Key takeaways for UK Private Clients – 2024 Autumn Budget

30 October 2024
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There are some finer details yet to be released, but here is a summary of the key takeaways from the 2024 Autumn Budget:

Capital Gains Tax (CGT)

Rates of CGT – immediate changes

Despite rumours of CGT hikes to bring rates in line with income tax, residential property rates for CGT remain at 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers. Non-residential property rates increase from 10% to 18% for basic rate taxpayers, and from 20% to 24% for higher and additional rate taxpayers (including trustees and personal representatives).

Business Asset Disposal Relief – changes from 6th April 2025

The rates for disposals qualifying for Business Asset Disposal Relief will increase from 10% to 14% next April, and from 14% to 18% for disposals after 6th April 2026. See further detail in our briefing here.

Limited Liability Partnership’s (“LLPs”) liquidation – immediate changes

CGT will be triggered on the return of assets to members on the liquidation of an LLP.

Inheritance tax (IHT)

We knew that IHT reliefs were under scrutiny, and there was a lot of speculation about the form any changes would take.

Before going through the changes, it is worth briefly explaining the current position. Broadly speaking, IHT is due on a person’s estate at 40% on the value over and above their IHT nil rate band (NRB) of £325k. It is also possible to claim the residential nil rate band (RNRB) of up to £175k when descendants inherit qualifying residences.

100% relief is available on business and agricultural assets qualifying for Business Property Relief (BPR) or Agricultural Property Relief (APR), with no cap on the value of assets to which the reliefs apply. Those reliefs were designed to ensure that farms and businesses could be kept intact from one generation to the next.

NRB and RNRB thresholds

The existing NRB and RNRB thresholds will be frozen until 2030. (The NRB has not changed since April 2009.)

APR and BPR

From next April, APR will be extended to land managed under an environmental scheme, although the details are yet to be confirmed.

From April 2026, 100% relief will continue to apply to the first £1m of combined APR and BPR assets, with the excess qualifying for 50% relief only. For example, if you own £2m of shares qualifying for BPR, £1m of those shares would attract 100% relief, and the remaining £1m would be subject to IHT of £200k.

There will be a consultation in March 2025 on how the new allowance will affect trusts subject to the so-called relevant property regime (which levies a charge of 6% every ten years on assets held in trust).

Estates will continue to benefit from the NRB, RNRB and other exemptions (e.g. to spouses, charities etc.). However, it has been made clear that if any of the £1m relievable property allowance is not used on death, it cannot (unlike the NRB and RNRB) be transferred to a surviving spouse. Outright gifts will also continue to escape IHT if made at least seven years before death – there had been concerns that Labour would increase the period to ten years.

There is no mention of the uplift on death for CGT purposes, and so it seems that it will continue to apply.

Assets currently qualifying for 50% relief will remain subject to that rate and will not use up any of the £1m allowance, meaning at least that the allowance is not ‘wasted’ on assets qualifying for a lower rate of relief.

Where there is a mixture of assets qualifying for APR and BPR at 100%, the £1m threshold will be divided proportionately. Taking the Government’s example “if there was agricultural property of £3m and business property of £2m, the allowance for the agricultural property and the business property would be £600k and £400k respectively”.

The instalment option can continue to be claimed on APR and BPR assets.

AIM

The rate of BPR on AIM shares will be reduced from 100% to 50%.

Pensions

Currently there is no IHT on unused pensions funds held in discretionary trusts.

From April 2027, IHT relief on pensions will no longer apply, regardless whether or not the unused pension funds are held in a discretionary trust. Pension providers, rather than the deceased’s personal representatives, will be responsible for sending HMRC the funds to pay the IHT on the unused pension.

It appears that recipients of the balance of unused pension funds (after pension providers have paid the IHT) will remain subject to income tax on withdrawals, meaning, in effect, a double tax charge.

IHT return (online filings)

HMRC will introduce a new online digital platform for filing IHT returns and managing payments.

Other

Private schools

As already announced, VAT will be charged on school fees from January 2025. The Government plans to legislate to remove the eligibility of private schools in England to business rates charity relief. It is intended that this will take effect next April.

