Lost Will - Lost Inheritance?
CGT is charged on the profit/increase in value on sale or gift of assets. The rates are 18%-28% on disposals of residential property and 10%-20% on other assets. There’s an annual exemption of £12,300 per taxpayer. Disposal of your main residence is tax free and “Entrepreneurs Relief” may see the first £1 million of the gain on the sale of a business charged to CGT at the lower rate of 10%.
CGT is not a big earner for the Treasury- it represents only about 1% of annual tax revenue
A minority of tax payers ever find themselves liable to pay CGT - the wealth of the majority doesn’t generally extend beyond their house, pension fund , ISA’s and our savings at the Bank/Building Society.
Though the Chancellor’s brief to the OTT may be expressed as looking at ways of “simplifying” the CGT regime, even the least cynical will assume the hidden message is to find means of increasing the annual take from CGT; we all know the Government outlay during the Covid crisis needs to be recovered somehow. Refreshing the payment structure of an existing tax is more politically palatable than introducing a new “wealth” tax – even if any CGT changes will impact primarily on those perceived as “wealthy”.
The “simple” ways of increasing CGT revenue are self-evident:
Just as now, CGT rates have, historically, been lower than income tax rates - either directly or after the application of some form of indexation allowance. For example, back in 1983, when I first qualified as a solicitor, CGT was a flat rate 30% and the top rate of income tax was 60% (plus a supplemental rate for “investment” income).
A “capital”, rather than “income”, profit is still a profit. One can see an argument being made to bring CGT rates (on sales if not on gifts) in line with income tax. An increase in rates could be achieved at a stroke; it wouldn’t require a time consuming technical overhaul of the current structure for taxing gains.
So far as exemptions are concerned, we’ve already seen the limit for Entrepreneurs’ relief reduced from £10 million to £1 million in this year’s budget. This measure was widely predicted in advance of the Budget and business sales accelerated to completion before budget day where possible.
Principal Private Residence Relief (PPR) is the number 1 exemption from CGT.
It’d be a move of exceptional political bravery for a Chancellor to repeal or water down PPR (beyond tinkering with lettings relief and the 9 months sale window) and bring two thirds of UK households into a potential charge to CGT. While there may be absolutely no essential logic to treating profit on the sale of one’s home differently from any other profit, the Chancellor will be alert to our nation’s special relationship with the concept of home ownership and an embedded, if irrational, expectation that the family home be left untroubled by taxes.
If a change to PPR is the obvious choice for reform from an arithmetical/revenue perspective, the extent of such reform will be restrained by politics and public opinion. To the extent that increasing the tax burden only on the “wealthy “ might be perceived by the wider public as generally palatable, we may see CGT only on gains over a certain threshold.
None of us can know what, if any, changes will be made to the CGT regime, nor when. I’ve never been an advocate of taking steps with no other practical or personal motive beyond an attempt to avoid the impact of possible or rumoured tax changes.
The CGT regime may well remain unchanged; conversely, rates might be increased and exemptions reduced.
But there is one certainty; the CGT regime will not be getting more benign any time soon-if ever...
Where chargeable (or potentially chargeable) gains are already contemplated, especially on gifts to mitigate IHT, it must make sense to make those gains sooner, rather than later. They’ll be safe from any increase in rates, rumoured changes to IHT on lifetime gifts and to the availability of CGT holdover relief. Even if there were no worry over possible tax changes, with property and investment values still depressed on the back of the fall-out from the Covid crisis, it would make economic sense to act now in any event.
Jim Sawer is a partner in our Private Client team. He has a broad private client practice and has advised families in the UK and overseas, including those with commercial and landed interests, for over 30 years. Clients appreciate his ability to identify the true crux of a matter promptly and his results-orientated approach to resolving private client issues in the family context.
Since writing the above, the government has announced plans to modernise and strengthen the Lasting Power of Attorney (“LPA”) process, by which a person can appoint attorneys to manage their affairs in the event that they lose capacity, following last year’s consultation on modernising the system.
In summary, the major reforms will be:
A Lasting Power of Attorney (“LPA”) is a legal document which allows you to choose who should help you make decisions or make decisions on your behalf when you lose mental capacity and are no longer able to do so yourself. The person making the LPA is called the ‘donor’ and the person or persons given authority under the LPA are called ‘attorneys’. There are two types of LPA: one for ‘Financial Decisions’, for example paying bills or dealing with properties; and one for ‘Health and Care Decisions’ which can cover decisions from what type of care you receive to whether life sustaining treatment is given or not.
