UK holiday home owners who rent out their properties whilst not in use by their loved ones can now claim Business Property Relief as a result of a new ruling, helping to reduce their final Inheritance Tax bill.
Previously, holiday lets were considered to be similar to other rental properties, which are subject to the usual, 40% tax on death. However, HMRC has now ruled that unlike other owned properties which are rented out, holiday lets are not in fact investments and should not be taxed in the same way.
Although this turnaround has arisen through a case involving a UK property, this is also good news for those who own property overseas and who run their business in a professional manner, as they may also be able to claim Business Property Relief at a later date.
For further information on how you can minimise your Inheritance Tax bill, contact one of our expert estate planners at www.iwc-ltd.co.uk.
Buying farmland as an investment has long since been a well exercised means of reducing Inheritance Tax liability through both Agricultural Property Relief and Business Property Relief.
Consistent demand for farmland has resulted in a significant increase in price over the last few decades and an asset which has managed to retain its value, even throughout the unstable economic environment. All of which means that farmers are often unable to afford land which has been snapped up by investors, driving up and maintaining prices.
Parcels of farmland often have the opportunity of being 100% exempt from IHT which make them exceptionally valuable investments. However, to be eligible for both forms of relief, the land actually has to be worked and managed in the manner of typical farmland.
This should be bourne in mind when undertaking the whole process of estate planning and considering ways in which to minimise Inheritance Tax on your overall estate. A professional estate planner will be able to advise you of your commitments and the tax benefits of buying farmland to form part of your final estate.
It seems that the government is letting the British public down in many ways, even in death.
Unemployment, frozen wages and an increasingly unattainable cost of living has resulted in nearly a 7% increase in claims from the Government Funeral Payment system, which in turn, is now declining almost half of these claims.
Originally designed to support those families met with expensive and unaffordable funeral costs, the GFP was set up for those on benefits, usually offering accepted claimants over £1000, to help out with the funeral of their loved one.
Unfortunately, with the price of an average funeral now exceeding £3000 and next of kin forced to commit to costs before the decision from the government is revealed, many are having to resort to a pauper’s funeral in order to have their relative buried.
To avoid subjecting those left behind to this kind of emotional and financial stress, adults of all ages are now being advised to take out some kind of funeral plan, so that their loved ones are at least spared the anxiety and embarrassment of having to settle for a pauper’s funeral.
If you applied for credit in your own name but have any insurance in place, including PPI or life insurance, it may be that these will help to cover any debt which remains outstanding in the event of your death.
If, however, you took out a loan or other credit facility in joint names, then it is likely that any outstanding debt on that facility will be passed to your surviving partner.
Should your estate, after all tax has been paid, be valued in excess of the debt, then your debt is likely to be cleared from these funds. Your debts will be paid off in a strict order before any beneficiaries are given any money but if there remains a negative shortfall and some of your creditors can not be paid from your estate, they may agree to write the debt off.
With expensive care home fees and a high cost of living with lower income now playing a large part in today’s society, substantial debt after death is becoming commonplace. A payment protection plan can be set up to ensure that no debts are passed on after your death.
Figures have just been released which reveal that the number of High Court contentious probate cases have doubled since 2006 – no doubt as a result of increasing financial pressure on families left behind.
663 contentious probate cases were heard by the High Court last year, although it is thought that hundreds more are usually settled before a case reaches this stage.
Wills can be challenged if it can be proven that the deceased was not of sound mind when they had the document prepared, or that they were coerced into leaving their money to a specific individual. In some instances, if any remaining children or dependants who relied upon income received from the deceased during their lifetime, can prove that their future has not been adequately provided for, the Will can then in specific circumstances, also be overturned.
The Law Commission is in the process of appealing for a change to intestacy rules but in the meantime, a responsible and experienced probate practitioner should always encourage any disputes over a Will to be settled before expensive Court costs are incurred.
A percentage of farming families may be faced with large Inheritance Tax bills from a withdrawal of Agricultural Property Relief in some instances.
If the principal farmer dies but limited the amount of work they did – or even stopped working altogether, then their APR, which normally is granted for farmhouses, is likely to be challenged after their death.
This of course means that, in order to qualify for APR, a farmer must literally work the same number of hours until he has always done, until the moment of his death.
One way of avoiding this substantial pressure however, is to plan well in advance and transfer ownership of the farm to the children before the death takes place, which will then validate the case for APR and mean that Capital Gains Tax will not fall due unless the farm is sold to an external party.
The Institute of Chartered Accountants in England and Wales (ICAEW) has revealed plans to regulate probate services within alternative business structures.
The introduction of the Legal Services Act, late in 2011, saw everyone from small businesses to supermarkets being able to provide legal advice, as well as specific probate advice to consumers, with mixed results.
As a regulator, the ICAEW would be in charge of issuing licences to these types of firms, whether or not they featured trained lawyers.
The process to approve the institute as a regulator is expected to take up to a year and will hopefully be a step in the right direction towards regulating the will writing and probate industry as a whole. In this way, consumers will once again gain confidence that they are receiving the best advice based on their practitioner’s experience and expertise.
The Ministry of Justice is to back legislation making presumption of death certificates available much earlier, to allow families to deal with any pressing legal and financial issues during the time when their loved one is missing.
Currently, in England and Wales, someone must be missing for seven years before it is formally presumed that they are dead. It is thought that the bill, which is set to be presented in the autumn, will reduce the time needed to wait until death can be presumed, by around three years.
There are concerns however, that these changes could of course result in an increase in the number of fraudulent cases of missing persons, in an attempt to claim insurance.
For many families however, these reforms could mean that the uncertainty felt by loved ones for several years whilst the search effort wanes; and finances and legal issues remain outstanding, is reduced.
Make a will
This may seem like stating the obvious but around 2 thirds of British people die intestate each year. When there is no will, the estate is divided in accordance with the rule of intestacy. Many people assume that their children or partner will be provided for, but unless you have made a valid will, this is not strictly the case.
Keep it updated
A will should be updated regularly. Even if your circumstances haven’t changed you ought to have it checked over every few years. There may be assets you haven’t accounted for, such as a new vehicle or holiday home which can make your will incomplete.
Make provisions to lessen inheritance tax liability
If there’s a chance your estate will exceed the IHT threshold, don’t let 40% of this be swallowed up in taxes. If you’ve made a will and sought advice from an estate planning specialist, then you ought to have this covered. But remember that tax laws change frequently so it’s sensible to keep abreast of what’s happening.
Give careful consideration to who you appoint as executor/s
Give a lot of thought as to who you would like to represent you and handle probate. You should take many factors into account such as the person’s age, where they live and their family situation. Think about their character traits and their ability to handle such an important task. Select the most qualified person for the job.
Consider the implications of professional fees
If you are thinking of appointing a legal professional to act as your executor, make sure you are fully aware of the costs involved. Ask how much they will charge for their services to act, and for probate and estate administration. Your representative will be under no legal obligation to renounce their position and your loved ones may end up paying extortionate costs.
Be open with your family
By being open about these matters, you can help to prevent conflict later on. Make the existence of your Will known and tell your family when you update it. Clearly communicate your how you want your personal effects to be handled as this is often a source of conflict in families.