Interest on late payment of tax

From 6th April 2025, the interest charged by HMRC on unpaid tax liabilities will increase by 1.5% to 4% above the Bank of England’s base rate. This will substantively increase the cost of claiming the instalment option on IHT.

Key takeaways for UK Private Clients

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Fiona Smith quoted in the FT on the rise in attempts to block probate

15 August 2022
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Private Client Partner, Fiona Smith, has been quoted in the FT article entitled ‘Attempts to block probate rise 37 percent in two years’.

Attempts to block probate rose to a record level in England and Wales last year. Challenges to the distribution of inherited estates jumped to 9,926 in England and Wales’s courts and tribunals service centres in 2021, up 37 per cent compared with 2019.

On the rise, Fiona commented: “People are becoming more litigious when it comes to wills. Those who might have accepted being left out of a will 10 years ago may now be more likely to challenge it”.

The full article can be read here, behind the paywall.

With a rise in attempts to block probate, it is imperative to seek robust legal advice to avoid disputes. For more information, please contact Private Client Partner, Fiona Smith, or Head of Contentious Trusts and Estates, Roberta Harvey.

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An undisputed legacy – Ensuring your wealth is passed on unhindered

21 June 2022
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Any individual fortunate enough to have generated wealth, or to have been a custodian of family wealth, during their lifetime should plan for how it will be dealt with after their death.

In this paper, we consider nine key steps individuals can take to help ensure that their estates pass to the next generation without disputes or litigation.

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A smooth generational transfer of wealth is taken for granted by most, but statistics from the Ministry of Justice show that this might not be the case. Over the past ten years, more than 2,300 will disputes have been heard by the High Court. Many thousands more didn’t end up in court but did destroy numerous family relationships and incur a great deal of costs before being settled.

The number of 'high value' estates - those worth £1 million or more - have risen from 8,338 in 2013/14 to 11,210 in 2020, there is clearly more wealth than ever to be disputed.

Before you make your will

Undertake a capacity assessment to avoid disputes

A capacity assessment is undertaken and a report prepared by a medical practitioner, either a GP or a psychiatrist. The report can be used to show that the testator had mental capacity when instructions were given for the will to be prepared/the will was executed.

If the testator is particularly elderly, vulnerable, unwell, or is making significant changes to their will it is possible that the will could be challenged post death on the grounds of lack of capacity. A capacity assessment and report should make it more difficult for the will to be challenged on these grounds.

It is important to note that the instructions to the GP/psychiatrist must explain why the assessment/report is required and set out the rule in the case of Banks v Goodfellow.

Prepare your family members in advance if you have unusual plans for your wealth

Most family members expect wealth to be primarily kept within the family. If this is not how you intend to structure your estate, it is advisable to inform your family of your intentions, however difficult this might seem.

Avoid accidentally ‘creating’ dependants – this can lead to litigation

Another key argument individuals may use to challenge a will is that they were financially dependent on the deceased, and that they have not been properly provided for by your will/under the intestacy rules. It may be surprising to learn that you can ‘create’ a relationship of dependency accidentally, by establishing a regular and long-term pattern of making gifts. If you wish to give money to someone – a child or a grandchild perhaps – it is better to do so in a single lump sum, as this cannot create a relationship of dependency, making it far more difficult for them to challenge your will.

If your family is international, plan for this aspect in detail

It is critical for specialist advice to be taken on the international aspects of a will if the testator and their heirs are living in multiple jurisdictions. Different countries handle inheritance differently, and that can easily end up with your wishes not being followed. For example, some countries do not view a child as a legitimate heir to an estate if their parents were not married when they were born. It is very important for the solicitor preparing the will to have a complete understanding of the family circumstances, this should ensure that the testators wishes can be adhered to irrespective of where the testator or heirs live.

When you make your will

Record all wishes in your will or leave a very detailed letter of wishes if the will creates a discretionary trust

Recording everything appropriately and/or preparing a letter of wishes if a discretionary trust is created will go some way to preventing challenges to a will. However, it might not prevent a claim being brought under the Inheritance (Provision for Family and Dependant’s) Act 1975 or a claim for undue influence or promissory estoppel.