The Government has for some time promised to introduce a register requiring overseas entities holding UK property to identify its beneficial owners, in its effort to increase transparency in UK property ownership and reduce the attraction of the UK’s property market to money launderers. Indeed, we last blogged about the potential overseas entities register in May 2019. With UK-based entities subject to strict information-sharing requirements since 2016 (in the form of the register of People with Significant Control or “PSC Register”), many have been calling for an equivalent overseas entities register to be implemented to provide a way of tracking overseas owners who ultimately own and control UK land.
Laura Harper was delighted to be invited to talk to the editor of ‘Wealthbriefing’ recently about the important topic of philanthropic giving by HNW individuals and families.
Apple officially released its ‘Digital Legacy’ feature on 13 December 2021. This permits individuals who have been nominated by the deceased to access the deceased’s accounts and data after their death. Diva Shah examines the impact of this new feature and its implications for Private Client practitioners in matters of estate planning where digital assets are involved.
The UK government introduced new legislation that will require those working in care homes to be double vaccinated against coronavirus. This has been implemented through the Health and Social Care Act 2008 (Regulated Activities) (Amendment) that came into effect on the 11th November 2021. This regulation is applied to England only.
While IHT escaped major changes in the Autumn Budget the Chancellor could be tempted to tweak the framework for IHT in future, writes James Ward. But what playbook would he use?
As non-UK tax residents, the couple will be subject to special rules for calculating the capital gains tax (“CGT”) due in relation to either the sale or transfer of their UK property.
Our well regarded French contact* has warned us that a new law just passed in France is going to cause problems for Anglo / French succession planning. Under the laws of England and Wales, all individuals have testamentary freedom and can leave their estate to whomever they choose under the terms of their will.
Trans adults with full decision-making capacity have the freedom to secure hormonal and surgical interventions to align their bodies with the physical attributes typical of the gender with which they identify (a process known as “transitioning”). However, for those who lack capacity, the involvement of others who are responsible for making decisions on their behalf is required, and the position can be complex as a result. This blog explores the approach to making decisions relating to transitioning on behalf of protected trans people, applying the best interests test and guidance from case law, and discussing the practicalities for decision-makers.
With the price of crypto assets generally making a good recovery from the Covid-19 related decline of 2019 contrasted with the very recent volatility following issues with the adoption of the cryptocurrency as legal tender in El Salvador, investors in cryptocurrencies might be considering realising some of their gains to try to help minimise any further instability.
In recent years there have been calls for a change in the law to protect vulnerable adults from falling victim to what has become known as “predatory marriage”. This is due to a rise in cases where fraudsters have married vulnerable and often elderly individuals, without the knowledge of their loved ones.
The Office of the Public Guardian (OPG) and the Ministry of Justice are working together to modernise the process of making and registering Lasting Powers of Attorney (LPAs). The consultation is open to the public and will remain open until 13 October 2021.
Good news – The “secret” specialist HMRC unit set up in 2019 to examine the tax avoidance risks has been wound up after finding no evidence of correlation between the use of FICs and non-compliant behaviour.
Deputies are typically appointed because individuals cannot make decisions for themselves due to illness, like Alzheimers or dementia, old age or perhaps as a result of a catastrophic personal injury or medical negligence.
There are several reasons why someone may need the assistance of a financial deputy, stemming from incapacity due to an accident or a consequence of old age. There is however a darker side to this type of work that Court of Protection lawyers are seeing more and more of. This relates to those who have suffered some form of financial abuse and/or undue influence.
After a spinal injury the long-term impact on your life and that of your families can be significant. You may need a care package, a new home or adaptations to their existing accommodation, therapies and specialised equipment.
The pandemic has changed the world – there is no doubt we are all “online” far more now than before. Social media now extends into every aspect of our lives, from those notorious repetitive baby pictures to those ‘should never have been posted university photos‘. We collect and share moments of our lives in the digital world.
In the latest edition of the Financial Times Money Q&A, Jemma Garside, senior associate in our private client team answers a question: "Should I set up a joint lasting power of attorney for my mother?"
Subject to any restrictions or conditions in the Lasting Power of Attorney (“LPA”), a property and affairs attorney can make gifts on the donor’s behalf to the donor’s friends, family members or acquaintances on customary occasions.
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