In this issue:
- Budget Highlights
- For Better or For Worse
- To Will or Not To Will - You will be surprised!
- Maximising the Value of Property
As the recently appointed Head of the Private Client Department, I have the pleasure in saying welcome to our Spring Private Client ebulletin. With the announcement of the general election we now wait with bated breath for what colour of financial cuts and economic measures we will face in the near future. Will they be red, blue, yellow or coalition beige? We have put together some articles which we hope are of some interest and give you some comfort or at least some points to ponder.
We are hosting a Business Breakfast Club meeting on 24 June at
our London offices. James Turgoose, Head of Political Affairs,
Westminster Parliamentary Research, will be talking about 'The
New Political Landscape and What it means for Business'. Please
click here to find out more information about this
event.
Budget Highlights
The budget on 24 March 2010 was made with the upcoming election in mind. Indeed, much of the budget will not become law before the election and is therefore subject to change. Should the Conservatives win they are committed to introducing another Budget within 50 days of election. We are therefore uncertain of the exact fiscal policy that will be implemented by the incumbent government come election day. It is worth noting that a more aggressive fiscal policy will be high on the agenda for any elected government as they attempt to reduce our deficit. There were however, some surprises and interesting announcements that are worth a mention:
Income Tax
Income Tax Rates and Personal Allowances
The main allowances and tax bands remain unchanged from 2009/10
tax year thereby producing a so called "stealth tax" as
salaries increase.
Don't forget, the new 50% rate (42.5% for dividends) for those
with a taxable income over £150,000. Not to mention that the
personal allowance will be reduced by £1 for every £2
of taxable income exceeding £100,000.
ISA Allowance
From the new tax year the ISA rates have increased to a maximum of £10,200 (£5,100 in cash). Moreover, this limit is to be linked to inflation (RPI) going forward. For a married couple or civil partnership this means that £20,400 of capital a year can produce tax free income.
Conclusion: Converting income to capital growth, producing income from tax sheltered investments and transferring income producing assets to a "lower rate" spouse is the name of the game.
Inheritance Tax (IHT)
The £325,000 Nil Rate Band threshold is frozen until 5 April 2015. The IHT over and above this figure remains at 40%.
Conclusion: More and more people will have IHT to pay on the death of a loved one. Early tax planning is the key with the use of Gifts, Trusts and tax efficient investments.
Stamp Duty Land Tax (SDLT)
The good news is that for first time buyers there will be no
SDLT for purchases below £250,000 for two years.
This short term gain to the tax payer is offset by the long term
and bigger gain to the treasury with the proposed increase of SDLT
from 4% to 5% for residential property purchases over £1
million commencing in 2011/2012.
Conclusion: For those lucky people that can afford
£1m homes; consider moving sooner rather than later.
Alternatively, don't move just improve!!
Capital Gains Tax (CGT)
CGT freeze
The CGT rate remains at 18%. The Annual exemption is frozen at
£10,100.
Conclusion: Enjoy it while it lasts but you will
still need to plan for the future by making tax efficient
chargeable disposals. Where appropriate, make use of your annual
exemption and your spouse's (or business partners) for each tax
year.
Entrepreneurs' relief (ER)
ER reduces the effective CGT rate to 10% for the disposal of
certain assets and businesses. The current limit of £1
million is to be increased after 5 April 2010 to £2 million
thereby potentially saving a business owner an extra £80,000,
and £160,000 overall.
Conclusion: You will not be entitled to extra
relief for disposals before 6 April 2010.
For Better Or For Worse
Consideration of issues pre marriage and post divorce
Two relationships have recently hit the headlines, the outcome
of one is possible cause for concern for divorced husbands and
their responsibility to their former wives, the second may
ultimately provide some clarity for partners thinking of
marrying.
At the beginning of April the press were keen to report the
decision of the Court in the case of Vaughan. The case involved a
successful, but retired Queens Counsel and an application on appeal
by his former wife in relation to her ongoing entitlement to
maintenance. They had divorced in the early 1980s.
Mrs Vaughan had the benefit of a Maintenance Order which required
Mr Vaughan to pay maintenance to her for the rest of her life. She
never remarried. Mr Vaughan, however, had remarried in 1985, and at
the time of Mrs Vaughan's appeal had recently retired.
Upon his retirement Mr Vaughan sought to bring to an end his
ongoing responsibility to provide an income to his former wife, but
Mrs Vaughan appealed successfully securing confirmation from the
Court that the husband's obligation should continue. However,
the Court in this particular instance chose to capitalise the
amount of money due to paid by Mr Vaughan, thereby providing Mrs
Vaughan with a lump sum and a clean break from her husband.
The press have presented this case as a question of priority
between a first and second wife, particularly in relation to
pension provision and the case has been reported as though it
provides a new opportunity for divorced wives to make claims
against the former husbands.
This is not the case as the Court have only upheld the right of the
first wife who had the benefit of a joint lives maintenance order
to make a claim for ongoing maintenance to be capitalised. In doing
so they have exercised their broad discretion and the case simply
upholds the existing law.