Choose your executors carefully to avoid disputes

If you are leaving real estate as part of your will, it is advisable to name at least two executors. Choose these two individuals carefully, as executors with a poor relationship can easily lead to disputes, as happened in the estate of the renowned architect Zaha Hadid . A dispute between the executors of her estate led to more than four years of litigation following her death, depleting the value of the estate significantly.

Make sure you execute your will properly with witnesses in person

The Covid-19 pandemic led to difficulties for some families in executing a will correctly. Social distancing and lockdown restrictions during 2020 and 2021 meant that some found it challenging to get two witnesses to sign the will in person at the same time. Failure to follow this requirement, set out in section 9 of the Wills Act 1837 can render the will invalid. If you are concerned that your will was not executed properly during lockdown, we recommend you seek legal advice on whether it should be corrected.

‘Competing’ wills in different jurisdictions can lead to litigation

There have been cases where an individual has significant assets in two different countries, and a different will in each jurisdiction that covers all assets globally. This kind of ‘competing will’ situation can end in costly cross-border litigation. If it is necessary to have different wills in different jurisdictions, it’s important to make sure that they complement each other.

After you make your will

Consider a postnuptial agreement for further protection

Some individuals may feel it suitable for their wishes to have even more protection from future disputes. This may be achieved by having their spouse’s acceptance of their will confirmed by a postnuptial agreement. If your spouse has read your will, accepted it in full and contracted separately to respect it following your passing, it is much more difficult for them to challenge it.

Conclusion

An estate dispute between loved ones is difficult for many to contemplate. But, as disputes like these become more common, and the stakes involved in them continue to rise, anyone with significant assets to pass on must consider the steps they should take to minimise the risk of it happening in their own family.

The Forsters team is very well-placed to guide high net worth individuals through the process of estate planning to try to ensure the risk of disputes is minimised when their estates are administered. Their expertise includes some of the highest-value and most complex cross-border estates.

To talk to the team about your estate planning needs, contact Fiona Smith, Partner, Private Client or Roberta Harvey, Partner, Head of Contentious Trusts & Estates.

The Life Cycle of Family Wealth

From growing a business to starting a family or handing over control of that business to the next generation, every individual has their own goals to aspire to. Our Private Wealth lawyers advise our clients throughout this family life cycle, providing the legal advice required for specific transactions such as purchasing a home or selling a business, whilst also advising on the long-term opportunities for succession and estate planning.

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The Five Steps of Probate

23 March 2021
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Dealing with the death of a family member or close friend is always difficult for those involved; the last thing anyone wants to deal with when grieving is navigating complicated tax and legal procedures. It is no wonder that the probate process can appear a daunting prospect to the personal representatives or ‘PRs’ (the people entitled to deal with a deceased person’s estate, who are also known as ‘executors’ when they are appointed in a Will).

Here we provide a helpful guide to the probate process, which can be broken down into five key steps:

Step One – The Immediate Post-Death Requirements

When someone dies in the UK, apart from the funeral arrangements, there are several steps that the PRs need to take:

Registering the death and first steps: The death must be registered with the UK authorities within five days. You will need to establish whether the deceased left any instructions (for example, they may have specified burial or cremation, or organ donation) to help you when making funeral arrangements.
Preserving the estate: PRs are liable both to the deceased’s creditors and to their beneficiaries, so you will need to ensure that the deceased’s assets are adequately maintained and insured.
Trusts: If the deceased was a settlor or beneficiary of any trusts, you should notify the trustees of the death.

Points to consider – Who is entitled to the estate?

At this stage, it is wise to check the terms and the validity of the Will (if there is one) and in all cases to establish the beneficiaries of the estate and what each of them is entitled to receive.

Possible issues in an estate can range from the validity of the will itself (for example, if it has been incorrectly executed or amended) to potential claims against the estate from people who relied on the deceased during their lifetime, but who are not entitled to anything under the Will.

It is helpful to identify any potential difficulties and for the PRs to seek appropriate advice as early possible.

Step Two – Valuing the estate

Once the initial steps have been completed, usually after the funeral has taken place, the PRs need to make enquiries into the deceased’s assets and liabilities, to establish accurate figures for the HM Revenue and Customs (“HMRC”) inheritance tax (“IHT”) return.

