Over the past couple of weeks I’ve had conversations with 3 new clients in very different circumstances about ‘planning’. The first had unfortunately suffered the loss of their remaining parent, the second is facing the loss of their remaining parent in the near future, while the third is very early in his business/wealth planning and has no worries about the loss of parents.
It’s highlighted the need for making sure that proper estate/wealth/business planning needs to be in place as early as possible and the importance of reviewing this on a regular basis. The consequences of failing to do so can be dramatic for the family.
The first client ran a business with his father with a mixture of a successful shop and a selection of properties. The client and his father had run the business together for 40 years, with the general promise of ‘one day, my son, all this will be yours’… The son had, for the past 20 years been the main driving force for the business and owned 50% of the shares in the trading company, however, the £2.5m property portfolio built up over the decades was solely in the name of the father, despite the son contributing, maintaining and managing the properties for many years. To make matters worse, the Will, drafted some 15 years ago included a sole executor, being a family friend that the son fell out with 10 years ago. Unfortunately this now means the son has no control over the estate and has to sit back and watch as ‘his’ assets are now managed and controlled by someone he’s not spoken to in a decade.
The second client manages a substantial portfolio of properties with his mother. Having just seen his father pass away, inheritance, death and estates suddenly becomes relevant to him. Having had the conversation about his mother it seems her health isn’t great and he’s concerned that she won’t last 2 years, so that removes the BPR options. He enquired about ‘death bed planning’ and I had to warn that while such things exist, HMRC have taken a very aggressive stance towards any tax schemes and if he found someone offering such a scheme he should be prepared for a long and drawn out battle, combined with legal costs and penalties if the scheme fails.
Both clients assumed that simply by talking to a tax adviser that we could make the tax go away… ‘can you guarantee you’ll reduce the tax?’ one asked. The answer – No. All we can do at this stage is make sure that things are managed correctly and all appropriate reliefs (transferable NRB, residence NRB, BPR where appropriate) are claimed and where necessary inheritances are diverted into tax efficient vehicles such as trusts where possible to avoid the impending double IHT charge in the event that the client (both of which are in their late 50s) dies shortly thereafter.
So where does the third client come into this? Well he’s been lucky enough to be gifted a reasonably substantial property to look after for himself and his siblings. Apart from the fact that it’s a PET, there are minimal tax consequences and the income he’s generating is minimal. During our meeting he asked me what I can do for him as it seemed that today he didn’t really have much in the way of a tax problem. But once we worked through the circumstances it became clear there were issues:
- He was unmarried, with children and no Will
- The property was in his name held beneficially on behalf of his siblings, with no documents in place
- He was planning on borrowing against the property to build a development/rental portfolio
- They wanted to ensure that the original property (the family home the siblings all grew up in) was to be safeguarded from sale or attack (divorce/creditors etc) at any costs
So:
- We can prepare his Will to safeguard his partner and children in future.
- We can prepare formal deeds of trust to safeguard his family’s stake in the property which legally is entirely in the client’s name.
- We can advise on how to structure future property purchases bearing in mind recent property tax changes
- We can (in due course) set up trust structures to safeguard and protect the property from future claims against the former family home, ensuring it passes down the generations IHT free.
More importantly, every year or two we can sit down and look at the estate, the structure, the holdings and the plans for the family business and succession planning to ensure that the family’s wealth and income is protected for generations to come.
That’s tax planning.