Planning For Your Future

 

Protecting or preserving your assets demands early planning.

Working closely with your legal advisor is crucial in matters such as these.

Planning the way ahead for you and your family should be tailored to your personal circumstances. ‘One size does not fit all’ when it comes to preparing for someone’s future.

At Frodshams we work closely with our clients and work with them over years and through life’s ups and downs, responding to the changes that life brings. As your circumstances change, then so will your needs and therefore you must ensure the legal advice you receive takes that into account.

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Below are just some of the issues to consider when planning for your future:

  • Inheritance tax
  • Gifting the family home
  • Long term care home fees
  • Equity release plans
  • Providing for a disabled or vulnerable beneficiary Read More
  • Your affairs if you were unable to manage them Read More
  • Protecting your pension benefits Read More

For more information please contact us or if you need help with any of the issues, even if it’s just to talk things through, then please don’t hesitate to contact us either by email, telephone or personal attendance. Where attending an office is difficult one of our team is more than happy to visit you at home.


 

Inheritance Tax

Planning ahead will give you the opportunity to make maximum use of the tax reliefs and exemptions that may be available to you for any Inheritance Tax liability you might have.

Inheritance Tax is charged on the net value of the assets passing from one person to another on death. This net value can sometimes include gifts which the Deceased person made in life.

Every individual has an allowance for Inheritance Tax purposes which is known as the ‘nil rate band’, this is currently fixed at £325,000.

Any gift to a spouse, civil partner or charity is exempt from Inheritance Tax.

Where someone dies leaving their entire Estate to their surviving spouse/civil partner then the survivor in effect also inherits the Deceased’s unused nil rate band. The result is that when the surviving spouse/civil partner dies their Estate benefits from a double nil rate band and therefore on current figures that would be a £650,000 allowance.

The following are some of the ways in which you can act to reduce your inheritance tax liability or its effects upon your estate:

Making gifts

Small gifts may not be taken into account when calculating the Inheritance Tax liability on death. Currently gifts of £3000 and under can be made and these will fall within the annual exemption. Regular gifts out of income and other one off gifts for family marriages may also be made free of the Inheritance Tax radar.

Any gifts which you make more than seven years before you die will be exempt from Inheritance Tax.

There are some gifts however which will not be discounted for Inheritance Tax. If you retain a benefit from a gifted asset then that asset will be included in your Estate for Inheritance Tax purposes. The simplest example of this is when you make a gift of the family home but remain in occupation of it, the value of the family home will remain inside your Estate when assessing the Inheritance Tax position on your death

If you gift your house and continue to live in it, your Estate or the person you gave your house to might still have to pay Inheritance Tax on its value when you die.

Reducing your Inheritance Tax bill by giving to charity

From 6 April 2012 if you leave 10 per cent or more of your net Estate to a qualifying charity your Estate may qualify to pay Inheritance Tax at a reduced rate of 36 per cent.

There are different ways that you can own assets such as money, land or buildings and the way that you own the assets and with who affects the way they’re treated when deciding whether the reduced rate of tax can apply.

Inheritance Tax reliefs

There are certain types of property that qualify for a full relief from Inheritance Tax or a discounted value for Inheritance Tax purposes.

The following assets may attract the relief or discounted value:

  • Business assets – such as shares in a business partnership, family company shares, land, buildings and machinery
  • Agricultural property – such as land, working farmhouses, farm workers’ cottages and barns
  • Woodland timber
  • National Heritage property – or famous and important works of art (but only in very rare cases)

 

Gifting the Family Home

Where you are the outright owner of your own home then you may have considered gifting it to someone for a number of reasons. Perhaps that someone has contributed financially to the purchase or the improvement of your house, or they have seen to its upkeep and general maintenance for years or they may even still live with you. Whatever the reason you need to fully understand the consequences of any gift you make.

There are a number of issues that you should consider before taking a step to making such a valuable gift and we have set out below just some of them to help you in making the right decision

Loss of legal ownership

On gifting your property you will no longer own the legal title to it and as a consequence you will lose the ability to enter into a legal mortgage with a lender or secure other such borrowing which would require your house as security.

