Life Interest Trusts in Wills for Spouses, Civil Partners or Unmarried Partners

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Life Interest Trusts in Wills for spouses, civil partners or unmarried partners. 

The technical term for a life interest arising under a Will is an “immediate post-death interest”. Life Interest Trusts give a particular beneficiary the legal right to receive the income from, or to use property comprised in the trust. This right normally lasts throughout the beneficiary’s

lifetime. Sometimes the right terminates earlier, for example on the beneficiary’s remarriage, or if the trustees exercise any overriding powers under the Will. The beneficiary is often referred to as the life tenant.

In addition to the life tenant’s right to receive the income from, or to use any property (including the home) comprised in the trust, the trustees will usually be given a power to advance some or all of the capital in the trust to the life tenant and the beneficiaries entitled after the life tenant’s death (referred to below as the ultimate beneficiaries). The trustees will not be required to exercise such a power, but will be able to do so if they consider it appropriate.

The Will specifies what will happen to the remaining assets held in the trust on the life tenant’s subsequent death (to the extent that any power of appointment has not been exercised). The life tenant does not have outright ownership of the trust assets and the trustees will retain control. The life tenant can benefit from the trust assets, while the capital is preserved for the ultimate beneficiaries. The trust assets will not pass under the life tenant’s own Will.

While income can be paid to the surviving spouse (the life tenant) throughout their lifetime, capital can be preserved for the children of the former marriage or civil partnership. A further use of such a trust is to control the level of income for purposes of means tested benefits, with protection in the context of care home fees.

If you have any enquiries regarding setting up a life interest trust in your will, please get in touch with us at 020 8240 9018 or fill in the enquiry form on our website.

Setting Up a Charity in the UK and Tax Implications

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SETTING UP A CHARITY IN THE UK

There are 6 steps to setting up a charity.

1. Find trustees for your charity

You usually need at least 3. Trustees are responsible for the operation of your charity. They must show they understand their legal requirements.

2. Make sure the charity has ‘charitable purposes for the public benefit’

Your charity must have ‘charitable purposes’ that help the public (known as being ‘for public benefit’).

Charitable purposes include: relieving poverty; education; religion; health; saving lives; citizenship or community development; the arts; amateur sport; human rights; religious or racial harmony; the protection of the environment; animal welfare; the efficiency of the armed forces, police, fire, or ambulance services

You must run your charity in a way that’s consistent with and supports its purposes – and only those purposes. Your charity can have more than one purpose, but it can’t have any purposes that aren’t charitable.

3. Choose a name for your charity

The official name of your charity is known as its ‘main name’. Your charity may also have a ‘working name’ which is another name it uses. Your charity’s main name or working name must not be the same as or too similar to the main or working name of an existing charity and must not be misleading.

4. Choose a structure for your charity.

There are 4 common charity structures and we can help you to choose an appropriate structure for your charity:

Charitable company: Your charitable companies will have to be limited by guarantees rather than shares when you register. Trustees have limited or no liability for a charitable company’s debts or liabilities.

Charitable incorporated organisation (CIO): A CIO is an incorporated structure designed for charities. You create a CIO by registering with the Charity Commission. You do not need to register with Companies House. Trustees have limited or no liability for CIO debts or liabilities.

Charitable trust: A ‘charitable trust’ is a way for a group of people (‘trustees’) to manage assets such as money, investments, land, or buildings.

Unincorporated charitable association: An ‘unincorporated charitable association’ is a simple way for a group of volunteers to run a charity for a common purpose. Unincorporated charitable associations cannot employ staff or own premises.

Your charity must have a governing document which is setting out:

  • its charitable purposes (‘objects’)
  • what it can do to carry out its purposes (‘powers’), such as borrowing money
  • who runs it (‘trustees’) and who can be a member
  • how meetings will be held and trustees appointed
  • any rules about paying trustees, investments and holding land
  • whether the trustees can change the governing document, including its charitable objects (‘amendment provisions’)
  • how to close the charity (‘dissolution provisions’)

As a trustee, you must have a copy of your charity’s governing document. Refer to it regularly because it tells you how to run your charity. For example: how many trustees are needed to make decisions, how to recruit them and how to run trustee meetings; how to look after your charity’s money, land, property, or investments and keep accounts and how to resolve internal disputes.

Register as a charity if your annual income is over £5,000 or if you set up a charitable incorporated organisation (CIO).

