Financial news blog

Keep checking this section for all the latest news and views in the world of personal and corporate finance, particularly as they relate to our clients.

PENSION REPORT BOMBSHELL – THOUSANDS AT RISK

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Pension Income Drawdown is now a well-established and popular choice for many retirees, but he majority of retirees are unaware of the hidden dangers to their families if they fall seriously ill, if you have a pension please look out for the report from Zurich – Pension Report Bombshell- thousands at risk!

Pension funds require ongoing management. So, if the person who normally makes decisions about their pension is ill, what would happen to the value of a pension if the stock market crashed?

If, on the other hand, investment markets are generally positive, and the family simply needs some additional cash from the pension to pay for treatment of the pension holder, how are they going to get their hands on the money?

If the person that normally directs that investments within the pension require change or the income withdrawal amounts need amendment is ill, then any urgent action required with their pensions will not take place. Will the family suffer, what do you think?

Zurich Group states that 350,000 people are already in this situation and income drawdown continues its popularity there could be as many as 1.4 million of them by 2025.

There are two simple steps you should consider prior to any emergency situation arising: –

The first is to ensure you have Lasting Powers of Attorney, this allows you to appoint someone you trust – usually a family member or friend – to assist you to make decisions or to take over making decisions for you.

A word of warning is required, the government encourages people to draft their own LPA’s online and make it easy for you to do so. If you want to save money that is an option, but not a wise one in our opinion. It is so important to draft the LPA correctly and provide the right guidance to your Attorneys (Trustees).

Getting the drafting wrong may end up damaging your family emotionally and financially.

The second step is to consider setting up a protective discretionary trust, the trust will take over as the nominated beneficiary of your pensions, and this will allow your appointed trustees to control your pension funds after you have gone.

‘Thousands of people are now making complex decisions on their pension into old age, when the risk of developing a sudden illness or condition such as dementia increases.

‘Despite this, many are unprepared for a sudden health shock or a decline in their mental abilities. The time to set up an LPA and Flexible Pension Trust is when you don’t need it, NOT when you need it, by then it’s too late! 

BONA WHO ?

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The Bona Vacantia is a government department which deals with estates of people without known heirs. In 2013/4 they dealt with banked more than £14 million in unclaimed inheritances.

There is an allowance of time to make a claim, normally this 12 – 30 years, so if an heir is found they can step forward and claim their inheritance plus any accrued interest.

They contacted us as they had been informed that the person who had died had a legal will at the time of death.

Our research revealed that they had been misinformed, the deceased an original dated some years before marriage, and her marriage had revoked the previous will. Her husband had died, when she died there were no blood relatives alive.

A somewhat sad turn of events, which means that eventually the money will go to the Treasury. Unless of course one of the “heir hunting” companies find a relative.

 A reminder, perhaps, of the necessity of keeping your legal documentation up to date.

Walter Swinburn “the Choirboy” dies intestate.

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Walter Swinburn, one of the most renowned jockeys of his generation and rider of the brilliant Shergar, has died, aged 55.

Nicknamed the ‘Choirboy’, Swinburn partnered Shergar to glory in the 1981 Derby at the age of 19 – winning by 10 lengths, and went onto to win two further Derby’s with Shahrastani (1986) and Lammtarra (1995).

An exceptionally brave and talented jockey, who will be sadly missed by the racing fraternity and by his many admirers.

Walter died without making a will and his estate of £3.8M was passed to his two children (he and his former wife separated in 2014 after 10 years of marriage).

When a person dies without leaving a valid will, their property (the estate) must be shared out according to certain rules. These are called the rules of intestacy. A person who dies without leaving a will is called an intestate person.

  • If you die without a will, your estate is distributed under the intestacy rules
  • If your will’s invalid, your estate will be treated as if you had no will
  • There’s a strict order of who would inherit your estate
  • Only direct family will inherit under intestacy: not unmarried partners or friends
  • Situations may be complicated by multiple marriages and divorces
  • Financial dependents who don’t inherit under intestacy may be able to make a claim under the Inheritance Act
  • Making a legally valid will is the best way to protect your estate and have a say on who inherits

The Rules of Intestacy can be harsh as they often don’t allow for modern family relationships – for example:

The Rules of Intestacy make no provision for unmarried and unregistered partners. This means that on Intestacy, the surviving partner will not automatically inherit any of the property and possessions owned in the sole name of the deceased. However, a partner can often make a valid inheritance claim instead, or the family can legally vary the distribution on intestacy to provide for the partner.

