Category: Property

In this article our Head of Private Client, Jade Gani, discusses her recent experience with a particular Client, Ms A, and how it made her reconsider standard Estate Planning advice.

I have been in this area of work for a long while now, so there aren’t many situations which take me by surprise or make me re-consider my approach. So when I met with Ms A, I was taken aback and joyfully reminded that every Client’s needs and goals are distinct and different.

I attended the meeting together with a well-trusted and excellent Financial Advisor, as Ms A’s Estate was taxable and she had indicated she would like to actively Inheritance Tax [“IHT”] plan, following a recent cancer diagnosis. She owns two properties, some cash investments and a beautiful, friendly cat. She had never been married and doesn’t have any children.

In her Will, Ms A appointed her good friend, Mr B, as her Executor and wished to gift her second property to another dear friend, Ms C, leaving the remainder of her Estate to a beloved family member. We spoke about her funeral wishes and personal effects, but her main concern was the amount of IHT that would fall due on her Estate.

Of course, we discussed the current Nil Rate Band [“NRB”] and Residence Nil Rate Band [“RNRB”] allowances and it was clear she would not meet the criteria for the new RNRB allowance. This left her with only the ordinary NRB allowance of £325,000.00 and an Estate in excess of £600,000.00 – meaning a substantial IHT bill might fall due on her death.

Together, we discussed various IHT planning tools, such as the annual allowances, Potentially Exempt Transfers [“PETs”], Business Property Relief [“BPR”] investments and much more. Ultimately, Ms A wanted to retain the rental income from her second property while she still might need it and didn’t feel like diversifying her investments further.  

“But, is there nothing else we can do to save tax quickly?” she queried, as I looked at the Financial Advisor for any last suggestions I might have missed. “What about spouse allowances? How does that work?” she asked. I dutifully explained the spouse exemption and transfer of allowances to Ms A, but politely reminded her that as a single person who had never been married, this would not apply. I asked if she was in a current relationship to which she confirmed she was not.

“But…” she pondered, “Does it work the same for Civil Partnerships?” – I confirmed it did. “Well then, I think I should like to enter into a Civil Partnership with my friend, Ms C, then! Would that work?”

The Financial Advisor and I shared a look. With a wry smile, I confirmed that I couldn’t see any reason why not, provided that Ms C was willing. We discussed the drawbacks – if Ms C decided to dissolve the partnership at a later date, if they fell-out and how it could impact Ms C’s Estate if she passed away first. On balance, Ms A felt the benefits greatly outweighed the negatives.

I confirmed I would include an “expectation of” clause in the Will, so that it wouldn’t be revoked if she married or entered into a Civil Partnership with Ms C. With a knowing smile, Ms A said she was looking forward to the speculation amongst her associates that would follow such a plan, as she and Ms C had been the best of friends for a very a long time.

I realised that, amongst all of the complex and detailed planning advice we had offered, I hadn’t seen the very simple, incredibly effective solution that was right in front of us the whole time; probably because it hadn’t occurred to me that Ms A would consider such a route with someone other than a partner.

But, just because it isn’t a common approach, does not mean it isn’t a sensible one. Granted, this probably wasn’t the approach the government had in mind when they first introduced Civil Partnerships, however, as there is no legal requirement to consummate a Civil Partnership, perhaps it will teach those in charge a lesson about the importance of equality for all from the outset…

By the end of the meeting we had a plan that would mean very little, if any, IHT would fall due on Ms A’s death. As a result, we were left with a very satisfied Client.  

To be eligible to register for a Civil Partnership, you must ensure you and your proposed Civil Partner:-

1. Are both 16 or over. If you are 16 or 17, you will usually have to get written consent from your parents or legal guardians;
2. Have lived in the same area in England or Wales for at least seven days;
3. That neither of you is already either a civil partner, or married; and
4. Are not close blood relatives to each other.

So, whilst you might routinely advise unmarried couples of the benefits of marriage or Civil Partnerships from an IHT perspective, have you ever advised your single Client to do so with one of their potential beneficiaries? If not, now might be a good time to start!

We may have bid adieu to the much-reprieved SDLT holiday on the 30 June 2021, however, buyers will still benefit from reduced rates until the 30 September 2021, with a nil rate band of £250,000, and of course we welcome back first-time buyer relief.

Here, we briefly explore the 2% Non-Resident Surcharge (NRS) which was introduced from the 1 April 2021.

What is NRS?

NRS is 2% of the purchase price and only applies to the purchase of a dwelling or dwellings and turns on residence, not nationality.

You will have most likely noticed the introduction of three new questions on the SDLT1 Forms, which are compulsory for residential transactions:

• Are any of the purchasers non-UK resident?
• Are any of the purchasers a UK resident close company controlled directly or indirectly by a non-UK resident?
• Are you claiming Crown Employment Benefit? (If you are non-UK resident due to performing duties for the purposes of your employment under the Crown, NRS relief is available. This relief is also extended to the spouse or civil partner of a Crown servant, provided they are not separated).