TAX RELIEF FOR CHARITIES

As a charity you can get certain tax reliefs. To benefit you must be recognised by HM Revenue and Customs (HMRC). Charities do not pay tax on most types of income as long as they use the money for charitable purposes. You can claim back tax that’s been deducted, for example on bank interest and donations (this is known as Gift Aid).

Your charity may need to pay tax if you’ve:

  • received income that does not qualify for tax relief;
  • spent any of your income on non-charitable purposes; or
  • You need to complete a tax return if your charity has tax to pay.

LEAVING A GIFT TO A CHARITY IN YOUR WILL

You can leave anything you own to charity. There are no restrictions as to what can and can’t be left to charity in your will.

You can donate:

  • a fixed amount
  • an item
  • what’s left after other gifts have been given out ‘residuary estate’
  • Your donation will either be taken off the value of your estate before Inheritance Tax is calculated or reduce your Inheritance Tax rate if 10% or more of your estate is left to charity.

Gifts to qualifying charities are themselves exempt from IHT regardless of the value of the gift. However, if a gift to charity in a Will meets certain conditions, the lower rate of 36% IHT can apply to the taxable part of an individual’s estate.

The reduced rate of 36% applies where the individual leaves at least 10% of their net estate, known as ‘the baseline amount’, to charity. In simple terms, the baseline amount is the entire estate in an individual’s sole name (not including assets held in trust, or joint assets that pass by survivorship) less debts, funeral expenses and certain IHT exemptions – such as the nil rate band, currently £325,000. 

TAX RELIEF ON LIFETIME GIFTING OF LAND OR BUILDINGS TO A CHARITY 

A gift can be made to any approved charity, and you’ll need to contact the charity to ensure it can accept the proposed gift. Once the charity has confirmed it can accept the gift the property can be transferred to it. To claim the tax relief, you obtain a certificate from the charity containing a description of the land or buildings.

You must give the whole of your beneficial interest in a property, which means that you cannot live in it. An individual donor deducts the relief when they calculate their income for the tax year in which they make the gift.

For an outright gift, the amount you can deduct is the value of the net benefit to the charity at the time you give or sell them the qualifying investment, plus any incidental costs (for example brokers fees or legal fees), less any money or the value of other benefits you or a person connected with you (such as a relative or connected company) receive in consequence of you giving or selling the qualifying investment to charity.

Outright gifts and bequests to charity are completely free of Inheritance Tax. You’re not liable to Capital Gains Tax or Corporation Tax on capital gains when you make a gift of assets, such as land or stocks and shares, to charity. Charities do not need to pay Stamp Duty on acquisitions of land or buildings. 

What the recipient charity does with the gift is entirely for the charity to decide. The investments can be sold immediately, or at a later date, and the proceeds used for charitable purposes, or they can be retained by the charity as an investment.

Discretionary Trust

Alternatively, you can leave a cash legacy or share of your estate to a discretionary trust which includes charities as potential beneficiaries. The executors/trustees of your Will would then have the discretion as to how much of the gifted sum should pass to charity. 

They can also decide which charities to benefit. Whilst the executors/trustees will have discretion, you can leave a letter of wishes providing guidance as to which charity or charities you wish to benefit and by how much.

If you need further legal advice on setting up a charity, please contact us at 020 8240 9018 or fill in the enquiry form on our website.

We are hiring!

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JY Partners Solicitors are hiring the following professionals now!

  1. Immigration solicitor with 3-5 years PQEs
  2. Conveyancing solicitor/conveyancer with clients following

Working conditions (i.e., salary, working hours, annual leaves, etc) are negotiable.

Please submit your CV to info@jypartnerssolicitors.com.

Successful candidates are required to go through DBS and Reference checks before joining us.

We look forward to seeing as many applications as possible!

HR Team, JY Partners Solicitors

KOCHAM Annual Meeting

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Our staff members have attended KOCHAM annual meeting which was held in House of Parliament on 30th November in the UK. We look forward to building strong bonds with the member companies in the future!

 

Skilled Worker Visa Salary Rates Set To Increase

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Those in the UK under the Skilled Worker route, or looking to apply in this route, may be happy to know that the general salary thresholds for the route are to increase from 12 April 2023. This is likely due to the fact that wages are rising, as is the national minimum wage (from £9.50 to £10.42 in April 2023). However, it is yet to be seen whether these increases make sponsoring workers in this route less attractive for employers.

The Statement of Changes (HC1160), published on 09 March 2023, sets out that from 12 April 2023, these rates are to change. This blog will set out these upcoming changes.