Depending on the assets involved, formal market valuations may need to be obtained or it may simply be a case of writing to the relevant asset holder for the information required. Most assets will only be released to the PRs on production of the grant of probate later in the administration, although most banks will release funds to pay IHT.

Any liabilities the deceased had during their lifetime, such as loans, overdrafts and outstanding tax liabilities, must also be recorded in the IHT account and later settled when funds are available.

If the PRs are not sure that they have identified all of the deceased’s assets and liabilities, a financial asset search can be conducted.

Points to consider – Advertising for unknown creditors

A common concern at this stage is whether the deceased had any liabilities of which the PRs have no knowledge. As mentioned in Step One, PRs are personally liable to the deceased’s creditors, even after the estate has been distributed. However, the PRs can protect themselves from personal liability by placing creditor notices (also known as “Trustee Act Notices”) in the London Gazette and a newspaper local to the deceased’s home.

Step Three – Preparing the IHT Return

Once the value of the assets and liabilities has been ascertained, the IHT return must be prepared. This provides HMRC with details of the estate’s value. Depending on the value and composition of the estate and whether it is passing to charity or to the deceased’s spouse, either an IHT205 (a shortened and simplified form for less complex estates) or an IHT400 (a full IHT return which requires more details to be included in numerous schedules) must be prepared. The PRs need to include details of any lifetime gifts made within seven years of the deceased’s death with the IHT400 form.

A calculation of the IHT due must also be prepared. The PRs are responsible for settling any IHT arising on assets owned by the deceased at the date of his death. If the deceased made gifts during their lifetime in excess of their nil rate band (£325,000), these can also become liable to IHT as a result of the death. The recipients of the gifts will be liable to settle any tax due, unless the Will specifies that the estate is to settle the tax.

Any inheritance tax due should be paid by the end of the sixth month after the deceased’s death, otherwise interest will begin running on the tax. For certain assets (such as property or unlisted shareholdings) there is the option to pay IHT in instalments over ten years or (if earlier) until the asset is sold, with interest running on the outstanding balance until it is settled.

The IHT400 is submitted to HMRC and on payment of the IHT due, they will issue a stamped form of receipt (the IHT421) directly to the Probate Registry. The IHT205 simple account is sent straight to the Probate Registry. Receipt by the Probate Registry of either the IHT421 or the IHT205 allows the grant application to proceed.

Points to consider – Assets discovered after submission of the IHT return

There is always a chance that assets may be found after an IHT return has been submitted, usually as a result of documents discovered during the post-grant administration. If this happens, it is important to report those assets to HMRC as soon as possible and arrange to pay any additional IHT and interest.

Step Four – Applying for the Grant

When the IHT account is produced, the application for the grant of representation is also prepared.

The grant is the document which confirms the PRs’ authority to deal with the deceased’s UK assets, enabling them to collect those assets, pay liabilities and distribute the balance according to the terms of the deceased’s will (or intestacy rules, in the absence of a Will).

The probate court issues different types of grants, the main types being a grant of probate, if the deceased had a Will, and a grant of letters of administration if the deceased died intestate (with no Will).

The original Will (and any codicils) will need to be sent to the probate registry when the grant application is made and will be retained by the court.

Points to consider – Reservation and Renunciation

Some executors named in a Will may not want to take on the responsibility of dealing with the estate, and there is no obligation (unless they have already ‘intermeddled’) for them to do so. Executors who wish to step aside have two choices; they can either choose to reserve their power to act as an executor or renounce the position entirely.

If an executor has power reserved to them, they will not be required to act for the time being. However, they could make their own separate application for a second grant at any point in the future and would then become an acting executor, for example, if the first executor could no longer act and they were needed.

If an executor chooses to renounce, they are giving up the role of executor entirely. They cannot reverse the decision if they later change their mind.

