My clients fear of their own mortality and their wish to pay the taxman as little as possible when they die. Every day, I face a tricky three-way balancing act: my clients wish to gift assets down to the next generation in order to mitigate inheritance tax; their need to make sure they have enough assets to live off for the rest of their lives; and their desire to protect their assets from the misadventure of their children.
Interestingly, my clients tend to fear their children losing the gift through divorce more than paying the taxman on death. However, protective lifetime gifting is difficult nowadays: capital gifting above £325,000 into a discretionary trust every seven years is a taxable chargeable transfer at 20%.
With this in mind, I am frequently referring pre-nuptial or post-nuptial agreement work to my family law team to add extra protection to gifting.
On the same theme, I am seeing an increase in the use of family investment companies to pass assets down but keep long-term control. Between my team and our corporate team, we have half a dozen on the go right now.
If you could make one change to tax, what would it be?
It would be great to get rid of SDLT altogether – but as that is unlikely to happen, I would remove the extra 3% tax on second home purchases. It is blatant market manipulation which is catching investors into the UK and parents wanting to buy a property for their children (typically, when they are minors, or when they are adults and the parents want to retain a small percentage for asset protection).
And, if it ever arrives, let’s abolish the probate fee (‘stealth tax’) rise as well.
What do you know now that you wish you’d known at the start of your career?
It is a marathon not a sprint. Early on I was fixated about getting places quickly, but now I realise hard work and patience will get you there in the same time, just better prepared.
Are there any rules that are causing a particular problem?
The residence nil rate band continues to mystify clients and practitioners alike. When is it applicable? When does is get lost through taper relief? How do the downsizing rules work? It is unfair on clients who cannot benefit because they have no children and can therefore only utilise the normal nil rate bands. It was a shame this measure was not tackled by the Office of Tax Simplification in its recent paper, but I have no doubt that its days are numbered.
Is there a recent tax case that has caught your eye?
I am always interested in business property relief cases, as they often set the parameters for qualifying for this favourable tax relief. The recent Upper Tribunal case of Vigne
[2018] UKUT 357 (TCC) is a particularly helpful example. That case involved a livery business that went beyond the normal DIY livery business to the extent that Mrs Vigne could not be considered as just holding an investment but a viable trading entity. The case gave clear pointers as to what level of involvement and services where required to qualify for BPR.
What should we look out for later this year?
Boris tax cuts or Corbyn tax hikes. Brexit has paused tax legislation
but for whomever prevails, proposed tax changes are going to be used as a vote winning weapon. Tax practitioners will need to be on the ball: whenever there are any changes, there are opportunities to grow your offering.
You might not know this about me...
As I answer these questions, I am staring out over the Camel Estuary in North Cornwall. It’s a beautiful stretch of coastline that I have been visiting all my life and very much my spiritual home. Unfortunately, it’s a bit too far to commute from on a regular basis!
My clients fear of their own mortality and their wish to pay the taxman as little as possible when they die. Every day, I face a tricky three-way balancing act: my clients wish to gift assets down to the next generation in order to mitigate inheritance tax; their need to make sure they have enough assets to live off for the rest of their lives; and their desire to protect their assets from the misadventure of their children.
Interestingly, my clients tend to fear their children losing the gift through divorce more than paying the taxman on death. However, protective lifetime gifting is difficult nowadays: capital gifting above £325,000 into a discretionary trust every seven years is a taxable chargeable transfer at 20%.
With this in mind, I am frequently referring pre-nuptial or post-nuptial agreement work to my family law team to add extra protection to gifting.
On the same theme, I am seeing an increase in the use of family investment companies to pass assets down but keep long-term control. Between my team and our corporate team, we have half a dozen on the go right now.
If you could make one change to tax, what would it be?
It would be great to get rid of SDLT altogether – but as that is unlikely to happen, I would remove the extra 3% tax on second home purchases. It is blatant market manipulation which is catching investors into the UK and parents wanting to buy a property for their children (typically, when they are minors, or when they are adults and the parents want to retain a small percentage for asset protection).
And, if it ever arrives, let’s abolish the probate fee (‘stealth tax’) rise as well.
What do you know now that you wish you’d known at the start of your career?
It is a marathon not a sprint. Early on I was fixated about getting places quickly, but now I realise hard work and patience will get you there in the same time, just better prepared.
Are there any rules that are causing a particular problem?
The residence nil rate band continues to mystify clients and practitioners alike. When is it applicable? When does is get lost through taper relief? How do the downsizing rules work? It is unfair on clients who cannot benefit because they have no children and can therefore only utilise the normal nil rate bands. It was a shame this measure was not tackled by the Office of Tax Simplification in its recent paper, but I have no doubt that its days are numbered.
Is there a recent tax case that has caught your eye?
I am always interested in business property relief cases, as they often set the parameters for qualifying for this favourable tax relief. The recent Upper Tribunal case of Vigne
[2018] UKUT 357 (TCC) is a particularly helpful example. That case involved a livery business that went beyond the normal DIY livery business to the extent that Mrs Vigne could not be considered as just holding an investment but a viable trading entity. The case gave clear pointers as to what level of involvement and services where required to qualify for BPR.
What should we look out for later this year?
Boris tax cuts or Corbyn tax hikes. Brexit has paused tax legislation
but for whomever prevails, proposed tax changes are going to be used as a vote winning weapon. Tax practitioners will need to be on the ball: whenever there are any changes, there are opportunities to grow your offering.
You might not know this about me...
As I answer these questions, I am staring out over the Camel Estuary in North Cornwall. It’s a beautiful stretch of coastline that I have been visiting all my life and very much my spiritual home. Unfortunately, it’s a bit too far to commute from on a regular basis!
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