Active Business Series - Estate Planning - September 2012

1. ACTIVE PRACTICE UPDATES SEPTEMBER 2012
Estate planning
That you should leave something behind for loved ones is
a gratifying thought, whatever the size of your estate.
Personal Planning UPDATE
Why is estate planning Start by asking yourself Transferring the nil-rate
important? the following questions: band
If your assets exceed £325,000 (including Who? The amount of the nil-rate band potentially
any gifts you have made in your last seven available for transfer will be based on
years - see next page for further details), Who do you want to beneit from your the proportion of the nil-rate band unused
your legacy could be diminished by a 40 wealth? What do you need to provide for when the irst spouse or civil partner died.
per cent tax liability, or 36 per cent if you your spouse? Should your children share If on the irst death the chargeable estate
leave 10 per cent or more of your estate to equally in your estate – does one or more is £150,000 and the nil-rate band was
charity. have special needs? Do you wish to include £300,000 then 50 per cent of the original is
grandchildren? Would you like to give to unused. If the nil-rate band when the surviving
Estate planning means your family will charity? spouse dies is £325,000, then that would
receive a larger share of your estate. Estate be increased by 50 per cent to £487,500.
taxes necessitate careful planning, so due What?
care, attention and execution of your plans Currently the maximum nil-rate band that
is essential. Should your business pass only to those may be available to a surviving spouse (or
children who have become involved in the civil partner), amounts to £650,000 (2 x
Did you know that it is expected that only business? Should you compensate the others £325,000). This combined rate is due to
two per cent of estates this year will have with assets of comparable value? Consider apply until 5 April 2015. Common practice
liability to inheritance tax (IHT)? We can the implications and complications of multiple is to combine the allowances together in
help you to keep your estate taxes to a ownership. expectation that the transferable proportion
minimum. will be better utilised on the second death.
When?
Inheritance tax rates 2012/13 - If you plan to remarry and your late spouse
2014/15 Consider the age and maturity of your transferred his or her nil-rate band to you, the
beneiciaries. Should assets be placed into tax situation can be complicated. Without
Nil rate band to £325,000
a trust restricting access to income and/or careful planning, your beneiciaries could
Rate of tax on balance 40% capital? Or should gifts wait until your death? lose large tax allowances.
Chargeable lifetime 20%
transfers
For objective advice, please ask us - whenever there is a signiicant change
Reduced rate 36% in legislation planning should be reviewed - contact us to ind out more.
18 Hyde Gardens www.plummer-parsons.co.uk
Eastbourne BN21 4PT
01323 431 200 eastbourne@plummer-parsons.co.uk

2. Estate planning
The main exemptions Business property relief applies to the
assets of a sole proprietor’s business, the
Trusts
and reliefs share of a partnership business, or equity Trusts allow for more lexible estate
in a company which is unquoted (including planning. As well as possibly offering tax
The exemptions, apart from the nil-rate savings, they offer greater control over who
AIM listed companies). The important
band have remained unchanged for will beneit from your estate, allowing you
distinction is that it cannot be primarily an
many years. Thus, gifts between spouses to protect vulnerable beneiciaries such as
investment business, however if you are
or civil partners, during their lifetimes or children, but they can be dificult to alter so
unsure as to whether your business assets
on death, are completely exempt with sound long-term planning is essential. We
qualify please discuss this with us.
the important exception of a gift in the are happy to advise regarding the beneits
seven years before death, and a legacy
from a UK-domiciled spouse to a spouse
Other main exemptions and implications of forming a trust.
domiciled outside the UK, in which case for lifetime gifts Life assurance
the allowance is £55,000. • Gifts of up to but not exceeding £250
Life assurance policies can form a useful
• The annual exemption on gifts given per annum to any number of persons
part of estate planning as the beneits
during the life of the donor totalling • Gifts made out of income that form can be written in trust and not fall into the
£3,000 allows a small element of part of normal expenditure and do taxable estate. An investment bond can
increase in the effective exemption not reduce the standard of living of be an excellent vehicle for bequeathing
each year, in the absence of an the donor almost tax-free. Insurance policies can also
inlation increase on the nil-rate band
• Gifts in consideration of marriage/ be used to cover any inheritance tax your
limit. The allowance can be carried
civil partnership of up to £5,000 by beneiciaries might have to pay.
forward by one year, allowing gifts
a parent, £2,500 by a grandparent
of up to £6,000 to be exempt every
and £1,000 by any other person.
other year. Some estate planning
• The unused proportion of the nil- The key elements to questions
rate band is transferable from the
deceased. estate planning • Are you sure your estate plan relects
your current wishes?
• Gifts, whether made during lifetime
Your Will • If you die suddenly, will your
or on death to UK charities, political
executors be able to easily locate all
parties, national museums and art Writing a Will can be an involved process your records?
galleries all qualify for exemption, even without tax considerations. How
and there are further conditional • Do you have medium-term and long-
will your estate be distributed? Who are
exemptions for buildings and assets of term inancial objectives?
the executors? Who will look after your
any outstanding historical or aesthetic children if they are still minors? These • Do you know the current value of
value. are just a selection of the safeguarding your estate?
• Gifts made seven years before the issues that require decisions. If the Will is • Are you comfortable with your
donor’s death may not be totally free to include trusts, substantial property, or executor(s) and trustees?
from inheritance tax. The position pension funds it would undoubtedly beneit • Are you sure you have the right type
can also be complicated by (a) gifts from professional advice. and amount of life assurance?
with reservation of beneit, and (b)
• Have you considered how inheritance
pre-owned assets. Both of these may Normal expenditure out of income
tax will affect your business?
remove the seven year exemption if
you have continued to beneit in some This exemption is an important one and • Do you know what will happen to
way from the gift. can be used to prevent an estate from your business if you die?
growing further, for example by giving • Have you considered the use of trusts
Care should be taken here – if you are regular cash amounts to grown up children in estate planning?
concerned that previous gifts may not be to inance school fees or similar. You will
• Do you know the intentions of
tax exempt, or that ownership of the gift need speciic advice on how to ensure that
relatives with substantial assets?
could be challenged by non-beneiciaries, you meet the necessary conditions.
you should seek our advice.
The UK offers signiicant reliefs for
agricultural property and business assets
which can both potentially be gifted tax-
free if they have been owned for at least Please contact us to discuss any of the issues highlighted
in this guide. We can help you to decide whether a trust is
seven years. Agricultural property qualiies applicable, and, if so, we can help you to set it up.
even if it is farmed by others.