Wills, tax, trusts & probate

Happy anniversary!
5 July, 2018

You might be surprised to know that there are some remarkable similarities between trusts and marriage.

Tax planning – Yes, call me unromantic but trusts and marriage can both save you tax. Trusts are very useful for tax planning and are an effective way of passing assets to the next generation. Marriage also brings a number of tax saving opportunities.

Not to be taken lightly – The decision to set up a trust involves many considerations and they should not be entered into lightly, just like a marriage.

The Big Day is only the beginning – While wedding preparations can seem laborious, the real hard work for couples begins once the Big Day is over and they embark on the joys and challenges of married life.  Similarly, while trustees may breathe a sigh of relief once the initial formalities have been dealt with, they cannot just sit back and relax once a trust has been set up.

This is not the place to give you my recipe for a happy married life but trustees do need to know about their continuing obligations.

Trustees’ duties – As well as their duties to look after the trust assets and the needs of the beneficiaries, trustees must keep accounts, record their decisions and comply with HMRC reporting requirements.  A key event, easily overlooked by trustees, is the 10 year anniversary charge.

10 year anniversary charges only apply to ‘relevant property trusts’. Broadly, this includes most discretionary trusts, and life interest trusts not set up by Will, but there are exceptions and trustees should seek advice to check whether the rules apply to their trust.  

Nil rate band discretionary trusts are a common type of relevant property trust. As they often do not require active management, the trustees must keep a note of each 10 year anniversary to avoid it passing by unnoticed.

What is the significance of the 10 year anniversary? Tax may be payable and the deadline is tight – As the name suggests, the 10 year anniversary arises every 10 years after the creation of the trust.  This is the date of the trust deed for trusts made during lifetime, or the date of death for trusts created by a Will.  The trustees must review the value of the trust assets and obtain valuations if necessary.  An anniversary charge arises if the trust assets are worth more than the nil rate band (currently £325,000).  The charge is currently a maximum of 6% on the value of the assets over the nil rate band and the trustees must submit an Inheritance Tax (IHT) return to HMRC along with payment of the tax.   If the assets are worth 80% or more of the nil rate band (£260,000), the trustees must still submit an IHT return to HMRC even though there is no tax to pay. 

The deadline for paying tax and submitting the return is 6 months from the end of the month in which the 10 year anniversary arises. Unlike a spouse, HMRC will not accept a tin gift as payment; the similarity, perhaps, is that penalties and interest arise if the deadline is missed!

It may be possible to take action to avoid a charge arising.  Trustees should take legal advice well before the 10 year anniversary to allow time to consider their options and take any necessary action.

Anniversaries are significant events in both a trust and a marriage and must be addressed to avoid displeasing HMRC or your spouse.  I will leave you to decide which is worse!

If you would like to discuss trusts and 10 year anniversary charges further please contact Francesca Sassoli on +44 (0)1892 506 354 or at francesca.sassoli@cripps.co.uk.

To gift or not to gift…
21 June, 2018

Are you wondering how you can reduce the amount of  inheritance tax (IHT) that will have to be paid on your estate when you die?  Perhaps because you want to maximise the amount of  your hard-earned wealth that will go to your family, or simply because of an aversion to the tax man!

Some people achieve this with a well structured Will while others embark on a comprehensive strategy of lifetime planning.

Lifetime planning involves reducing the value of your estate as far as possible during your lifetime in order, ultimately, to reduce the IHT liability. At its simplest, it may mean spending your well earned money on luxury holidays or cars but for many people it also means making sure the next generation is well provided for, perhaps by helping children on to the property ladder or helping to fund the grandchildren’s education.

There are, however, three main restrictions which hinder lifetime gifting:

1. You need to leave yourself with sufficient for your own needs. Often the bulk of wealth is tied up in the house and you do not want to leave yourself vulnerable in your retirement, without a house or savings to fall back on.

2. Outright gifts only become exempt from IHT if you survive seven years from the date of the gift.

3. Any gift must be genuine. If you continue to use or benefit from the asset given away, HMRC will ignore the gift and include the asset as part of your estate when calculating any IHT due. For example, it is common for people to consider gifting some or all of their home to their children, believing that this will reduce the value of their estate for IHT purposes. If, however, they continue to live in (and therefore derive a benefit from) the property, HMRC will ignore the gift and generous donors may find that they end up living in a property they no longer own but which is still in their estate for IHT purposes.

If lifetime gifting is something you are considering, think carefully and take advice before doing so. There may be more tax efficient ways of achieving the same objective (for example by using your annual gift exemption, which permits a certain amount of tax free giving each year, or making gifts out of excess income) or alternatively you could set up a trust of which you are a trustee in order to retain an element of control over the assets.

To find out more about lifetime gifting or to request our guidance note about lifetime giving please contact Anna Ridley at anna.ridley@cripps.co.uk or on 01892 506 151.

Tax Free Window for Non-Doms?
7 June, 2018


If you are a ‘non-dom’ resident in the UK, you may have a one off opportunity between now and April 2019 to bring money into the UK tax free. 

This tax free window may have been aimed mainly at UK resident individuals with millions in ‘mixed accounts’ offshore (i.e. offshore accounts containing a mixture of funds acquired before the individual became UK resident and income or profits realised since then) but it can apply to others who may never have given much thought to the ‘non-dom’ tax rules.  For instance, it could apply to someone who moved here for employment and has only UK earnings but who still owns assets overseas. 