The Rules of Intestacy only recognise natural and adopted children for inheritance; they do not acknowledge step children. However, in many cases step children can often have a valid claim.

As Walter hadn’t made a will then it is “odds on” that he would not have planned to avoid Inheritance Tax, so our estimate of the likely IHT bill is around £ 1,340,000

The only way to make it absolutely clear who should inherit your property and possessions after you pass away is by making a Will.

No Relatives and No Will

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No Relatives and No Will

We were contacted recently by someone from the Bona Vacantia, this is a government department which is passed details of estates without heirs. You may have heard mention of this department in the Heir Hunters series on TV.

‘Bona Vacantia’ means vacant goods and is the name given to ownerless property, which by law passes to the Crown. The Treasury Solicitor acts for the Crown to administer the estates of people who die intestate (without a Will) and without known kin (entitled blood relatives) and collect the assets of dissolved companies and other various ownerless goods in England and Wales.

This government department banked more than £14million in unclaimed inheritances in 2013-14.

But relatives have 12 years to come forward and claim their inheritance and will be paid interest on the money.

The ultimate deadline is 30 years, but it is at the discretion of the Government Legal Department and no interest will be paid for the final 18 years.

Bona Vacantia contacted us as they had been informed by a financial adviser who had gotten involved with the estate and had incorrectly confirmed that the person who had died had a legal will at the time of death.

We were asked to provide advice regarding this and our preliminary research revealed that there was no will on death. Our subsequent research confirmed that the person had an original dated some years before marriage, and her marriage had revoked the previous will.

Her husband had died and so when she died there were no blood relatives alive.

This sad case further re-iterates our view that you need to check your wills and other legal documents on a regular basis.

What happens now?

Bona Vacantia will post information regarding the deceased on their web site and a variety of “heir hunting” companies will seek out any blood relatives and thereby claim a bounty on the estate. failing that the monies will pass to the crown.

HMRC Loses Case on Pension Tax Relief for In Specie Contributions

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HM Revenue & Customs (HMRC) has been told to allow pension tax relief at source on in-specie contributions, granting a provisional reprieve on what could amount to millions of pounds in tax money.

To read more of the article by Carmen Reichman – click link:-

https://www.ftadviser.com/sipp/2018/03/15/hmrc-loses-case-on-in-specie-transfers/

To read Ray’s article previously published in Tax adviser magazine see :-

Pareto_Tax_Adviser_Feb_2009

HMRC announces a new disguised remuneration settlement “opportunity”.

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HMRC announces a new and final settlement opportunity for employers, employees and contractors who have used disguised remuneration schemes in the past. This allows these parties to settle their tax liability now before a new loan charge is introduced.

In order to take advantage of this “opportunity” you will need to register their with HMRC by 31 May 2018 and make a full disclosure by 30 September 2018. Meeting these deadlines will give those involved the time they need to complete the settlement before the new loan charge becomes effective on 5 April 2019.

What is a disguised remuneration scheme?

Typically, disguised remuneration schemes involve an employer paying a contribution to a third-party, usually an employee benefit trust, rather than paying an employee directly. The trust then pays the employee in the form of interest-free loans with terms that mean they will never be repaid in the recipient’s lifetime, thereby avoiding the income tax and NICs that would otherwise arise from the payments.

Who does this settlement opportunity apply to?

The taxpayers affected include small businesses employing relatively few staff, employed and self-employed contractors and highly paid individuals who have used the scheme to avoid large amounts of tax. Although the new settlement opportunity will be available to all these parties, the terms of the scheme will vary slightly for each.

This settlement opportunity applies to a wide range of disguised remuneration schemes and not just those paid through employee benefit trusts. That includes DR filtered employer-funded retirement benefits trusts and those involving contractor loan schemes.

Attorneys for an LPA – Doing Nothing is Not a Sensible Option!

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Attorneys for an LPA – Doing Nothing is Not a Sensible Option!

Shortly after posting yesterday’s blog, James Watt contacted our office to say that we had got all our facts wrong. James is an Attorney to his brother who has assets of over £1.5M, half in cash and half in shares and collective equity investments.

