Ringing the changes

The brains of all private client lawyers have been much focused recently on thoughts of what legislation the Government might introduce next in its efforts to extract more tax from our hard-pressed UK taxpayers.  2006 saw the alignment of trust taxes (and we are still wondering with what?), otherwise known by us as the attack on trusts.  We also had the changed rules for resident non-domiciled taxpayers followed by the revision of what had been a relatively short and clear Revenue manual on residence and domicile (IR20) to the very long  - 80 pages - and complex HMRC6.  It is interesting to note that HMRC has already issued an explanatory publication on this, with another, at the time of writing, apparently to follow shortly. There was speculation that last week's Pre-Budget Report would see increased capital gains tax rates planned for 2010, if not immediately effective from 9 December 2009.  In the event, nothing was said about CGT, but national insurance contributions are to be increased, the inheritance tax threshold, scheduled to go up to £350,000 from 5 April 2010, has been held at £325,000 for the moment, income tax personal allowances have been frozen and bankers are said to be leaving the country in droves because of the hit on their bonuses.  The Revenue is now consulting with the Society of Trusts and Estates Practitioners (STEP) and other bodies on the procedures which can be used to identify and reduce the avoidance of inheritance tax on trusts.  In days gone by, avoidance was perfectly acceptable, whereas evasion was not.  Nowadays, HMRC is determined to wipe out any tax efficiencies resulting from the use of trusts, even where those savings are only a by-product of succession planning and preservation of wealth for future generations. 

All the more reason to use experts who know their way around the world of private client law.  Our private client practice is not only about  tax mitigation so we have chosen, in this update, to take a look at some of the other key issues of the moment.  I hope you enjoy reading what we have to say and please do let us have your comments on our new email upate, which replaces the printed format.

To find out more, please contact Lesley Lintott

Law Commission launches consultation on inheritance

The Law Commission has published a consultation paper on the law of inheritance, entitled Intestacy and Family Provision Claims on Death. In particular the consultation will look at the rules governing the estates of those who die without having made a will. About a third of people who die in England and Wales each year fall into this category, and the Commission considers that at the moment their estates are dealt with in a way which reflects 'attitudes from a different era'.

The key proposals are as follows:

1. If the deceased had no children, then their spouse (their husband, wife or civil partner) should
    inherit their entire estate, rather than sharing it with the deceased's parents or siblings. Many
    people might be surprised to learn that this isn't already the case.

2. Where the deceased left a spouse and children, the Commission has put forward a variety of
     proposals which may simplify the current rules. One of these is to give the whole estate to the
     surviving spouse. Some of the aims here are to ensure that surviving spouses are properly
     provided for, and to reduce the costs which are necessarily incurred in the administration of the
     trusts created by the current rules.

3. Finally, the Commission proposes that those who lived with the deceased as a couple (but  
    without being their spouse) prior to the death should be entitled to inherit under the intestacy rules.
    This is the most marked departure from the current intestacy rules, under which co-habitees  
    inherit nothing. (They may be able to bring a court action against the estate for financial provision, 
    but this is an expensive and stressful process). The Commission proposes that if the deceased
    and their co-habitee had children, or if they lived together for five years continuously prior to the
    death, then they should inherit in the same way as spouses. Those who have lived as a couple
    with the deceased for between two and five years prior to the death should be able to inherit half
    the amount that a spouse would.

It is worth noting that these rules would only apply to people who live together 'as a couple'. People who lived with the deceased for other reasons, for example family members, friends and lodgers, would not become entitled to inherit under the rules.

However, while the Commission's proposals represent a much needed updating of the law on intestacy, the consultation also underlines that, for peace of mind that those left behind will be provided for, the best thing to do is make a will.

To find out more, please contact Charlotte Royal

Lasting powers of attorney - now the simpler way to manage your affairs

From 1 October 2009, a new lasting power of attorney form has been introduced, although the old form can still be used for the time being.

The old form was 26 pages long, and both solicitors and clients complained that it was unnecessarily complicated and very easy to complete incorrectly. Frequently, the lack of one tick in a box on this huge form would result in the whole application being rejected. The forms were gaining a bad press, and not just amongst the legal profession. As a result, people, and often the most vulnerable, were being put off appointing attorneys on the grounds of both complexity and cost.

The new form is 11 pages long, and contains helpful guidance in plain English. This should speed up both the preparation of these essential forms, and the registration of them at the Office of the Public Guardian.

It is hoped that the introduction of these shorter forms will encourage more people to go ahead with making lasting powers of attorney for both property and affairs and personal welfare, appointing a trusted person to look after them and their assets should they lose mental capacity. Although there will still be a cost involved, it is far less than the cost of appointing a deputy to fulfil the same function, should they lose capacity without doing so.

To find out more, please contact Liz Garvey

2009 - the year of the pre-nup?

Previously seen as being of interest only to the super-rich and lawyers, this year has seen widespread interest in the pre-nuptial agreement. Are pre-nuptial agreements enforceable? Are they desirable? Do they take the romance out of marriage? All these questions have been discussed at length, but at the centre of the debate is the question of where the boundary should be between the right of individuals to make their own financial arrangements and the extent to which courts should retain decision-making power over divorce settlements.

English law gives judges wide and flexible powers in deciding how assets should be split when couples divorce.  This allows the court the potential to achieve a fair result in the most complicated and unusual of circumstances. However, it often comes at the price of uncertainty about the outcome of a case and this uncertainty can lead to litigation. Couples argue their respective positions, pushing at the boundaries of the current guidance and where there is litigation there are substantial legal costs, which eat into the assets available to the family.