What are the changes to the general salary thresholds? 

There are a number of ‘tradable points’ options set out in the Immigration Rules. The particular tradable points an applicant intends to rely upon will determine the relevant rate of pay. For each option, an applicant must be paid the highest of the following:

  1. The relevant general threshold;
  2. The going rate for the role; and
  3. £10.10 per hour, if applicable (note the upcoming increase below).

The going rate will depend on the occupation code for the role as set out in Appendix Skilled Occupations.

Option A: 

Applicants need to show that their salary meets the general salary threshold of £26,200 per annum, 100% of the going rate for the role, and £10.75 per hour.

Options B and C – Educational qualifications

Options B and C apply to those who hold PhDs. Option B applies to PhDs held in a subject relevant to the job role, and Option C applies to those who have PhDs in STEM subjects.

For Option B, Applicants need to show that their salary meets the general salary threshold of£23,580 per annum, 90% of the going rate for the role, and £10.75 per hour. For Option C, Applicants need to show that they meet the general salary threshold £23,580 per annum, 80% of the going rate for the role, and £10.75 per hour.

Option D – Shortage occupation list 

Occupations on the shortage occupation list can apply under Option D. From 12 April 2023, Applicants need to show that their salary meets the threshold of £20,960 per annum, 80% of the going rate for the role, and £10.75 per hour.

Option E – New entrants

A new entrant to the labour market may be paid a salary which equals or exceeds both £20,480 per year, £10.10 per annum and 70% of the going rate for the occupation. From 12 April 2023, the general salary threshold will be increased to £20,960 per annum and £10.75 per hour.

Option F – Jobs listed in health or education occupations 

From 12 April 2023, the general salary threshold will be increased to £20,960 per annum. There are also changes to the going rates.

What are the changes to the going rates?

Currently, the going rates are set out in Appendix Skilled Occupations and are based on a 39 hour work week. This means that the going rate must be pro-rated based on the number of hours the applicant is actually contracted to work. From 12 April 2023, the going rates in Appendix Skilled Occupations will be based on a 37.5 work week. The new going rates are set out in the Statement of Changes.

Given that often applicants are contracted to work 37.5 hours per week, this could make things more straightforward to calculate the going rate, rather than having to pro-rate it.

What if I work more than 48 hours per week?

Currently, the Home Office will only consider an applicant’s salary based on 48 hours per week towards the salary thresholds. Therefore, working more than 48 hours per week will not assist applicants to meet this requirement.

From 12 April 2023, this will still be the case unless the applicant is being sponsored to work a pattern where the regular hours are not the same each week, resulting in uneven pay:

  1. work in excess of 48 hours in some weeks can be considered towards the salary thresholds, providing the average over a regular cycle (which can be less than, but not more than, 17 weeks) is not more than 48 hours a week; and
  2. any unpaid rest weeks will count towards the average when considering whether the salary thresholds are met; and
  3. any unpaid rest weeks will not count as absences from employment for the purpose of paragraph 9.30.1 in Part 9 of these rules.

What if my CoS was assigned before 12 April 2023?

The Statement of Changes, HC 1160, states that:

“The following paragraphs shall take effect on 12 April 2023. In relation to those changes, if an application for entry clearance or leave to remain has been made using a certificate of sponsorship issued before 12 April 2023, such applications will be decided in accordance with the Immigration Rules in force on 11 April 2023:…”

Therefore, the old salary thresholds will apply to applications where the CoS was assigned to the applicant before 12 April 2023.

How much must I be paid to settle as a Skilled Worker?

Once in the Skilled Worker route, applicants will be on a route to settlement. They must have spent a continuous period of 5 years in the UK on this basis (or in a permitted combination of routes). To settle, a Skilled Worker’s salary must be at least £25,600 per year and at least the going rate for the occupation code. However, as above, this will increase to £26,200 on 12 April 2023.

There are only two exceptions to this. If an exception applies, an applicant’s salary must be at least £20,480 (£20,960 from 12 April 2023) per year and at least the going rate.

Exception 1: the role is on the shortage occupation or a health or education occupation code

Exception 2: if the 5-year qualifying period for settlement includes time as a Tier 2 (General) Migrant in which the applicant was sponsored for a job in one of the following occupation codes:

  • 2111 Chemical scientists
  • 2112 Biological scientists and biochemists
  • 2113 Physical scientists
  • 2114 Social and humanities scientists
  • 2119 Natural and social science professionals not elsewhere classified
  • 2150 Research and development managers
  • 2311 Higher education teaching professionals

This means that new entrants must receive an increase in their salary to settle, if they are below the minimum threshold of £25,600 (or £26,200 if applying after 12 April 2023) and do not fall within one of the above exceptions.

