Tag: Wealth protection

Trust us to know about Trusts

HMRC have just introduced some fundamental changes to Trust administration

It’s widely recognised that setting up a Trust is an effective way to minimise estate taxes following death. Not only that, but they can also used to ring-fence assets out of the reach of current or future creditors, or potential divorce settlements that beneficiaries may face once an estate passes to them.

Add to that a Trust’s ability to protect beneficiaries against poor judgement and over spending and you begin to see their growing popularity.

Whatever the reasons for setting up a Trust in the first place, there are now some important changes in the law that you need to be aware of; and that you need to act upon.

Don’t trust to fate – there’s now a legal requirement

On-going concerns regarding large sums of money being easily hidden inside legal vehicles such as Trusts has resulted in Government action. Recently culminating in the implementation of the Fifth Money Laundering Directive, designed to help combat money laundering and the financing of terrorism. Following on from this initiative, HMRC has now updated the Trust Registration Service (TRS).

Prior to this new directive, only a Trust incurring a tax liability such as capital gains tax, inheritance tax, land and building transaction tax (in Scotland) and land transaction tax (in Wales), stamp duty land tax, stamp duty reserve tax and income tax had to be registered.  Whilst trusties of other Trusts falling outside these criteria could voluntarily register, these new rules mean that almost all Trusts now need registering with the TRS.

These recent changes in legislation now require trustees to keep and maintain up-to-date written records of all beneficiaries involved in the Trust’s activity. This includes settlors, trusties and beneficiaries as well as trust protectors and anyone else with control over the Trust.

At Bridgwater Financial Services, it’s our understanding that very few Trusts are excluded from the requirement to register on the TRS. These will be those deemed to have a low risk of money laundering. Examples of which would be registered pension schemes, charities and trusts that are established by statute.

However, if a life insurance policy held within a Trust secures a surrender value that can be accessed, then that Trust will need to be registered. This is an especially important point for all trusts holding life insurance policies such as investment bonds, flexible whole of life policies or capital redemption policies. 

Trust the goalposts to get moved

Trusts that were previously exempt from registration may find that those exclusions no longer apply. Although it is a complex area with each Trust needing its own careful scrutiny.

For example, any Trust that holds an insurance policy, that will benefit after the death of the individual assured, is excluded from having to register. However that’s only the case where the benefits of the policy are fully paid out, from the Trust direct to the beneficiaries, within two years of death. Any residual benefits, still held within the Trust after two years, would mean the Trust would need to be registered in line with the new legislation.

Any trusts that have not incurred a tax liability will be issued with a Unique Reference Number (URN) following registration. This URN will be required when the trustees need to inform HMRC of a future tax liability, or when trustees may require access to the TRS in the future.

Trust us to help in everyway

Action needs to be taken now to avoid any possible penalties for failing to register before next September’s deadline. Even trustees of those Trusts that are not required to register with the TRS, may wish to do so in order to meet the requirements regarding record keeping.

As always – if you want to set up a Trust, check and future-proof the legality of your current position, or have any other financial questions, then please get in touch. One of our independent team, here at Bridgewater Financial Services will be delighted to help in any way.

 

Social Care & Wealth Protection

What we gain on the swings needs to remain with us on the roundabouts

There are some interesting things afoot in the world of personal taxation. With two seemingly separate, but intertwined, taxes that all of us should be thinking about.

They are the freeze on Inheritance Tax (IHT) and the 1.25% levy and dividend tax the Prime Minister has just introduced to help fix social care. With hidden connections and implications that could directly affect your estate.

The cap on social care may generate some unforeseen problems for your estate

In order to help pay for on-going social care, on 7 September the Prime Minister announced an increase in the Dividend Rates in line with the 1.25% increase in National Insurance. This new levy will apply to everyone in work, including pensioners who had previously been exempt from NI payments after reaching state pension age.

The other significant announcement was that, coming into effect in October 2023, there will be an £86,000 cap on the cost of social care that any one person should pay during in their lifetime.

Until an individual reaches that cap, anyone with more than £100,000 in assets will be responsible for paying all their own care costs. Whilst those with assets between £100,000 and £20,000 will have their care partly subsidised, via local councils. With any individual with assets lower than £20,000 having all care costs paid for them.

While this is a long awaited reform to the current challenges concerning the funding of social care, it may have an unwelcomed knock-on effect regarding IHT.

It’s a stealthy attack on the wealthy

Retaining more of our assets could result in an increasing IHT liability.

The IHT nil rate freeze has resulted in the Government’s most recent Inheritance Tax receipts growing by £500 Million between April and July 2021. That’s a massive 33% up on the same period for 2020.

The reason for this dramatic increase in IHT revenues is simple. Whilst the IHT rate has stayed the same, asset values have continued to grow. This has been fuelled by increases in house prices, along with raises in the investment markets as the world’s economies come out of the Pandemic.

The hidden impact of this asset growth is that many of us will become unknowingly entangled in the Chancellor’s IHT net, as thresholds are silently crossed.

Add to that the impact of the Social Care cap and you’ll begin to realise why a refocusing on your IHT position is long overdue.

In an ever-changing landscape, reviews are essential

Just because there are no changes due to the IHT rate until April 2026 at the earliest, don’t fall into the trap of believing there is nothing to do with regard to IHT planning.

The increase of £0.5 Billion being collected in IHT should set the alarm bells ringing.

With the supercharged 10.2% increase in assets from March 2020-2021, that the housing market has caused, combined with the lack of access to one to one IHT planning with a financial expert, the pandemic has created the perfect storm for IHT.

As we emerge, blinking into the sunlight of the post-pandemic lockdown, now is the perfect time to re-evaluate the protection of your wealth. Not just from IHT and other stealth taxes, but also from other misfortunes that can befall your heirs, including the payment of care fees.

Depending upon your own unique circumstances, there will be all sorts of options available for you to consider. It may be as simple as revisiting your will and your gifting allowances. You may even want to explore setting up Trusts or making better use of your Pension.

According to Financial Service Industry data, in the past fiscal year alone, just 10% of clients have mitigated their IHT position. That means 90% of us are unaware that our IHT position may urgently need specialist advice to help avoid unnecessary payments. With many people unknowingly generating a large IHT legacy, because they are unaware of the impact of asset growth and don’t consider themselves as rich enough to worry about IHT.

The impact of care fees on those with estates below the IHT threshold, even allowing for the recently announced cap, can be even more severe than IHT, which only applies at 40% on joint estates over £650,000.

Protecting your wealth from IHT or care fees starts with a phone call to us. If you have any questions regarding how any of this could impact upon you, then please don’t hesitate to contact one of our team at Bridgewater Financial Services. One of our independent experts will be on hand to help in any way.