Are you a non-resident?

For NRS purposes, a non-resident is a non-UK resident. The UK includes Great Britain (England, Wales & Scotland) and Northern Ireland.

An individual is a UK resident for the purposes of NRS if they have been present in the UK at least 183 days or more in the 12 months before the completion date of the purchase. The 183 days do not have to be continuous, but those 183 days must all fall within 365 consecutive days. If one is present in the UK at the end of a day (midnight), then that day counts.

UK resident close company controlled by non-UK resident

A company is non-resident if either of the below conditions are met on the completion date:

• Not UK resident for Corporation Tax purposes.
• A close company which meets the non-UK control test and is not an excluded company.

Most private companies are close companies, and the meaning of one can be found here, where the non-UK control test is also explained.

If any participator in the company who has control, or to whom control is attributed, has not been resident in the UK on at least 183 midnights in the 365 days preceding the completion date, then the company is non-resident.

Control is defined in the Corporation Tax Act 2010 (s. 448, 450 & 451) as an individual who exercises, is able to exercise or is entitled to acquire direct or indirect control over the company’s affairs (more than 50%). Under s.451, the individual’s rights and powers may be attributed to an ‘associate’, which is defined in s.448. For NRS purposes, however, there are changes to the normal attribution rules:

• There is no attribution between business partners, or between spouses or civil partners, as there usually is.
• A de minimis rule prevents attribution of rights and powers in a company where the associate holds less than 5%.

Reclaims for Individuals

Individuals have a respite over corporate bodies in that they may be able to reclaim NRS if they become UK resident after paying the surcharge on completion.  Therefore, if the individual can show 183 days UK residence within the following 365 days after completion, NRS may be reclaimed by submitting an amended return during a 2-year period from the completion date.

However, if the purchasers are joint purchasers, and just one of them is non-resident, NRS is payable. The exemption to this is where the purchasers are married or civil partners and living together for tax purposes – in this case, if one of the individuals is UK resident but the other is not, NRS is not payable. Please note, the rules differ for trustees of a settlement.

SDLT and the NRS rules are a complicated area of tax, therefore, please seek advice from a tax specialist if you are unsure and require assistance.

If you would like to discuss this or any other property law related query, please do not hesitate to contact our team here at Aston Bond.

Details of consultation have been released by the Ministry of Justice that proposes making online applications made by professionals for Grants of Probate or Letter of Administration mandatory. In this blog, we look at whether the probate process should go online entirely.

The consultation published by the Ministry of Justice proposed that all probate applications should be made online with the exception of four probate applications being:

1. Where there are multiple applicants entitled under intestacy (although the system is currently being developed to allow such applications;
2. Rule 31- grants to attorneys, only where the attorney (representative for a deceased person who when alive was subject to a power of attorney order) is not an existing probate professional able to use the online service; 
3. Rule 36- trust corporation applications (these must be made by officers of the Trust Corporation); and 
4. Rule 39 – resealing under Colonial Probates Acts (these applications continue to require an affidavit, rather than a statement of truth and thus need to continue to be paper-based). 

The Ministry of Justice set out in their consultation paper many advantages of the probate process going online entirely, one of those was saving the users cost and time, and providing a more efficient and reliable system. They also included providing a secure means of making a probate application with an immediate receipt on making the application, and that the system would be accessible to use at any time.  

It has also been proposed that the system is set to include a detailed checklist of the steps required to be completed which is likely to reduce the number of errors being made and ensure all of the information required in order to complete the application is included at first instance, this should help speed up the time probate applications are being processed and turned around. 

It is accepted that the new online system will have many advantages to it, but what are some of the disadvantages? 

With more and more of us working from home, there has been a strain on the telecommunications industry to enhance the systems so that more connections at a higher speed and rate can be made. Although time and costs will be saved by making probate applications mandatory this will be heavily dependent on having a reliant and secure internet connection. What happens if part way through the process you lose your internet connection, will that mean you have to start the application again?

Furthermore, despite the new system being an online based process, there will still be a requirement to post the Will and Statement of Truth/Legal Statement. Although the online process will generally speed up the process and save time and resources, this requirement is likely to achieve the opposite effect. Having said that this requirement removes the need for clients to swear on oath in person in an intimidating Court setting which will certainly help client’s feel more reassured.

There are also talks of making all copy documents/scans a requirement. This is likely to cause some issues with regards the question of validity of documents. If only copy documents/scans are required? Then how do you know for sure that the document has not been tampered with. Effective safeguards need to be put in place to protect vulnerable clients and fraudulent applications being made. We fear that if only copy documents are required in the future this may lead to an increase in improper wills and subsequently an increase in estate disputes. 