Contact our Immigration Solicitors

For expert advice and assistance in relation to an application in the Skilled Worker category, please contact our immigration solicitors on 020 8240 9018 or via the enquiry form on our website.

Changes to the Probate Application Process for Deaths on or after 1 January 2022

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On 1 January 2022, The Inheritance Tax (Delivery of Accounts) (Excepted Estates) (Amendment) Regulations 2021 came into effect. The 2004 regulations were extended, so that the majority of non-taxpaying estates are no longer required to complete IHT forms in cases where a grant is required.

The new regulations serve to minimise the administrative burdens imposed on those dealing with IHT, by reducing the reporting requirements for excepted estates and limiting the circumstances in which full inheritance tax accounts must be delivered to HMRC. The new regulations, however, will only apply to estates or deaths that occur on or after 1 January 2022.

What are the main changes to the regulations?

1. Requirement to file IHT accounts

If you act for a person domiciled in the UK who dies on or after 1 January 2022 with an excepted estate (one in which no IHT is due), you are no longer required to submit an IHT205 form (and, if applicable, an IHT217 form) to HM Courts and Tribunals Service (HMCTS) as part of your probate application.

2. Monetary limits have been increased

Small estate

A small estate is one where the gross value is less than the IHT threshold. The value limits in relation to trust property (e.g. where the deceased was a beneficiary of a trust) and specified transfers (e.g. where the deceased made a gift in the seven years preceding their death that failed and became chargeable to IHT) has been increased from £150,000 to £250,000.

Exempt estate

Exempt estates have a gross value that exceeds the IHT threshold, but a net value that does not exceed after accounting for liabilities, exemptions and/or reliefs. As above, the value limits for both trust property and specified transfers have been raised to £250,000. However, the total value of trust property, including exempt amounts, is capped at £1 million. Furthermore, the gross estate limit for an exempt estate has been increased from £1 million to £3 million. This means that if the estate is less than £3 million in value and all assets above the IHT threshold pass to a spouse/civil partner/charity, the personal representatives (PRs) can apply to the probate registry for the grant without first submitting a form IHT400 to HMRC.

3. The reporting requirements have been reduced

Since the information required by HMRC for those who are UK domiciled has been significantly reduced, PRs are now only required to provide the following as part of the probate process: the deceased’s full name and date of death, whether they are claiming a transfer of the unused nil rate band of a pre-deceased spouse/civil partner; and the estate’s gross value, net value and net qualifying value.

What are some of the other changes brought about by the new regulations?

Qualifying non-domiciled estates:

A non-domiciled estate is an estate where the deceased was never domiciled in the UK. The regulations make it clear that an estate does not qualify as an excepted estate, and so there is a requirement to submit the full IHT400 report to HMRC, where the deceased owned indirect interests in UK residential property through a close company or partnership, or if the deceased made any chargeable gifts of UK assets totalling more than £3,000 in the seven years preceding their death.

The IHT threshold definition:

The definition has been extended to include cases where only a portion of the available nil rate band was used when the first spouse/civil partner died, and a claim is made to transfer the unused portion to the estate of the surviving spouse/civil partner. This means that PRs will no longer be required to use the IHT400 route if the entire nil rate band is not available for transfer.

Time limits:

The deadline for HMCTS to provide the necessary information to HMRC has been extended to one month. The time limit for HMRC to request additional information from the PRs has also been increased, from 35 days to 60 days.

What does this mean for you?

If there is no inheritance tax to pay (i.e. the estate is small or exempt), and the person dies on or after 1 January 2022, you do not need to report the value of the estate to HMRC as part of your probate application.

If there is inheritance tax to pay (i.e. the estate is not excepted), and the person dies on or after 1 January 2022, you will need to fill in and file an IHT400 and IHT421 with HMRC, and wait 20 working days before you can apply to the registry for probate.

When should you seek legal advice?

While these changes are welcomed, applying for probate and administering an estate can still be a time-consuming and difficult process for bereaved families. Our private solicitors can guide you through the process and provide advice on complex matters where IHT is payable, trusts are in place and/or assets are located overseas. Furthermore, our experts can assist PRs with their duties and advise on the potential risks associated with estate administration such as missing assets.