12 minute read
Legal updates
advice: the importance of shared parenting on children’s wellbeing
Separation can be a time of great uncertainty for children, who worry when they will see each of their parents, which can sadly have a detrimental effect on their sense of belonging and wellbeing. Vivienne Middleton, senior
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associate solicitor and experienced
family law specialist, explains the importance of reaching an agreement to maintain contact between children and separated parents, during a pandemic and beyond.
For children whose parents have separated or divorced, it’s important they spend time with both of their parents for their own wellbeing, happiness and emotional security.
When it comes to separation, parents are strongly urged to work together to reach an agreement, between themselves.
Formal and informal agreements
An informal agreement between both parents is bespoke, allows flexibility, and caters for the children’s and the parents’ needs, but is not legally binding. They require commitment from both parents to ensure consistency and stability for the children. When parents can set aside their own differences and focus on the children’s wellbeing, the arrangements are more likely to work, so they see enough of each parent to maintain a sense of belonging with both of them.
Parents may also opt for a formal agreement. This could be drafted by solicitors, through voluntary mediation, arbitration, or a court order. The court will only intervene when one parent makes an application to the court. Litigation should be regarded as a last resort, generally after other forms of dispute resolution have been considered, but without success.
Impacts of COVID-19
For some families, maintaining contact between children and both parents has been significantly impacted by the pandemic. The lack of social interaction for children throughout the long periods of restrictions has heightened the need for them to spend time with the parent they no longer live with, to maintain their identity and vital sense of belonging. Nowadays, parents need to be creative with new ways of maintaining contact, for example, making frequent use of technology including video calls.
For children to maintain relationships with both parents, there is a need for co-operative co-parenting, which supports the child’s emotional wellbeing, even during extraordinary circumstances, such as the pandemic.
Contact Vivienne Middleton T: 0121 200 0890 E: vivienne.middleton@lodders.co.uk
valuing assets in an uncertain market
Coronavirus has changed the world economy – the FTSE 100 dropped 14.3% in 2020, the worst performance since 2008. Shifts in stock markets have a direct impact on the value of pensions, savings, and the assumptions people make as to when they can afford to retire. Leading family law expert, and partner at Lodders, Beverley Morris, gives her guidance on how best to deal with this uncertainty.
The asset base of a client may be diverse – from property, equities, shareholdings in private limited companies, to interests in assets held in a trust structure, and crypto assets, to name just a few.
Each and every case is fact-specific, and clients are always advised that what assets may be worth on day one of the divorce will almost certainly not be representative of their value on the final day of the process.
Should risk be shared and if so, how?
There is potential for discriminatory arguments to creep into the decisionmaking process. It is sometimes said that the ‘bread winner’ has the greater financial acumen and therefore it is more acceptable for him or her to be left with assets that contain an element of risk.
This is an unfair marker to lay down and has the potential to result in an unfair division of risk.
prime time for luxury living
The high-end prestige luxury property market has experienced somewhat of a boom in recent times with average price growth of 3.6% in 2020, including 5.6% in the £2 million+ country house market. Highly experienced property partner at Lodders, Caroline Nemecek, understands the complexities of buying and selling prestige property in this high-value luxury homes sector, and shares her professional insights on some of the trends.
What is a prestige home? How important is location?
There is no one-size-fits-all definition when it comes to luxury homes, but there are many features frequently found within a prestige property
Typically, a luxury country home contains at least five bedrooms and multiple bathrooms. They often include paddocks and stables, outbuildings such as guest cottages and, sometimes, swimming pools.
In certain areas, such as Cheltenham and the surrounding Cotswolds, it is not unusual for a prestige home to be listed with Historic England, which will often also cover the outbuildings and not just the main house, with features such as old ice houses, gates or pillars listed in their own right. Homes like this often benefit from considerable amounts of land and may be situated in conservation areas or Areas of Outstanding Natural Beauty.
Larger estates frequently contain boundary anomalies – this is common when estates have grown or been split up over the years. They can also be subject to public and private rights of way, such as bridleways and footpaths. When it comes to prestige homes, location is key. In a city, fashionable neighbourhoods command high prices. However, in the country, transport links to London or Birmingham will also affect value and desirability.