All in all, mandating online applications for probate looks promising. By creating a new modernised way of making the applications, Grant of Probate or Letters of Administration should be received at an earlier time meaning that probate practitioners can concentrate on progressing the file and assisting their clients complete the process in a more efficient and effective way. As long as any technical issues are addressed the new system is likely to be an excellent way of saving time and resources and allow practitioners to progress probate files expeditiously. However, any advancements in technology must safeguard the interests of the most vulnerable and unless all concerns regarding safeguarding those individuals are properly addressed then we are hesitant for all probate applications to be made entirely online. 

If you would like a free consultation to discuss your Will or Probate matter, please contact a member of the team on 01753 486 777. 

A Legionella Risk Assessment assesses the potential risks of the spread of Legionella bacteria within properties. 

The Legionella bacteria causes a pneumonia like illness known as Legionnaires’ disease and can contaminate and thrive in water systems, such as the hot and cold-water systems within properties. 

Under health and safety law, landlords have a duty to ensure their tenants are not exposed to any health and safety risks. This includes exposure to Legionella bacteria and landlords should ensure they assess the risk of exposure within their properties.

Whilst large and complex water systems may require routine testing, this is often not considered necessary for simple domestic water systems found in most residential properties.

Usually a landlord can comply with this duty by carrying out a Legionella Risk Assessment themselves, without needing to employ a consultant to carry out a risk assessment for them. Landlords should ensure that their Legionella Risk Assessment is kept up to date and is periodically reviewed. 

On 8 June 2020, the Chancellor, Rishi Sunak, announced his mini budget that included a temporary raise in the Stamp Duty Land Tax (SDLT) threshold.

Previously, the threshold for paying SDLT was £125,000, although first time buyers benefited from a higher threshold of £300,000.

Under the new measures, the threshold is raised to £500,000. This means that anyone buying a property will not pay any SDLT on the first £500,000 of the purchase price/transfer value. 

This temporary change came into effect immediately and will remain in effect until 31 March 2021.

During this period, SDLT liability will be calculated as follows:

Property price/transfer value	SDLT rate
Up to £500,000	Zero
£500,0001 to £925,000	5%
£925,001 to £1,500,000	10%
Above £1,500,00	12%

 

The above rates apply to first time buyers and those replacing their main residence.

Whilst anyone purchasing an additional property will still benefit from the increased SDLT threshold, the 3% high rate will still apply on the revised standard rates.

This means the rates for anyone purchasing additional properties are:

Property price/transfer value	SDLT rate
Up to £500,000	3%
£500,0001 to £925,000	8%
£925,001 to £1,500,000	13%
Above £1,500,00	15%

On 19 June 2020, the government published the ‘Code of Practice for commercial property relationships during the Covid-19 pandemic’.

Whilst the Code is voluntary, it aims to support parties in negotiating affordable rental agreements and tries to promote best practice amongst landlords and tenants.

The Code applies to all commercial leases held by businesses which have been seriously negatively impacted by the Covid-19 crisis. 

It is important to note that a tenant’s legal obligation to pay rent and comply with tenant covenants in the lease remain, unless an agreement is reached with the landlord. If a tenant can pay their rent in full, it is clear that they should continue to do so.

However, where a tenant is unable make full payments of rent, the Code provides some guidance of how a landlord and tenant should approach this situation.

The Code encourages collaboration between the landlord and the tenant, recognising that it is in both their interests for the tenant’s business to continue trading from the property during a recovery period.

A tenant who cannot afford to pay their rent is encouraged to approach their landlord to seek a temporary agreement/concession to assist them whilst they transition through a recovery period. The Code recognises that the relationship between each landlord and tenant is different, but states that each party should act in good faith, reasonably and flexibly. This can include a tenant being transparent about why they need a concession, including providing financial information where necessary, and a landlord ensuring they clearly explain the reasons for any refusal.

Possible arrangements suggested by the Code include:

1. A rent-free period for a set period of time;
2. A reduced rent for a set period of time;
3. A deferral of the whole or part of the rent for a set number of rent payment periods;
4. All or part of the rent to be paid as a proportion of the turnover of the site, incorporating any period during which the site was closed;
5. Landlords drawing from rent deposits on the understanding that they do not need to be topped up by the tenant until it is realistic and reasonable to do so;
6. Landlord’s waiving contractual default interest on unpaid rents; and/or
7. Rents being paid in arrears rather than in advance to make payment plans more affordable.

The Code also considers service charge and suggests that, where there is a known net reduction in overall service charge due to the lack of use of a property, this reduction should be passed on to the tenant as soon as possible in order to assist with cash flow.

It is clear that the government are encouraging cooperation and collaboration between landlords and tenants in order to help as many businesses as possible survive the impacts of the Covid-19 crisis and to ensure properties remain occupied.