Tag: Inheritance tax planning

Where there’s a will there’s a new way of witnessing it

The law covering how a will can be witnessed in England and Wales is just about to be updated to include the virtual electronic witnessing of wills, in certain circumstances.

This is as a direct result of the lockdown caused by Covid-19. Backdated to January 2020, the new law allows anyone who has been isolating or shielding, and who has access to video software such as Zoom or FaceTime, to get their signature on their will remotely witnessed online. 

The original Wills Act of 1837 stipulates that wills need to be witnessed in the ‘presence of’ at least two witnesses. This has proved to be almost impossible to do properly during lockdown, with many solicitors not having access to offices in order to arrange suitable appointments to witness signatures.

This recent amendment means that the established case law, that allows a witness to observe the signing through a window or door as long as they are in clear view, now extends to live video streaming, just as long as all parties can clearly see and hear what is taking place. 

Under the Electronic Communications Act 2000, a statutory instrument will be enacted in September 2020 stating that the existing phrase ‘in the presence of’ now means either in the physical presence of, or in the virtual presence of (via video link).

Virtually starting the year again

The amendment to the law will be backdated to 31 January 2020, in order that it covers all wills made during the pandemic. It will also be in place up to 31 January 2022, or longer if it is felt necessary to do so. 

However, the Government are also reserving the option to shorten the term too. Once the law reverts back to traditional forms of witnessing, then that will once again have to be performed by someone who is physically (and not virtually) present. 

A last resort

As welcome as it is, this change in the law should only be viewed as a last resort. With remote witnessing being used only once all other physical witnessing options have been explored and found to be impossible. 

Where remote witnessing does take place, then strict precautions must be in place to ensure that fraud and coercion are not present. The witnesses must understand what it is that they are observing and they will not be able to ‘witness’ a pre-recorded video of a will signing.

The Ministry of Justice states that testators (those making a will), when getting it witnessed remotely should make a formal statement such as “I (first name & surname) wish to make a will of my own free will and sign it here before these witnesses, who are witnessing me doing this remotely”

All signatures must all so be ‘wet’ as remote electronic signatures are unacceptable.

If possible, the video stream should also be recorded and kept as a record of events.

Socially distanced alternatives to video technology

As The Ministry of Justice have stated that ‘people must continue to arrange physical witnessing of wills where it is safe to do so’. With that in mind, they suggest that that witnessing wills in the following ways are an acceptable execution of the legal requirement during the pandemic, provided that the testator and witness each have a clear line of site:   

  • Witness through a window, or open door of a house or vehicle
  • Witness from a corridor or from an adjacent room into another room through an open door
  • Witness outdoors, from a short distance.

All wills still need to be signed by two witnesses who are not beneficiaries and please keep in mind that electronic signatures are unacceptable.

The longer-term future

The Government has committed to considering ‘wider reforms to the law on making wills’. In the meantime this concession regarding the witnessing of wills during the restrictions imposed by the pandemic should go someway to helping relieve the stress associated with creating or amending bequeathments during lockdown.

In Scotland the law has also been temporarily amended to allow a lawyer to act as a witness via a video conference, just as long as they are not appointed as an executor, either directly or through a trust.

As always, we at Bridgewater Financial Services are here to provide expert and independent advice on any questions you have regarding making a will, Inheritance Tax Planning or any other financial enquiries you may have.

You can also see full the guidance on making wills via video conferencing in England and Wales by visiting GOV.UK. 

 

Smart thinking AIMed to reduce your inheritance task exposure

An IHT opportunity you may not know about

As the game of cat and mouse continues with the government and taxpayers, the scope of tax planning opportunities that are legitimately open for high earners has been steadily reducing in number and variety.

The latest industry figures show that taxpayers paid £5.3bn in inheritance tax in the last year to February 2018. That’s a rise from the £4.7bn paid in 2016/17. UHY Hacker Young, have suggested that there is a real scope to use Business Relief (BR) to further lessen Inheritance Tax (IHT) bills to HMRC. With forecasts predicting that the value of BR to have risen 8% in 2017/18, from £655m in 2016/17.