The social aspect of country living is also important. For example, areas surrounding Soho House, a private members club in Oxfordshire, and Daylesford Organic in Kingham, can realise higher prices.
For coastal properties, sailing communities like Salcombe or St Mawes can impact property values.
Lastly, a thriving foodie culture in certain towns can command very high prices, such as Padstow in North Cornwall, which boasts locally sourced ingredients and dining venues in prime locations.
Shares held in private limited companies are fraught with difficulty when it comes to valuation. Whilst we appoint forensic accountants to value the shareholding, it is not uncommon for the accountant tasked with valuing to either give a range of values or for a shadow accountant (overseeing the work of the court appointed accountant) to come up with a very different value to that of the court appointed expert.
The change in financial matrix throughout the course of a case can present difficulties in settling matters. In my opinion, the following lessons have been learned from volatile markets:
• Never lose sight of the fair sharing of the burdens and the benefits which attract to different assets. • Assess carefully your client’s attitude to risk. • Explain to clients that the collapse in an asset value, post-divorce, is rarely a ground to revisit the settlement – the usual fluctuation in prices and values is a foreseeable event. • Take your time – divorce is often the most important financial decision a party will make. Don’t do so in a hurry.
Changes to the housing market
The prestige housing market has not been unaffected by the impacts of COVID-19. The pandemic has seen increased demand for rural and coastal properties, with homes in these desirable areas drawing higher prices. There is a shortage of these homes, as demand is outstripping supply. Areas which once offered country houses at lower prices than the established popular locations have seen an increase in value due to the pandemic, as the appetite for country living has increased.
Conversely, the London prestige housing market has suffered, as buyers look to escape the bustling city due to the impacts of the pandemic and in search of outside space. This is especially true as working practices have shifted largely to homeworking scenarios, meaning many are moving away from the office and prioritising a comfortable home-workspace more than ever before.
The shift to purchasing coastal and countryside homes has meant properties in cities, as well as those which require a lot of work or contain serious breaches of listed building law, are harder to sell.
Each luxury home will have its own unique set of circumstances, and it is important to fully understand the features of such a property. If you are looking to buy or sell a luxury home, Lodders’ prestigious private property service provides a bespoke and highly personal conveyancing experience.
Contact Beverley Morris T: 0121 200 0890 E: beverley.morris@lodders.co.uk Contact Caroline Nemecek T: 01242 229094 E: caroline.nemecek@lodders.co.uk
personal tax:
individuals, business & farmers
The Chancellor’s Budget 2021 set out the government’s tax and spending plans, with new measures designed to support the country’s economic recovery post-COVID-19. Lodders’ John Rouse and James Spreckley round-up the headlines.
Tax thresholds frozen
John Rouse says: “Setting out the government’s tax and spending plans for the year ahead, the Chancellor announced new measures to help business and jobs and support the UK’s longer-term economic recovery, particularly with a series of tax-raising plans to help rebalance the public finances.
“The main news coming out of the budget for individuals was the freezing of personal allowances. However it appears more significant change to capital taxes, and CGT in particular will follow in 2022 meaning individuals should look at carrying out planning and any estate planning ahead of any changes in 2022." These measures are intended to ease the financial burden on businesses and individuals – some were extensions of shortterm tax relief, including a holiday on business rates for three months, the continuation of the £500,000 Stamp Duty Land Tax (SDLT) nil-rate band, and a freeze on alcohol and fuel duties.
James Spreckley
ones to watch
The next few years will see some significant changes to taxation for private individuals. John Rouse, partner in the Private Client department and tax and estate planning specialist, takes a look.
Utilising tax reliefs is central to estate planning including the gifting or disposal of assets, but it’s important to build-in flexibility for reviews of personal tax allowances and the predicted tightening tax regime likely to include higher rates and fewer reliefs.
Capital Gains Tax (CGT)
The government has announced a general review of CGT. It’s expected that CGT rates might be brought into line with income tax rates, especially for larger gains, which in certain cases could see CGT rates increased to 40%.
Main reliefs
• Principal private residence relief: no CGT on sale of residence.
• Entrepreneurs’ relief: rate is 10% on first £1m of gain on disposals of business.
• Hold-over relief: available on disposals of business assets, farmland and transfers into trust.
• Roll over relief: available on reinvestment of sale proceeds of business assets and farmland. Opportunities • Gifting assets to children or other individuals: act sooner rather than wait to make use of low asset values, so any liability is on lower values, resulting in lower CGT.
• Transfer assets with a gain: use the annual personal CGT allowance (currently £12,300 annually) and transfer the asset in tranches.
• Business owners and rural landowners planning to transfer the business/ properties to the next generation to claim CGT holdover relief should act quickly to beat the expected revised CGT regime and the ‘tax free uplift’ disappears.
• Business owners considering business disposal to qualify for Entrepreneurs’ relief - plan to crystallise any gain in the current tax year using certain types of trust.
Tax administration and anti-avoidance
• A new penalty regime for VAT and
Income Tax Self-Assessment that will impose a £200 financial penalty after the taxpayer reaches a points threshold (which varies depending on the taxpayer’s submission frequency).
Corporation Tax
• There will be a significant increase beginning April 2023.
• A two-year ‘super deduction’ that provides first-year allowances of 130% of the value of plant or machinery acquired after 1 April 2021. A lower 50% allowance applies for special rate assets.
Personal Tax
• Tax thresholds for CGT, IHT and income tax are frozen in the tax years up to and including 2025/2026;
• Income tax personal allowance is set at £12,570, and the basic rate limit at £37,700. • Nil-rate band for IHT continues at £325,000 and the residence nil-rate band at £175,000.
• CGT Annual Exempt Amount remains at £12,300 for individuals, personal representatives, and some types of trusts for disable people. This is £6,150 for trustees of most settlements.
• The standard lifetime allowance for pensions is fixed at £1,073,100.
• Amendment to the Finance Bill 2021 to provide clarification on the application of the Taxation of Chargeable Gains Act 1992, specifically where the transferor controls the transferee.
No core announcements
“There were no core announcements that carry a direct impact for agriculture,” comments James Spreckley.
Points to note: • UK Infrastructure Bank will partner with the private sector and local government to increase infrastructure investment to help tackle climate change and promote economic growth across the UK. • Plans to review tax support for research and development.
• A £4 million UK-wide competition for the first phase of a biomass feedstocks programme, to support the rural economy in making improvements to the production of green energy crops and forestry products.
• Red diesel is to remain available to agriculture (including horticulture, pisciculture and forestry).
• The super-deduction’ for Corporation
Tax may offer incentives for farming companies to invest in plant and machinery, and allow businesses to cut their tax bill by up to 25p for every £1 they invest in qualifying new plant and machinery assets.
Contacts John Rouse T: 01789 206167 E: john.rouse@lodders.co.uk
James Spreckley T: 01789 206166 or 07880 195380 E: james.spreckley@lodders.co.uk
John Rouse specialises in advising high net worth individuals on estate planning including their wills, LPAs, personal tax, trusts and bloodline planning, and structuring their businesses.
Inheritance Tax (IHT)
The main IHT thresholds and gift allowances have been frozen for many years. However, the government’s major review of IHT is underway and, whilst the detail is unknown, a new lifetime gift tax, and a restriction on the main reliefs such as agricultural property relief (APR) and business property relief (BPR), are likely.
Current rates Estate value £0-£325,000: 0%
Estate value over £325,000: 40%
Residence nil rate band: £175,000
10% of estate to charity: rate reduced to 36%
Main reliefs Spouse exemption
Charity exemption
Business property relief: 100%/50%
Agricultural property relief: 100%/50%
Taper relief: available after 3 years Allowances Annual allowance: £3,000
Small gift allowance: £250
Gifts in consideration of marriage from £1,000 to £5,000 depending on relationship
Regular gifts out of income
Opportunities • Consider gifting assets while asset values are low. If the donor of the gift dies within seven years, the value of the asset at the date of the gift forms part of an individual’s estate for IHT.
• For landowners, consider ownership and how the land is farmed, as APR may be restricted or removed altogether.
• Structure businesses and land ownerships to maximise the availability of inheritance tax BPR.
• Use your annual allowance of £3,000 per annum.
• If you own assets with potential for substantial growth in value, such as potential development land, make a gift to individuals or trusts so that any value-growth is outside of the estate.
John Rouse
• Consider making gifts of any excess income that isn’t needed. In particular, utilise the gifting regime as a form of gift tax is a distinct possibility.