The uncertainty and the cost of financial proceedings on divorce has attracted criticism recently, with some calling for more prescriptive rules on the division of assets on divorce and others calling for greater recognition of agreements made between the couple themselves.  Recently reported cases have confirmed that pre-nuptial agreements cannot be directly enforced by the courts, but have clarified the circumstances in which they are likely to be taken into account as significant in a particular case.

The Law Commission will now report on the issue of pre-nuptial agreements, with conclusions expected in 2012. However, whether the formal introduction of enforceable agreements will be recommended or then introduced remains to be seen. Until then, many lawyers expect these agreements to feature strongly in their work, with continuing litigation along the border between allowing individuals to take responsibility for making their own agreements and maintaining the ability of the court to adjust agreements to protect the weaker party from unfairness.  The debates look set to continue.

To find out more, please contact Julia Thackray

Selling your French property - is this the right time?

We are neither investment advisers nor currency brokers, but like everyone else in the French property market we are reflecting on the fluctuation in the exchange rate between the euro and the British pound over the past few months.

Even if the current sterling situation has not reached the dramatic close-to-parity against the euro as in December last year, we saw the pound plummeting from around €1.17 in June 2009 to €1.10 in early December. And like last year, we lawyers are experiencing an increasing level of enquiries from British owners willing to sell their French property.

Many told us they 'missed' the opportunity to sell their property last year and are now determined to do so this time round. They cite the increased running costs of the property as against their sterling income, and the potential to 'increase' their gains with the strengthening of the euro. Some clients who emigrated to France have found that on their fixed (sterling) income they can no longer afford to live there.

But who knows how the pound is going to do tomorrow? French conveyancing is a two to three month process, only at the end of which will the proceeds of sale be released.  Rather than counting on fate, today’s rate can be secured through a currency exchange broker.

The capital gains tax situation, in both France and the UK, needs also to be considered carefully to ensure the tax efficiency of the transaction.

Like in the UK, selling in France is more straightforward than buying, but there are a few traps which can easily be avoided with the right legal advice.

Our French unit would be happy to assist you throughout your sale in France to ensure a trouble and stress-free experience.

To find out more, please contact Majdoline El Abidi

2010 - the start of a new era for trusts?

The Perpetuities and Accumulations Act 2009, due to come into force next year, will have important consequences for most lifetime and will trusts.  Here, we summarise the changes.

The current law

The 'rule against perpetuities' has been an important aspect of the legal system of England and Wales since the seventeenth century.  It prevents property being tied up in trust for an indefinite period of time; future interests must take effect within what is known as 'the perpetuity period'. 

Under current law, testators and settlors may choose between a fixed period of 80 years and the common law period - the lifetime of certain individuals living when the trust is created (known as 'lives in being') plus 21 years.  There are also restrictions on the length of time that income can be accumulated within a trust. 

How the law will change

The Perpetuities and Accumulations Act 2009 (the 2009 Act) received Royal Assent on 12 November 2009 and is expected to come into force sometime in 2010.  All trusts created after the 2009 Act comes into force will have a 125-year perpetuity period; in addition, the restrictions on accumulating income will be abolished for new non-charitable trusts.  These changes will bring the UK further in line with offshore jurisdictions. 

Things to consider

  - The 2009 Act will apply to lifetime trusts taking effect and wills executed on or after the date it
     comes into force. 

  - Statutory restrictions on accumulation will remain for charitable trusts.

  - Interests created by exercising special powers of appointment will continue to be subject to the
    perpetuity period that applies to the instrument containing the power.  Trustees of trusts created
    before the 2009 Act came into force might, subject to tax implications, consider creating new trusts
    instead of exercising special powers of appointment. 

  - Trustees of trusts that use 'lives in being' to determine the perpetuity period will be able to 'opt in'
     to the perpetuity provisions of the 2009 Act where they are unsure whether the period has ended. 

  - A testator may be able to incorporate the new perpetuity period into an existing will by a codicil
    executed after the Act comes into force. 

Whilst the changes will have important consequences for wills and trusts, it is not recommended that you delay the creation of these until the Act comes into force.  For further information and to discuss the best course of action for your own situation, please get in touch with your usual contact in the private client department or Lesley Lintott.

Penningtons expands private client team

We are delighted that Julia Thackray has joined us to head up the family law practice at Penningtons. 

She has spent 15 years building her reputation as a leading family lawyer and was previously a partner at Bindmans LLP. Julia advises on all aspects of family law including divorce and civil partnership dissolution, financial settlements, international family disputes and pre-nuptial agreements. She is trained as a collaborative family law practitioner and is accredited as a specialist abduction and private law children solicitor by Resolution, the family law solicitors’ association.  Julia is also a member of the Law Society’s family panel, a member of the Legal Working Group of Reunite, the child abduction charity, and a member of the International Bar Association.

Our private client team has also been boosted by the return from maternity leave of Georgina Ross and the arrival of Victoria Holland and Richard Risino, all experienced solicitors specialising in wills, trusts & probate.

Penningtons' Private Individuals Division recognised by legal directories

The key annual legal directories have recently been published, and the Private Individuals Division at Penningtons has had another good year. 

Chambers 2010 recommends the private client team as a 'large, progressive department at the cutting edge of wealth protection' and the personal injury and clinical negligence team as 'going from strength to strength and able to take on the most difficult and high-value cases'. 

Legal 500 2009 recommends the private client team 'for its offshore tax structuring expertise' and 'for its depth of knowledge'. 

For full details of Penningtons' rankings, please click on the images below: