Wealth Management Update – December 2019
Post-death planning options
We cannot stress enough the importance of having an up-to-date Will that adequately reflects your wishes. Not only does this give you peace of mind but it can hopefully keep things simple for your loved ones when you are no longer here. There may, however, be circumstances in which a Will may need to be altered after death to be most effective for the beneficiaries. For example, after the Will comes into effect there may be a change of circumstances, such as additional grandchildren or substantial changes in the beneficiary’s wealth that means they may not need the inheritance they are due to receive. Fortunately, it is possible to make changes to a Will after death through either a Deed of Variation or by using disclaimers.
Deed of Variation
If a beneficiary is concerned that receiving a large inheritance would negatively affect their own Inheritance Tax liability, they could use a Deed of Variation to redirect their inheritance to their children or to a chosen charity. As well as helping the beneficiary’s own financial circumstances, this would also mean the funds would not be subject to the 7-year survival rule because the funds would be considered as gifted from the deceased’s estate rather than being gifted by the beneficiary on receipt of the inheritance.
This type of deed must be created within 2 years of death, it must be in writing and it must be made by the person who is benefiting from the Will originally.
Disclaimers
A disclaimer allows a beneficiary to refuse to accept the inheritance that is provided for them in a Will. The beneficiary may not say who should receive the inheritance instead; it will go back to the estate to be redistributed along with the residual estate. As with a Deed of Variation there are conditions, for example that it must be done within two years of death and may not be for the purpose of any other financial consideration. It is, however, a simpler process than a Deed of Variation as it can be done by writing a letter explaining the decisions to HMRC. Another difference is that you cannot disclaim an inheritance after you have received it.
There are more in-depth requirements to these arrangements; we would be happy to discuss these with you if you are a beneficiary and may wish to vary an inheritance you have or are due to receive.
Tax planning – Is it ever too early to start?
The new financial year may still be a little while off but that doesn’t mean you should put off thinking about your tax planning. There are several areas of your finances that may help you minimise the amount of tax you have to pay in the next financial year if you start thinking about it right now.
Here are some general things to think about before 2020 that are sometimes overlooked in favour of more complex arrangements. If you think any of these could be beneficial please get in touch so we can provide specific advice to you directly.
Income Tax
- Keep your taxable income to less than £150,000 to avoid becoming an Additional Rate
- Reduce your taxable income by making the maximum pension contributions possible.
- Use your full personal allowance of £12,500 in 2019/2020. Capital Gains Tax
- Use your full £12,000 annual exemption. If you and your partner have a disparity in income, it may be that you redistribute funds between one another so that you can both claim the full Remember there is no tax on transfers between spouses!
Inheritance tax
- Use your £3,000 IHT-exempt gifting
- Use your £250 per person gift
- See the link below for all other gifting allowances available: https://www.gov.uk/inheritance-tax/gifts
Savings and investments
- Use up ISA and JISA allowances as well as any personal savings allowances and dividend allowances that may be
- Assess Investment Bonds to determine if you could use up your allowances this year or if withdrawals should be
- Invest in tax-free investments such as Pensions
- Use any unused allowances as they can only be carried forward for three tax years (providing you have the relevant income this tax year).
- Put money into grandchildren’s pensions (maximum of £2,880 net if they are non-taxpayers).
As you can see, there are many ways in which you may be able to manage the amount of tax you have to pay. However, not all may be possible for you and some may not be advisable for your financial situation. Our team are always happy to discuss the best plan of action for you and your family so please just get in touch.
Lasting Power of Attorney (LPA) and gifting …
We are frequently asked about gifting whilst acting as an Attorney of a LPA, as Attorneys strive to do the right thing by the person they have been tasked to look after and to maintain their existing relationships with friends and family. There are some rules and guidelines to be aware of when acting as an Attorney in regard to gifting, but this remains a grey area.
The law states that an attorney or a deputy can only make a gift if it is either:
- to a family member, friend or acquaintance of the person on a “customary occasion” (birthday, wedding, Christmas, Diwali, Chinese New Year, ); or
- to a charity
In both cases it is essential that the gift is of a reasonable value in relation to the size of the person’s estate and that they are acting in the best interests of the Donor.
Remember, an Attorney or Deputy cannot give the person’s property away as gifts in order to avoid paying care home fees. Attorneys also cannot make gifts as a way of Inheritance Tax planning without the approval of the courts.
One of the duties of an Attorney or Deputy is to keep records of gifts and the situation in which they were given, so that they can explain the gifts if necessary.
If in doubt, our advice would be not to make a gift without gaining approval from The Court of Protection. You must then weigh up whether the gift you want to make warrants the lengthy and time-consuming process of approaching the COP in the first place.
Get in touch with Penguin Legal to find out more information on how we can help with this.
Scamming guidance
As part of the Regulators’ joint ScamSmart campaign, new evidence has revealed that it could take 22 years for a saver to build a pension pot of £82,000, which is the average amount victims lost to scams in 2018. But, despite this, many savers could be at risk of falling for scammers’ tactics very quickly.
The research identifies that the more educated an individual is, the more likely they may be to fall for a scam. Over-confidence in dealing in financial affairs is a trait which could result in savers missing a scam.
The Regulators recommend four steps to protect from pension scams:
- Reject unexpected pension offers, whether made online, on social media or over the telephone
- Check who you are dealing with before changing your pension arrangements – check the FCA Register or call the FCA helpline on 0800 111 6768 to see if the firm you are dealing with is authorised by the FCA
- Don’t be rushed or pressured into making any decision about your pension
- Consider getting impartial information and guidance
If you are ever in doubt, please contact us and we will try to help you ascertain whether or not the offer you have received is genuine.
Interim remedy for NHS pensions
Simon Stevens, CEO for the NHS, has released a letter confirming that previously suggested solutions to the NHS pension issues surrounding breach of the Annual Allowance have not prevented senior clinicians from reducing their hours or refusing additional commitments, leading to NHS shortages on a critical scale.
The issues arise from the inflexibility of NHS pensions, which mean that senior medics are involuntarily breaching the pension Annual Allowance by a big margin and are being faced with tax charges in the tens of thousands of pounds.
Stevens has suggested that a long-term solution will not be investigated until the new year as we focus on the upcoming election but has moved to put in place what he calls an “urgent operational requirement” as an interim measure. The new measure will apply to doctors, nurses and other clinicians who are members of the NHS pension schemes and will cover all savings in the NHS schemes in 2019/2020.
Where individuals are subject to an Annual Allowance charge, they can choose that it is paid by the scheme, rather than having to pay large sums themselves via their tax returns. It has also been agreed that the NHS will make a contractually binding commitment to pay members the corresponding amount at retirement, that is, they are compensated with additional salary at retirement which is equivalent to the reduction. The additional salary at retirement will be subject to tax and national insurance (NI). The NHS Q&A document states that payments will be grossed-up to cover any NI that would not apply to pension income payments.
Whilst this is an important step in making sure that senior doctors and nurses are not penalised for the inflexibilities of the NHS pension scheme, there is no real detail on the process of how it is intended that this will be put into practice nor what the longer-term solution may be. Hopefully this will be revisited as a priority in the new year, so watch this space for further updates.
Notes on Brexit
Parliament officially dissolved on 6th November, leaving MPs free to jump onto the campaign trail for the upcoming General Election on 12th December. With no MPs in Parliament there is no new Brexit news, though it will be talked about non-stop in the run up to the election.
As it stands, we are still due to leave the EU by 31st January 2020, with a transition period through to 31st December 2020.
BEST SAVINGS SELECTION
Top three Cash ISAs
Name | Contact | £100
Gross % |
£1,000
Gross % |
£5,000
Gross % |
Kent Reliance | via post | 1.40 | 1.40 | 1.40 |
Teachers BS | teachersbs.co.uk | 1.40 | 1.40 | 1.40 |
Virgin Money | virginmoney.com | 1.36 | 1.36 | 1.36 |
Please check with the terms and conditions before opening any account. If in doubt consult with your financial adviser directly as the above are for information only.
Source: Moneyfacts Magazine December 2019 Edition