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October Newsletter 2013

We were shocked at some recent statistics which illustrate the huge number of adults in the UK who have not yet made a Will.

Given that the top excuse for those without a Will is ‘not getting round to it’ we have written a timely reminder as to what may happen to your property and possessions in the event that you died intestate.

Staying on the theme of planning ahead, we have also set out 5 tips to assist with IHT planning, another important area which, if neglected, can lead to a needlessly high tax bill.

And to finish off, we have included a short quiz to test your general knowledge in the world of investments.

We hope you enjoy reading the articles and find them useful.

In this issue:

What happens if you haven’t made a Will?

Five tips to reduce your IHT burden

Quiz: how savvy are you in the world of investments?


What happens if you haven’t made a Will?

A staggering 29m UK adults have not yet made a Will and almost 70% of those are in the 40-49 age bracket. The unexpected can happen to any of us at any time and although it may not be a pleasant thought for most people, formalising how you would like your estate divided and the financial arrangements for your loved ones, is one of the most important things you can do.

For example, did you know:

· Cohabiting couples have no automatic rights under current intestacy laws and your partner could end up with nothing.

· If you are married, your spouse will not automatically receive your entire estate and, if you do not have any children, depending upon who survives you, part of your estate could go to parents/siblings/nieces/nephews instead.

· If you are married and you do have children, your spouse will receive the first £250,000 of your estate tax free, with a life interest in half of the remaining estate value. Therefore, if your home is valued at say, £400,000 your spouse may have to sell their home if your adult children wanted to collect their share of the estate. On the other hand, if your estate is worth less than £250,000 your children will get nothing.

· And if you have separated but not divorced at the time of your death, your ex-partner will still inherit the first £250,000 of your estate.

Clearly there can be huge problems as a result of not leaving a Will and at a time of great stress and trauma for those left behind, leaving a valid Will makes life a lot easier for them, and ensures your loved ones are taken care of according to your wishes.

Five tips to reduce your IHT burden

Last year in the UK around £500m was paid in Inheritance Tax, yet much of this could have been avoided by some careful planning and thinking ahead. Below are some scenarios that can help reduce the IHT burden but, as ever, we strongly advise that you take professional advice before acting on any of these points.

Gifts from Income

Most people are aware of lifetime gifts, i.e. the £3,000 annual limit and the 7 year survival rule for larger amounts. However you can also make gifts of money free of IHT if the funds you gift arise solely from a regular income source (e.g. a pension or investment). Such gifts can be any amount and are not subject to the 7 year rule but in order to qualify, you must be able to prove that you can make your normal every day outgoings from this income without having to touch the capital. Keeping accurate records is essential in order to calculate how much you can comfortably give and to satisfy HMRC in the event of an enquiry.

Gifts of Property

Lifetime gifts are also subject to ‘reservation of benefit’ rules particularly in the case of gifts involving land and property. For example if you continue to live in a property that you’ve gifted to one of your children, you must pay a market rent to carry on living in it – and the rent should be reviewed regularly to ensure it remains at market levels. If not, HMRC will take the view that you didn’t really relinquish anything in the gifting of the property and it therefore remains part of your estate for IHT purposes.

Loans to your children

If you have loaned a large sum to an adult child, e.g. for a property purchase, you can avoid this becoming part of your estate by releasing the loan if you can afford to do so. This ensures that after 7 years it is no longer an asset of your estate and subject to tax. However the important element here is to ensure the loan is released correctly otherwise HMRC will not accept that a valid release has taken place.

Securing Business Relief

If you own a business you need to have the correct arrangements in place to secure business relief otherwise your share in the business will be included in your estate for tax purposes. In the case of a shareholders agreement for example, if the other shareholders have the right to purchase your shares upon your death, HMRC will view this as a contract to sell and therefore an asset, whereas using cross options to change this to an option to buy/sell, gets around this issue.

Ownership of Business Premises

As a business owner, with the business premises ownership in your own name, the maximum applicable business relief to your estate would be 50%. However, changing ownership to the business instead, means that you have an interest in the value of the premises and on your death this would attract full business relief at 100%. Additionally, this should not affect any entrepreneurs’ relief that would be applicable on the sale of your interest in the business.

There are other strategies that you could also consider, depending on your circumstances. To discuss how these could apply to you, please contact us on 01926 651122 or email justask@jjfsltd.com


Quiz: how savvy are you in the world of investments?

To end this edition, here’s some light entertainment to test your investment general knowledge. How many of the questions below can you answer without resorting to the internet.

Answers below.

1. Which country was demoted from a developed market to an emerging market by MSCI this year?

a) Greece

b) Cyprus

c) Qatar

2. What is the biggest UK-domiciled retail fund?

a) Invesco Perpetual Income

b) Invesco Perpetual High Income

c) Standard Life GARS

d) M&G Optimal Income

3. What level did interest rates hit on Black Wednesday (16 September 1992)

a) 10%

b) 15%

c) 17%

d) 11%

4. There are a number of ways in which index tracker funds can be run, which of the following is NOT one of these?

a) Replicating an index by holding all the stocks in that particular index in the particular index in the relevant proportions

b) Stratified sampling techniques

c) Using the fund manager to pick the stocks that he/she feels are undervalued

d) Optimisation techniques

5. Which one of the following is NOT a benefit of diversification when investing?

a) Diversification spreads the potential for investment gains across asset classes

b) Diversification should increase the stability of the portfolio in all economic cycles

c) Diversification will provide higher investment returns

d) Diversification reduces the risk of any one particular investment or market


Answers : 
1.a 2.c 3.b. 4.c 5.c

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