If you own an overseas property, bought with earnings from before you arrived in the UK five years ago, you could sell the property now and bring cash equal to the original purchase price into the UK without paying any UK tax. If, however, you wait until after 5 April next year it would be impossible to bring any of the proceeds of sale to the UK without triggering some UK tax. 

By way of example, let’s assume that before you moved to the UK you bought (or inherited) a house worth £400,000 which is now worth £800,000.  If you now sell and split out the proceeds, you could bring £400,000 (representing the original purchase price) to the UK tax free, leaving £400,000 offshore to buy a smaller base ‘back home’.  If, however, you do the same this time next year, then you may have to pay as much as £112,000 in UK tax. 

Of course, as with all things to do with tax, the qualifying criteria are not straightforward, so before you rush to sell your overseas property or investments there will be steps to take.  First of which should be to check if the tax free window applies in your case and then if, in fact, any tax saving justifies a sale sooner rather than later.  

If you would like to discuss this further please contact Paul Fairbairn on +44 (0)1892 506 350 or at paul.fairbairn@cripps.co.uk

Family Investment Companies: a trust in corporate clothing?
24 May, 2018

A Family Investment Company is a tax efficient alternative to setting up a family trust.

What is a Family Investment Company?

A Family Investment Company (FIC) is a UK-resident private company whose shareholders are all family members. When setting up the company, you can choose to issue different classes of shares, separating out the voting rights and the rights to income and capital. Typically, the senior generation set up the company and retain control by keeping the voting shares and acting as directors. They then gift the capital shares and, often, the income shares to children and grandchildren.

The ‘Articles of Association’ of the company will record exactly how the family want any funds to be distributed or shares transferred. Significantly, the Articles, identities of directors and shareholders and the annual accounts of the company will all be available to the public. A family concerned about confidentiality may choose to supplement the Articles with a shareholder agreement, which can be kept confidential.

How does taxation treatment compare?

Trusts are attractive if the assets put into them qualify for business or agricultural property relief from inheritance tax (IHT).  Any other assets settled into a trust will be subject to

  • a 20% lifetime IHT charge on any value over the available nil rate band allowance (currently £325,000), and
  • IHT of up to 6% every ten years and on capital distributions from the trust where the value exceeds the nil rate band.

In contrast, for a FIC

  • if set up with cash, the transfer into the company will be tax-free – non-cash assets may incur a capital gains tax charge of up to 28%.
  • the gift will be a potentially exempt transfer, meaning no IHT will be payable on that element of the donor’s estate, if the donor survives for 7 years.
  • FICs are not liable to IHT charges every 10 years or on capital distributions.
  • Corporation tax is payable at 19% on any profits generated, falling to 17% by 2020.
  • Shareholders pay income tax on dividends, but only where the directors choose to pay out income. If the profits are retained in the company, no further tax is payable.


A FIC should seriously be considered as an alternative to a trust. If you would like to discuss FICs further, please contact Clare Savory on 01892 506 213 or at clare.savory@cripps.co.uk


Be savvy when leaving to charity…
10 May, 2018

Are you planning to leave something to charity in your Will?  If so, did you know that there is a lower rate of inheritance tax if you leave 10% or more of your net estate to charity? This means you can leave more to charity on your death with less impact on other non-charity beneficiaries.

This is how it works…

On death, inheritance tax (“IHT”) is charged at 40% on the value of what you own in excess of the available Nil Rate Band (“NRB”), currently £325,000. The NRB is the amount which you can give away without IHT being payable. It is reduced by the value of any gifts made in the 7 years before your death, and gifts to a spouse are exempt from IHT.

Gifts to UK charities are also exempt from IHT. This exemption also applies to gifts made to equivalent organisations in Europe, Iceland and Norway. If you leave 10% or more to charity, the rate of IHT on the rest of the estate (i.e. the part not left to charity or a spouse) is reduced to 36%. This reduced IHT rate means that by leaving more of your estate to charitable beneficiaries the amount left to your non-charitable beneficiaries may also increase.

Here is an example, with a net estate worth £750,000 at death, no lifetime gifts or residence nil rate band (Read about the residence nil rate band here) to take into account:

Scenario 1

You leave £60,000 (8% of your net estate) to qualifying charities and the rest to your children.

A total of £385,000 (the £60,000 charitable gift plus your available NRB at £325,000) passes free of IHT.  The remaining £365,000 is charged to IHT at 40%, being £146,000.

Your children receive £544,000.

Scenario 2

You leave £75,000 (10% of your net estate) to qualifying charities and the rest to your children.

A total of £400,000 (the £75,000 charitable gift plus your available NRB at £325,000) passes free of IHT.  The remaining £350,000 is charged to IHT at the reduced rate of 36%, being £126,000.

Your children receive £549,000.

This is a ‘cliff-edge’ tax relief which does not have a gradual scale.  Once you cross the 10% line your estate becomes eligible.  Of course this is only a simple example and it is important to work out the implications based on your specific circumstances.

Please get in touch if you would like to discuss gifts to charities or any other matters relating to your Will. You can contact Hannah Baker on 01892 506 057 or at hannah.baker@cripps.co.uk

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