Step Five – Post-Grant Estate Administration

Once the grant has been issued by the Probate Registry, the PRs have the authority to call in the deceased’s assets. The PRs will then need to pay off all debts before proceeding to distribute specific legacies (gifts of particular items, such as paintings or jewellery) and pay the pecuniary legacies (cash gifts), if any, that are included in the Will. PRs need to keep estate accounts to document the money received, assets transferred to beneficiaries and amounts paid out of the estate. The accounts also confirm each beneficiary’s entitlement (in accordance with the deceased’s Will or the intestacy rules) and confirm whether an interim distribution (part payment of the beneficiary’s share) can be made at an early stage, before the tax position is resolved.

Before finalising the estate, the PRs will need to complete estate tax returns, reporting any income and capital gains made during the administration period.

Once these are resolved, the final distributions can be made, either distributing cash (after collecting and selling estate assets), or by arranging to transfer estate assets directly to the beneficiaries (for example, transferring shares into a beneficiary’s ownership).

Points to consider – Post-Grant Estate Planning

The post-grant administration period is an opportune moment to help the beneficiaries with their own estate planning, which may be advisable given that they may be receiving a valuable inheritance. This could include the use of a Deed of Variation, by which the Will of the deceased can be adjusted within two years of their death to achieve a more tax efficient outcome for the beneficiaries, when appropriate.

How we can help

Although each estate follows the same general administration framework, no two probate matters unfold in the same way; each set of circumstances differs and can require extensive technical knowledge.

Forsters’ Private Client and probate specialists have a wide range of experience with both UK-based estates and foreign estates involving UK assets, so are able to deal with the most complex matters. We can take on the practical burden of the difficult and complex estate administration process for PRs, explaining matters in a straightforward way whilst ensuring that clients receive the support they need during a period which is often one of the most difficult times of their lives.

Fiona Smith is a Partner, Naomi McLean is a Senior Associate and Roland Merz is an Associate in the Private Client team.

A PDF copy of the article above is also available to download here.

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Fiona Smith

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New online verification service for lasting powers of attorney

14 August 2020
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On 17 July 2020, the Office of the Public Guardian (the “OPG”) launched its online service “Use a lasting power of attorney”. This service enables attorneys to prove their status to service providers, such as banks or health care providers, by providing them with online access to a summary of the relevant lasting power of attorney (LPA).

How it works

Once an LPA has been registered, donors and attorneys will now be sent an activation key. Having set up an online account with the OPG, they will be able to use the LPA registration number and the activation key to add LPAs to this account, and then create an access code for the account which they can give to organisations. The principal benefit of the service will be to speed up the process of verifying an LPA so that it can be used by an attorney to support a donor.

The new service will be available for LPAs registered from 17 July 2020. The OPG has also indicated that it will be opened up to those with LPAs registered earlier in 2020 and some from 2019, though no date has been specified for this extension. There are no plans so far to make the service available to those with LPAs registered before 2019, but the OPG is looking at this possibility.

The benefits and disadvantages

While the new digital service will not speed up the initial process of making and registering an LPA, it will assist when proving the attorney’s authority to act. The current paper-based system of proof can take weeks, during which the attorney is effectively unable to act on the donor’s behalf. In contrast, the new system should take a matter of days. The OPG has indicated that it has received much positive feedback from organisations that trialled the service, which was developed in conjunction with HSBC and the Department of Work and Pensions.

The new system is a welcome attempt to simplify an otherwise lengthy (and sometimes frustrating) process. However, it also opens up new avenues for fraud and the financial abuse of vulnerable donors. Fraudsters use increasingly sophisticated methods to extract information from vulnerable people and those who are unfamiliar with online technology. This makes the planned release of sensitive information by service providers on receipt of a link to an electronic account an area of particular concern.

That said, the principle of streamlining the system to enable attorneys to act for donors is welcome. The potential risks inherent in a digital service should be manageable so long as donors and attorneys take precautions with the codes required to access the service and, as always, donors take particular care to choose trustworthy attorneys. Though there will be no obligation to create an online account, It is not clear from the OPG’s announcement whether it will be possible for the party registering the LPA to request that an activation key should not be issued. The ability to do so would enable parties to opt out of the online service, which would be useful where a given donor is particularly vulnerable.

If you have any questions arising from the issues discussed above, or generally in relation to making or registering an LPA, please contact the author or your usual Forsters contact.

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Fiona Smith

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