Financial assessment in relation to funding long term care

If at a time in the future you require permanent nursing/residential care you will be assessed financially to ascertain if you qualify for government funding to meet wholly or partially the cost of that care. Funding assessment is carried out by the local authority, which will look at the assets within your ownership at the relevant time. Where the value of your assets is below a specified limit you may be eligible for the government funding. The local authority can raise enquiries on any gift which you may have made at any time before making your application for the government funding. Where the local authority are successful in establishing you have deliberately deprived yourself of an asset in order to secure government funding (by reducing the value of your assets in gifting) they can treat the gifted asset as if it were still in your ownership and possibly deny funding. The forseeability of you needing care at the time the gift is made and your reasons for the gift will be taken into consideration when the local authority is deciding whether or not to infer deliberate deprivation. There is no set time limit in which a local authority can challenge a gift.

Bankruptcy or divorce of the potential beneficiary

Once gifted the property will form part of the beneficiary’s assets and therefore if they are bankrupted or divorced in the future your home could be at risk from creditors or fund a divorce settlement. There are ways in which we can protect your immediate interests but long term consequences of these issues will need careful consideration and you should make sure you discuss these with your solicitor to ensure you are fully aware of them.

Inheritance tax issues

If you gift your house and remain in occupation of it without paying a full market rent then it is not an outright gift but a gift with a reservation of benefit and therefore is treated as part of your estate on death and is subject to Inheritance Tax in the usual way.

Outright gifts are potentially exempt transfers and therefore you must survive the gift for seven years to enable the gift to be lifted outside the Estate for Inheritance Tax purposes.

Where you pay a full market rent to the Beneficiary of the gift for your occupation of the property then the gift will be classed as an outright gift and without reservation. Please note however you must always ensure the rent is the full market rent at any given time, a rent that is not subject to an increase over the occupation period will result in your occupation falling to be classed as a gift with reservation.

Income Tax Issues

From 6th April 2005 a person may be liable to pay an income tax charge on the benefit they receive from having free or low cost use of property, which they previously owned or for which they provided funds for the purchase. However where that person pays full consideration for the occupation then they are exempted from the income tax charge.

The income tax charge falls to be calculated by reference to the market rental value of the property. Where the rental value does not exceed £5000 per annum the De Minimis exemption also applies and therefore no charge arises.

Capital Gains Tax Issues

If the person to whom you gift the house sells it in the future and it is not their main home they will then have to pay capital gains tax on any increase in its value since the date of the gift.

Protecting your occupation and beneficial rights in the property after the gift

Protecting you and your interests is vital in these matters. You may feel that such advice is unnecessary where you have good relations with the person benefitting from the gift but we see all too often that circumstances can change with death divorce and other unforeseeable and unexpected events. To protect you we can ensure your rights are clearly set out within a Trust document, which will protect you even where circumstances do change. Where you have contributed your finances to a mutual venture e.g buying another and larger property with your loved one then we can ensure there is documentation in place to record your contributions and prevent unnecessary confusion on your exit from the venture or even upon your death.


 

Long Term Care Home Issues

If you or a loved one need long term care in the future then the cost of this may impact your Estate.

A concern of every hard working individual is the need to preserve and protect their assets.

Care home fees as an issue regularly receives a lot of attention in the media

Currently, where someone needs long term care and they don’t qualify for funding from the government, they may have to meet the cost of the care from their own estate.

If you need care and you don’t qualify for funding from the government on health issues then where your Estate is valued above £23,000 you will be expected to pay for the care yourself. The cost of care can be very expensive, in some cases as much as £1000 per week. Where your income isn’t sufficient to meet the care costs then you will be expected to pay for it from your capital assets such as your savings or the equity in your house, as you may appreciate assets can be exhausted quite quickly.

There are ways in which you can preserve and protect your assets from care fees by making special provision within a Will or a Trust.


 

Equity Release Plans

This is a means of releasing capital from the equity in your home. It is a type of mortgage without the requirement to make monthly repayments. There are different types of Equity Release Plans and a financial adviser specialising in this area will advise you according to your wants and needs. Whichever plan you choose it will necessitate you instructing a solicitor to advise you on the legal effects of such a scheme. As interest on these loans can be high you should ensure you understand the legal and financial consequences before completing. As the consequences can be far reaching we would advise that you discuss such schemes with your family before you make a decision to proceed.

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