James explained that he had spoken to his solicitor who had assured him that there was nothing wrong with holding around £750,000 in one bank account, and that as the shares and collective investments had previously been arranged by his brother they should be left as they are. “No need to pay an IFA a fee for advice, old chap, everything is fine as it is!”

I have dealt with several people like James over the years, I recognise that whatever argument you put forward, it will be ignored, because they are right, and you are wrong! So, my stock response these days is – did you get that in writing?

The case of Buckley v The Public Guardian sets out some very useful guidance to attorneys (and presumably deputies) when managing the financial affairs of an individual without mental capacity. Clear guidance was set out by Senior Judge Lush as to the “investment of funds by an attorney”.

Senior Judge Lush made it clear that “there are two common misconceptions when it comes to investments.

1) that attorneys acting under an LPA can do whatever they like with the donor’s funds; and
2) the attorney can do whatever they think the donor could or would have done personally, if they had capacity to manage their own financial affairs.”

Both are incorrect.

The test is not what the donor would have approved or done themselves, but what is in the donor’s best interests. “Best Interests” is a fundamental principal of the Mental Capacity Act 2005 (section 1(5)).

The judge also made clear that the level of care required by the attorney managing the investments should be the same as Trustees whose duties are set out in the Trustee Act 2000.

It is also generally understood that if there are significant assets then the Attorneys must take professional advice from an IFA (see previous blog).

What are the risks to James of carrying on as he seems to think he can?

For starters he has far too much deposited with one bank, the bank deposit guarantee scheme is limited to £85,000 (previously £75,000). Not taking any action to protect this amount of cash would quite rightly be deemed as negligent.

Leaving the investment portfolio as it was organised by the brother is almost certainly incorrect, this would also be deemed negligent (see previous blog).

As an attorney (Trustee) James would be liable in full for any losses for both the cash and the investment portfolio.

Since mid-January 2018 the FTSE 100 index has lost almost 1000 points – are you listening James!

Our firm specialises in providing advice and guidance for Lasting Powers of Attorney, if you require assistance on a professional basis, please feel free to contact us.

LPA Attorneys and Investments !

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Attorneys for an LPA Must not make Investment Decisions and Must not outsource Investment Decisions !

If you have been appointed as an Attorney under a Lasting Power of Attorney and you have commenced acting as an Attorney then you need to take great care. An attorney is essentially acting as a Trustee, as such your actions are governed by the Trustee Act 2000.

This states that you are required to appoint an INDEPENDENT FINANCIAL ADVISER  and agree with them an INVESTMENT POLICY STATEMENT and that the portfolio of investments should be managed by an IFA firm on an ADVISORY BASIS.

That means that the IFA must organise and monitor the investments in accordance with the INVESTMENT POLICY STATEMENT and report to you the Attorney on a regular basis.

As an Attorney you must ensure that you are fully conversant with what the IFA firm is doing with the investments.

We suggest that this is best achieved by having a spreadsheet prepared from the date you commenced your duties as an Attorney – and having a rolling quarterly valuation of all investment accounts.

Please note, this is NOT outsourcing the investment decisions, as you are controlling the investment activities of the IFA via the INVESTMENT POLICY STATEMENT.

As an Attorney (Trustee) you remain liable for any losses if you are proven to be negligent.

Taking the actions as described above, providing they are carried out purposely and with diligence is likely to provide proof that you have not been negligent.

Many Attorneys would prefer to distance themselves as far as possible from these responsibilities and so would like to hand the running of the investments to a Discretionary Fund Manager. Unless a Lasting Power of Attorney provides explicit permission to outsource investment decisions – you cannot do so.

Nor can you hand the investments over to a Restricted Financial Adviser as this would be in breach of the Trustee Act 2000.

Our firm specialises in providing advice and guidance for Lasting Powers of Attorney, if you require assistance on a professional basis, please feel free to contact us.

Legal Entity Identifiers (LEIs)?  

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Are you wondering how MiFID II will impact Legal Entity Identifiers (LEIs)?  This post will outline what may be important to you regarding MiFID II and LEIs.

MiFID II is expected to present a significant compliance challenge for all firms already within the scope of MiFID and, potentially, for many more that may come within the scope of the new Directive.

