Quantifying the IHT Problem...

Inheritance Tax is a fraught subject, covered by most of the national and local media, and a subject that gives people sleepless nights in their later years.  Given that, just how big is the "Inheritance Tax Problem" and why do we worry so much about it?

At present it is estimated that more than four million people in Britain are exposed to, and therefore potentially liable for Inheritance Tax (IHT).  HM Revenue & Customs have released figures suggesting that the average IHT bill is around £60,000 per estate and that IHT receipts increased by 14% in 2010/11.  When this is looked at in the context of rising inflation against a Nil Rate Band (the amount of assets you can have before IHT becomes payable) currently frozen at £325,000 until at least 2015/16, one can see that IHT will only prove to be a growing problem for the general population.

If this is the case, why are so many people reticent to do anything about their exposure to IHT.  The reasons can be many any varied, ranging from not wanting to face one's mortality though to simply not being bothered, or to quote a former Chancellor of the Exchequer "Inheritance Tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue".

There are however some more serious and valid reasons which generally centre around the preception that advice is expensive, and/or complicated, or that you're unsure of what you can reasonably afford to give away, or are perhaps concerned about losing control of your assets.  It is these areas where getting proper, qualified advice is invaluable, as it certainly isn't as expensive as people perceive, and if you are getting good advice from specialists in the subject there is no reason why it should be complicated either.

Care home fees, property trusts and protecting your assets

Asset protection trusts are being heavily marketed at inflated prices as organisations cash in on the current trend for people to protect their assets and ensuring their families don’t get hit by later life care home fees.  These groups are selling the trusts on the basis that solicitors’ trust handling fees are expensive.

In fact, solicitors fees in most cases are half the £3,000 plus VAT fee charged by some organisations, who also then insist on being appointed as their trustee and demanding an annual payment of around £200 plus VAT for the privilege.  Even certain large charities that cater for the elderly have been drawn in by these organisations and are going on to recommend them to their target groups.

Another issue that can arise is that the client who is setting up the trust does not usually have the power to later remove them as a trustee because the trust document only includes the statutory provisions which give that power to the trustees themselves.  This is something that I as a trust adviser always ensure my clients have the ability to do, so they are not tied to me or my firm for life, unfortunately some out there are not that scrupulous.

As more and more people seek to protect their assets and ensure that their families do not find themselves having to pay for their care home fees, trusts are becoming the popular way through.  Unfortunately, certain organisations are charging exorbitant fees for setting up the trusts and then making sure they can collect an ongoing annual fee to be a trustee – something which is not necessary at all.

Yes, setting up trusts can be complicated because each individual has a different set of circumstances to the next, but the benefits are that they give peace of mind by making sure there is a steady income for the whole family and a protection where expensive care home fees are concerned.  If you get the right advice, then there should not be any complications.  Therefore, it is always best to go through experienced legal firms to make sure all the complex issues are covered. Your adviser must ensure that you as their client understand the implications of setting up a trust, and that you are also properly assessed to ensure they are not creating a problem for yourself later down the line.

Unfortunately, non-lawyers are not always aware of the pitfalls and even if they are don’t necessarily pass that information on to the person they are advising on setting up the trust.

At HCB we do not insist that the client appoints us as trustees so there is no annual retainer fee and we only charge for work that has to be done such as a tax return every five years and that would be around £100. And we give the power to remove and appoint trustees to the person setting up the trust.

Our service, like many other solicitors, not only means that the client is talking to a legal expert, but costs them less money and is more transparent -  the exact opposite to how the get-rich-quick salesmen are portraying the legal profession.

This is however a growing fashion – the same issues surround DIY wills and internet divorces. The client will always be better off taking proper legal advice rather than taking off-the-shelf solutions and it will often cost a lot less in the long run.  Prevention is always better than cure, so take the right advice from the right people now, rather than trying to fix the problems created by unqualified advisers at a later point.

HCB Networking hits Lichfield

Well, continuing the theme from last month in the attempt to unite the Lichfield and Sutton Coldfield business communities the HCB networking bandwagon hit Lichfield today.  Michelle Dean and I again hosted another packed event, this time at Apres on Bird Street.

There was a slight deviation from last month's inaugural event, but only insofar as the apparent absence  of any mind readers this time round.  However, there was still a great buzz about the event with all of the professions in and around Lichfield well represented, with again around 30 delegates in attendance enjoying a light hearted quiz, good food and even better company.

Having held events in both locations now, it is clear that there is a hunger for this type of professional, yet slightly relaxed forum for local businesses and professionals to get together and discuss business, or anything else for that matter.  Feedback was again excellent, and Michelle and I look forward to seeing everyone again in Sutton Coldfield next month!

Next event is back at Don Diego's in Sutton Coldfield next month on Wednesday 11th July 12pm, we'd love to see you there!

Pensioners - Tax, Trusts and (some) Free Help!

There has been a noticeable increase in the number of pensioners re-organising their financial affairs in a more beneficial way since the Government announced the freezing of tax allowances for over-65s and over-75s.

Pensioners are not only worried about their own financial positions but they are anxious not to be a burden on their families. As we know, in the name of tax system simplification, from April 6 next year the Government is scrapping the age-related income tax personal allowance so those under 64 are no longer set for a boost at 65. Those 64, or 65-plus and currently getting extra tax-free income, will see their allowance frozen at 2012-13 levels. At the moment, pensioners aged over 65 can bank a larger income from state and personal pensions, employment - without paying any tax. Those between 65 and 74 can take home £9,940; those aged 75 can take £10,090.

The problem is pensioners will have planned their future finances with the age-related income tax personal allowances, now they have to think again.

There has also been a rise in the number of pensioner couples looking at trust funds to not only protect their own assets but those of their families as well as help in paying care home fees. Setting up trusts, although complicated, can make sure there is a steady income for the whole family but can also be a benefit in paying care home fees, a major drain on resources as we get older. 

I am part of the T.O.P. team in the UK, an independent free tax advice service for older people on low incomes who cannot afford to pay for professional advice. TaxHelp for Older People is a service originally provided by the Low Incomes Tax Reform Group but is now provided by Tax Volunteers, and through which pensioners with a household income less than £17,000 per year, qualify for free tax advice. I am finding that I am making an increasing number of home visits and attending more surgeries for those pensioners who meet the charity’s requirements as a result of these changes. There is no doubt that at whatever end of the economic spectrum the pensioners are, the Government’s move on tax allowances has caused a great deal of anxiety.

Pensioners are turning to professional advice and at HCB we can offer both legal and tax specialist help, avoiding the inconvenience of having to use two firms to get the service required.