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Fergusson Law shares their latest news, the latest legal news and provides some legal advice on this blog.

TRUSTEES. PERSONAL SAVINGS ALLOWANCE EFFECTS?

When changes are made to simplify income tax for individuals there are usually knock-on effects on trusts and estates which do not seem to be fully thought through. The introduction of the Personal Savings Allowance (PSA) of £5,000 per annum for individuals to enable interest to be paid gross without tax deducted at source is such an example.

In theory, the PSA is a welcome simplification but in practice it raises the prospect of lots of small trusts with low income and estates using informal payments having to file a tax return. This is because trustees and personal representatives do not benefit from the PSA yet banks, building societies and National Savings will be paying their interest gross from April 2016.

HMRC have confirmed that for 2016/17 it will not require notification from trustees or personal representatives dealing with estates in administration where the only source of income is savings interest and the tax liability is below £100. HMRC are currently reviewing the situation longer term and will notify customers before 2017/18 tax year as to what the new arrangements might be.

Call Janice on 0131 556 4044 for more advice.

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Inheritance Tax Lessons from the Great and Good

Six common sense and legal ways to pay less tax; all used by well-known people (and for you too).

  1. Ronnie Corbett sold his large family home and gave the proceeds to his children. Since he lived on for a full seven years after the gifts there was no IHT to pay. Even not surviving the whole seven years would have saved some tax.
  2. Tony Wedgwood Benn’s family all agreed to vary his wife’s will after her death. ‘Deeds of variation’ are common ways of a family agreeing the legacies of a will in the most tax beneficial way.
  3. Jim Slater invested heavily in shares listed on the London Alternative Market which are exempt from IHT. Although a specialist area of investment there are many well established companies on this Market . Take specialist advice.
  4. Rik Mayall was an unfortunate example.  He made no Will at all which not only led to more tax being paid than necessary but also to distant relatives getting unintended windfalls.  
  5. Peter Ustinov left more than one Will in different countries because he had assets overseas. The resulting confusion absorbed over £10m of his assets in legal fees.   
  6. Denis Healey's estate (the late Labour chancellor 'squeeze the rich until the pips squeak') has saved £75,000 by donating his correspondence to an Oxford library. Are your papers of national importance?

Any of these ring a bell with you? Talk to us now.

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Inheritance Tax. Do you know the 14 year gift rule?

If you make a gift outside of the usual allowable gifts under inheritance tax legislation, you will need to survive seven years for that gift to be free of your estate for inheritance tax purposes. During that seven years the gifts are known as "potentially exempt transfers". This is a valuable potential get-out for families - although it involves careful planning ahead, and there are risks associated with losing control of assets.

But where trusts have been set up, the rules become more complex.  Trusts are frequently used for what financial advisers term "asset protection'; for instance where grandparents ring fence assets for the future use of young grandchildren, or parents ring fence assets for their children so that their children's spouses can't touch them.

If you die within seven years of establishing a trust, the assets in the trust become taxable.  But there's an additional catch. If you die within seven years, other gifts that were made in the previous seven years before the establishment of the trust also form part of the calculation of inheritance tax.

In this way, gifts made up to 14 years before death can attract inheritance tax.

You would not need to be either especially unlucky or wealthy for your estate to be caught in this way.

It underlines the importance of receiving professional legal advice if you are doing anything other than basic inheritance tax planning.   

If you are thinking of setting up a Trust or already have Trusts, as specialist Trust professionals we can provide the information you need to steer clear of the various traps. Call Janice on 0131 556 4044.  

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