How will MiFID II impact LEI holders?

From 3 January 2018, firms subject to MiFID II transaction reporting obligations will not be able to execute a trade on behalf of a client who is eligible for a Legal Entity Identifier (LEI) and does not have one.

What is an LEI?

An LEI is a unique identifier for persons that are legal entities or structures, including companies, charities and trusts. The obligation for legal entities or structures to obtain an LEI was endorsed by the G20 (the leaders of the 20 largest economies).

If you are subject to MiFID II transaction reporting obligations, or are a UK branch of a third country firm, you will need to ensure that your clients that are eligible for an LEI have one before executing a transaction in a financial instrument subject to the MiFID II transaction reporting obligations on their behalf, from 3 January 2018. These financial instruments include:

  • Shares,
  • Bonds,
  • Collective Investment Schemes,
  • Derivatives, and
  • Emission allowances meeting the conditions in article 26 of MiFIR

How can LEIs be obtained?

An LEI is available from bodies endorsed by the Legal Entity Identifier Regulatory Oversight Committee as an authorised Local Operating Unit for the global allocation of LEIs.

The Global Legal Entity Identity Foundation has also introduced the concept of a ‘registration agent’ to assist legal persons to access Local Operating Units. Issuing and arranging for the issue of an LEI is a not an activity required to be regulated by the FCA.

How ‘resident non-doms’ can bring money into the UK tax-efficiently

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How ‘resident non-doms’ can bring money into the UK tax-efficiently, using Business Investment Relief

People who are UK-resident but not UK-domiciled can face significant tax penalties if they move income or gains earned overseas into the UK. It is worth considering utilising Business Investment Relief particularly when combined with other tax reliefs.

This is only a basic summary of the relevant rules. We encourage you to speak with a financial or tax adviser before investing so that your personal circumstances can be considered.

Business Investment Relief (BIR) exists to encourage wealthy resident non-doms to invest in the UK. It works by allowing offshore income and gains to be transferred into the UK without triggering a tax charge, as long as the funds are invested into qualifying investments within 45 days.

There are various criteria to determine if an investment qualifies for BIR, but the basic rule is that the money brought onshore must be invested into a trading business, which should normally be a private limited company.

When the investor eventually sells their shares, the amount originally brought into the UK must be returned offshore or invested into another BIR-qualifying company in order to avoid a tax charge. But any gains made on the investment can remain in the UK, with no requirement to re-invest it.

Combining BIR with EIS reliefs
Companies that qualify for the Enterprise Investment Scheme (EIS) will also often qualify for BIR, and it is possible for investors to benefit from EIS tax reliefs and BIR on the same investment. EIS tax reliefs include income tax relief of 30% of the amount invested and tax-free gains subject to certain conditions.

The following case study shows how this might work in practice:

Mr Roberts has been living in London for the last five years, but he is originally from Australia and he is not UK domiciled. During a successful international career, he has built up a portfolio of business interests and investments outside the UK that generate significant income.

He now wants to bring £100,000 of his overseas income into the UK, not least to contribute to the expected cost of his children’s education in the future.

Without tax planning
When Mr Roberts remits £100,000 to the UK, he becomes subject to an immediate tax charge of 45%. He invests the remaining £55,000 into a fund, selling his holding four years later when his daughter is due to start university. The investment yields a gain of 20% (£11,000), which is subject to Capital Gains Tax at 20%, leaving him with £63,800.

Using BIR and EIS
Mr Roberts remits £100,000 to the UK and invests the full amount into an EIS and BIR qualifying investment, within the 45 day permitted limit. No tax is due on the remittance, and Mr Roberts is able to claim £30,000 of income tax relief. If the investment is held for three years before being sold and then yields a gain, there will be no Capital Gains Tax to pay. Assuming a gain of £20,000, Mr Roberts could send his original £100,000 investment back offshore to prevent triggering a tax charge. He uses the £50,000 remaining (£30,000 income tax relief and £20,000 gain on the investment) for his daughter’s education.

FINALLY

Although it is sometimes possible for resident non-doms to combine EIS investments with BIR, it is best to speak to a specialist adviser such ourselves. If you would like to find out more about how this might work for you, please contact Marie on 01189 347920