Investing in the Alternative Investment Market (AIM), with an Inheritance Tax (IHT) Plan,enables qualifying taxpayers to reduce IHT bills, through investments made in unlisted companies and other business assets.Not only that, but both investors and the government seem to like what’s on offer; as it can produce healthy savings and returns, as well as contributing to the wider economy and create jobs and growth.

An alternative to a Trust that’s worth considering

When you invest in the AIM market, most companies are eligible for Business Relief (BR); and, if held for at least two years, the shares are classed as business assets, so are completely free from IHT.

An AIM Portfolio IHT Plan can also provide you with greater flexibility than a trust and can also be less expensive and time-consuming to set up.

Unlike a Trust, you don’t have to wait for seven years in order for your assets to escape the remit of IHT, as your AIM IHT Plan qualifies for tax relief after just two years as opposed to seven – provided the AIM shares continue to be held thereafter.

Another benefit over a Trust, is that you no longer run the risk of losing access to your investments, as you retain control of your assets at all times. You are also free to increase contributions in the future, as well as possibly earning equity related returns on your AIMs investments.

You can even utilize an existing, or new, (ISA) 

You can either transfer an existing ISA, or set one up in your AIM IHT Plan. Which has the double advantage of the holdings in the AIM companies qualifying for BR. You’ll also be exempt from any income tax on dividends and capital gains tax on profitable disposals. 

How are savings on Inheritance Tax achieved? 

Providing you have held the shares for over two years then, under the current taxation rules, there us unlimited exemption from IHT on all shares that qualify for BR held by you when you pass away.  

Pretty much all of the companies traded on AIM, with the exception of those principally engaged in property or investment activities, qualify for BR. Which means that, under the current legislation, all of the applicable shares in your AIM portfolio will be seen to be business assets, which means that they are exempt from IHT if owned for more than two years.

As the IHT exemption is only available on the qualifying shares, held at the point of death, any AIM IHT Plan should be viewed as a medium to long-term investment, with a view to keeping it for a minimum of five years. 

Upon your death, your portfolio can be sold, or transferred to a spouse, without attracting IHT. 

Is an AIM IHT Plan right for you? 

If you’re concerned that a large portion of your wealth may not get to the people you wish to leave it to, because of the likely IHT charges to be made on your estate, then the AIM IHT Plan could be just what you are looking for.

As it provides you with an investment opportunity that could not only deliver a strong performance, but can also reduce your IHT liability. 

If you are considering investing in an AIM IHT Plan, then it’s important that you get the right kind of independent advice. As it should always be viewed as a long-term investment option that carries a slightly higher risk than other investments and my not necessarily be the best option for your immediate requirements.

The usual minimum investment you should consider with an AIM IHT Plan is £100,000. An additional contribution of a minimum of £25,000, or the full annual ISA contribution, can be made at any time after you start the plan.

A cautionary word about the Plan

Firstly, it’s important to appreciate that the current rate of IHT as well as the value of this option regarding IHT savings and the exemption afforded by an AIM IHT Plan could all change in the future.  

Having said that, BR has been around for a number of years and under various different Governments, and doesn’t appear to be drawing attention in any of the current manifestoes. 

It is important to recognise the long-term, and higher risk, aspect of the plan. As I would suggest that you especially consider the following points, in order to ascertain whether this type of investment fits your personal investment profile:

  • As most AIM shares tend to be illiquid, it might be more difficult to sell them. Also obtaining reliable information regarding their value and the risks they are exposed too can also more difficult to find.
  • Any AIM company can revert to private status. This would mean that shares may become impossible to trade and the value and protection offered by AIM would end. 
  • Like the FTSE, past performance is no guide to the future and the value of shares purchased on AIM (and income received) may go down as well as up; and you may not get back your full investment
  • Not all investments into the AIM market qualify for BR, plus the amount of tax relief available may change at any time. 

Need to know more?
As always, if you have any questions regarding your current or future financial situation, especially around AIM IHT Plans, then please contact us at Bridgewater Financial Services where we will be delighted to help guide you through your individual options and strategies.