020.

Should the Bank of Mum and Dad start charging interest?

Wednesday, January 4th, 2017

If you’ve lent money to your children to help them with university fees, a deposit on their first home or even just to support them with the rising cost of living, then you’re not alone. Statistics suggest that around a quarter of all mortgages are now partially funded by the ‘Bank of Mum and Dad’.

But have you ever thought about whether you should charge your offspring interest when they pay the loan back? It’s a consideration that’s likely to make many parents feel like Dickens’ famous festive miser, Ebeneezer Scrooge. However, there are arguments to be made for adding on interest which might help to prevent you from donning a Victorian style top hat and uttering ‘Bah, humbug!’

If you’re concerned that any money provided to help out your children might end up becoming a ‘permanent loan’ that you might never see again, interest can be a good way to ensure this doesn’t happen. Whether you put an interest rate in place from the start, or make it clear that interest will start to be charged if the money isn’t paid back by a certain point, the idea of having to repay more than the initial amount can help the borrower take the loan seriously and ensure regular payments are made.

It’s also worth considering what adding interest could help teach your children about ‘real world’ loans, especially if they are still relatively young. Another way of achieving this is to refuse multiple loans – a bank wouldn’t agree to an endless stream of applications for further credit, so if you do want to see your money again you should ensure that your offspring don’t see you as an unlimited supply of funds.

Of course, the Bank of Mum and Dad isn’t really a bank at all, which is what makes it attractive for all involved. Young people will likely feel more secure borrowing from their family than risking being turned down by a bank and damaging their financial status; whilst parents who can afford to loan their children money know it might offer some protection from the difficulties of struggling to pay off credit. Charging interest might be something you’re completely comfortable with, or it might be an idea you would never entertain; ultimately, however, the choice is entirely yours.

The Autumn Statement: What it means for you and for the country

Wednesday, December 7th, 2016

The Autumn Statement delivered by chancellor Philip Hammond on 23rd November offers the first major insight into the government’s financial plans both in the lead up to Brexit and in the period immediately following the UK’s departure from the EU. But whilst the country’s economic future was clearly a major factor within Mr Hammond’s first statement as Chancellor, there are also numerous implications for the day-to-day finances of people across the country.

A key announcement within the Autumn Statement was a change to salary sacrifice schemes, which enable employees to receive goods or services in place of part of their salary, which in turn lowers both their national insurance and income tax payments. Whilst the most popular options – childcare vouchers, pension contributions and bicycles as part of the ‘cycle to work’ scheme – will stay as they are, others, such as gym memberships and computer equipment, will be taxed from April next year. Company cars with ultra-low emissions, however, will continue to be exempt from tax.

Motorists received both good and bad news within the statement. Fuel duty remains frozen for the seventh year in a row, which Mr Hammond claims will save car drivers an average of £130 per year, with van drivers set to save around £350. However, as Insurance Premium Tax is set to rise from 10% to 12% in June 2017 – the third rise of this tax in 18 months – this is likely to cancel out the benefits for many. Other insurance products such as home insurance and pet insurance will also see an increase.

There are some benefits for earners as the income tax threshold is set to increase slightly from the current figure of £11,000 to £11,500 in April 2017. The National Living Wage will also increase from £7.20 to £7.50 an hour at the same point.

Former chancellor George Osborne’s plan to balance the books by 2020 is clearly now a distant memory as the national debt is set to rise from last year’s figure of 84.2% to 87.3% this year and again to 90.2% in the 2017-18 financial year. The forecast for the period until 2021 has also worsened, with the government predicted to be £122 billion worse off than in the previous forecast given in the Budget in March. Mr Hammond has already been accused of offering a particularly pessimistic outlook – particularly by ‘Brexiteers’ – with the Chancellor’s response being that the view laid out is only one of several potential possibilities for the UK’s economic future.

The importance of having a Will

Wednesday, July 20th, 2016

Despite the fact that having a Will in place is commonly accepted as the most effective way to leave details about your inheritance, the number of people who don’t have one is remarkably high. Charity will-writing scheme, Will Aid, has found that 53% of people in the UK don’t have a Will in place. The reasons for this are varied: some view making a Will as something to do when they get older, others simply don’t understand why having a Will in place is so essential.

Even if you have discussed with your family how you would like your estate to be administered following your death, putting it down in writing ensures clarity and reassurance for your loved ones both whilst you are still living and after your death. Not only does a will allow you to say what you would like to go to whom, as well as any charities or other causes to which you would like to make donations, but it is also your chance to make it clear who you want to act as the executors of your estate after you’re gone. Making this clear can minimise confusion and ensure the people who you trust are those in control following your death.

If you don’t have a Will in place when you die, it can cause a number of problems. The estates of those who die without a will are administered following the Law of Intestate Succession. In these circumstances, spouses and civil partners have specific rights but do not automatically inherit the entire estate of their other half. Any children have inheritance rights, but more distant family members, friends and cohabitants do not. Without a will, you cannot choose who your executors will be either, losing control over how things are handled.

Simply having a Will is also not enough: you need to ensure it’s both a legal document and kept up to date. Writing your own will might seem like a good way to ensure matters unfold exactly as you wish after you die, but can actually trigger legal disputes that go on for months or even years following your death. A Will that hasn’t been updated for some time can also cause similar problems if it doesn’t reflect the position of both you and your family at the time of your passing. The best way to ensure this doesn’t happen is to hire a solicitor with the expertise in this field to ensure your will is both up to date and completely legal.

Inheritance tax: the changes you need to know about

Wednesday, July 20th, 2016

The changes to inheritance tax that were introduced in the 2015 Budget will soon come into effect, with some becoming the law as early as April 2017. With less than a year to prepare for these changes, it’s important to ensure you know what to expect and that you’re doing everything you need to in order to ensure you aren’t caught out.

The biggest shift is an increase in the value of estates that can be passed on before any inheritance tax is paid. At the moment, the limit is £325,000 per person, but from April next year that figure is set to go up thanks to a new “family home allowance”. This will be worth £100,000 for the first year, £125,000 in the 2018-19 financial year, £150,000 in 2019-20, before finally reaching £175,000 in 2020-21. Any further increases from 2021 onwards will be in line with the Consumer Price Index.

From April 2020, up to £500,000 of assets can therefore be passed on without any inheritance tax levied upon them. As the limit is applied to individuals, married couples and civil partners will be able to pass on up to £1 million of assets including property tax-free. Extra peace of mind comes from the fact that this combined amount will be upheld even if one partner dies before the new limit is introduced in 2017.

In addition to these changes, from July last year those downsizing their property are eligible for an “inheritance tax credit”. This means that you will still qualify for the increased threshold even if you sell an expensive property, as long as the majority of your estate is being left to your direct descendants.

It’s also worth remembering that the new total must include a property which is deemed a “family home” – the main property in which the owner or owners and their family live. Any additional properties, including buy-to-let, will still be added to the total size of the estate. Whilst the changes will bring down the cost of inheritance tax for anyone owning a family home, it has also been confirmed that the allowance will be gradually withdrawn for properties worth £2 million or more.

All of these changes mean that your financial planning should also change to keep up with the developments coming down the pipeline. If you’re unsure of how you need to alter your plans, or when you need to do so, the best course of action is to speak with us.

How will Brexit affect your finances?

Wednesday, July 6th, 2016

At this very early stage, the full impact of Brexit on our personal finances remains unclear, but we can already observe the following points.

The Pound and Prices

If the pound continues to fall then importing goods from other countries will be more expensive. This will push prices up and lead to a rise in inflation: but it’s good news for exporters as their goods become cheaper to buy.

Petrol

An early example of prices going up will be seen on the petrol forecourts. Wholesale petrol prices are quoted in dollars, so as the pound falls against the dollar, petrol prices will rise. The Petrol Retailers Association are already talking of a rise of 2-3p per litre.

Savings and Investments

Without question, the biggest threat to the stock market and your savings and investments is a prolonged period of uncertainty – the one thing markets hate above everything else. Assuming everything is worked out relatively quickly then the stock market should return to a normal pattern of trading – and as George Osborne has said at several points over the last week or so, the fundamentals of the UK economy are relatively strong. We certainly cannot assume that Brexit would be bad for shares: in the long run the stock market will be affected by events around the world – China’s economy, growth in the Eurozone, the outlook for the US – as much as it will be affected by Brexit.

Clearly any rise in interest rates (see below) would be good news for savers.

Interest rates and Mortgages

Before the Referendum vote, Remain were saying that a vote to Leave would push up borrowing costs, leading to higher mortgage payments and increasing renting costs. But if Brexit were to lead to a period of low growth then interest rates could be cut in a bid to stimulate the economy. David Tinsley, UK economist at UBS, has said that he expects two interest rate cuts from the Bank of England over the next six months, taking rates from the current 0.5% to zero.

House Prices

There appears to be some consensus that Brexit could lead to a fall in house prices, especially in London and the South East. The Treasury has spoken of a fall of 10-18% over the next two years. Clearly not good news for existing homeowners, but anyone with children struggling to get a foot on the housing ladder may take a different view.

Tax

During the campaign, George Osborne gave dire warnings of tax rises in the event of a victory for Leave. This would be directly contrary to the Conservative’s election pledge and would be difficult to implement. On the face of it, you could have said that an extension of ‘austerity’ for a further two years beyond 2020 was much more likely, but the Chancellor and Theresa May appear to be uniting behind an approach which abandons the fiscal charter and effectively loosens austerity. A further cut in corporation tax, to encourage businesses to remain in the City, has already been announced by Mr Osborne.

The Leave campaign did give a pledge to remove the 5% VAT on domestic fuel required by EU law – but there were so many pledges flying about that it is perhaps best to not build this into your household budget just yet.

Pensions

David Cameron did claim that a vote to Leave would threaten the ‘triple lock’ on pensions, but this presumes a poorer economy and a lower national income. If economic performance did deteriorate after Brexit, then the Bank of England might opt for a return to Quantitative Easing (QE) and/or lower interest rates. More QE would push down bond yields and with them annuity rates – so anyone buying a pension annuity would get less income for their money.