The case does, however, brings to the forefront of our minds the
position on joint lives orders, and any divorced party whether the
beneficiary or subject of a joint lives maintenance order may wish
to consider a review of the provision if there has been a
fundamental change in their respective financial circumstances
since the order was made.
If you would wish to review an existing order please contact a
member of our family team who will be able to give you up to date
and expert advice.
For partners considering marriage or a civil partnership the case
of Radmacher and Grantino should bring increased clarity to the
question of the enforceability or otherwise of pre nuptial
agreements (at least pending a Law Commission Report on the issue
due in 2012) once the Supreme Court hand down their judgment on the
case in the next few weeks.
Until that time pre nuptial agreements can avoid potentially
lengthy and stressful settlement negotiations in the event of a
relationship breakdown in some cases, but only if:
- Both parties have the benefit of independent legal advice.
- Both parties make full and frank disclosure of their financial
circumstances.
- The agreement is finalised at least 21 (and preferably 28) days before the ceremony.
Pre Nuptial Agreements require considerable skill in their
planning and drafting so as to take account of future
eventualities. The DMH Stallard Family Team is highly experienced
in drafting such agreements and advising clients on them.
To Will Or Not To Will - You Will Be Surprised!
Making a Will is something which we all think about doing, but
never quite get sorted. But what happens if you haven't made a
Will?
The general misconception is that your spouse will inherit your
entire estate, therefore so long as you are married there is no
need have a Will drawn up. The reality is, if you do not make a
Will, set down rules will decide how your estate is distributed,
and to whom. This will often not reflect your wishes, or what you
expect to happen.
If you die without a valid Will you die "intestate",
which means that the Intestacy Rules written in 1925 will determine
the distribution of your estate. Despite being updated last year,
the Rules remain archaic and do not reflect today's diverse and
complicated family structures.
If you haven't yet made a Will, read on....
Your spouse will only inherit your entire estate if you have no children and have no surviving parents, brothers or sisters of the whole blood.
If you have no children, but have parents or brothers or sisters of the whole blood, your spouse can inherit up to £450,000. If your net estate is over £450,000, your spouse is entitled to £450,000 plus your personal belongings and half of the rest. The other half is divided equally between your surviving parents, but if no parents between your blood brothers and sisters.
If you have children, your spouse will only
inherit your entire estate if the net value is not more than
£250,000. If your estate is over £250,000, your spouse
is entitled to the first £250,000 plus your personal
belongings, and the income or an interest in half the remainder
during his/her lifetime. The other half is shared equally between
your children, and your children will inherit the remainder on your
spouse's death.
Just note:
- There is no such thing as a common-law husband or wife. Co-habiting couples have no automatic right to a share of their partner's estate.
- If you are separated or your divorce/dissolution has not been finalised, your spouse is still entitled to inherit from your estate.
- Only blood relatives, and those related by legal adoption, are entitled to share in the estate. Therefore step-children or step-brothers and sisters cannot inherit.
- You may have children, elderly relatives, or relatives with a disability that you want to ensure are looked after and provided for.
- If you have not nominated a guardian for your children, the court can appoint one.
- Assets passing to anyone other than to your spouse will potentially be subject to Inheritance Tax.
- Joint assets pass automatically to the other joint owner(s) and do not form part of your estate, therefore they do not pass in accordance with your Will.
The Law Commission is currently considering significant changes to
the Intestacy Rules (including giving cohabitants rights to your
estate), but it is not known when these changes will be
introduced.
Put simply, making a legally valid Will is the only effective way
to ensure that you protect those that you care about, and
potentially saves your loved ones the time, stress and additional
expense of trying to sort out your affairs.
Maximising The Value Of Property
With land and property values having fallen considerably, and
demand for certain land uses dwindling, landowners wanting or
needing to sell such assets are presented with the problem of
having to accept less than desirable sale prices.
The problem is particularly acute if a site has fallen into
negative equity, meaning a sale cannot even be considered. If an
individual or company is in financial difficulty this is likely to
cause serious problems and whilst a real estate asset could once
have been relied upon as a way of raising funds, the drop in real
estate values and the more stringent terms on which banks will lend
money against property mean this is increasingly no longer the
case.
However, an increase in the value of property could be achieved if,
prior to being marketed, consideration is given to whether there is
any potential for additional or alternative forms of development
which may help achieve an uplift in value.
DMH Stallard's Planning team can assist by appraising
repossessed sites for their development potential. A planning
appraisal provides an inexpensive and relatively quick overview of
the key planning issues pertaining to a property or site. It
provides advice on the prospects for achieving planning consent for
additional or alternative, and potentially more valuable, forms of
development. Our expertise and in-depth knowledge of planning
policy and the peculiarities of different planning authorities
ensures the identification of genuine development options.
Our appraisal report can be provided alongside the marketing
details for a site as evidence of the potential. Our Planning team
can also progress options through to a planning application with
the potential to secure an even greater uplift in value.
Described in Chambers and Partners 2009 as a 'group making real
waves' and 'truly on an upward spiral' the Planning and
Environment Group continues to go from strength to strength with
its unique mix of planning consultants and solicitors. The Group
now boasts eight planning consultants and five solicitors and
continues to be ranked as a Top Planning Consultancy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
