PRIVATE AFFAIRS Autumn/Winter 2019
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The Bank of Mum and Dad Make sure your money is secure
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The big interview: Family businesses don’t fail because the commercials don’t stack up but because the family fails
12 Case study: Avoid complications with overseas properties
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In depth It’s time for the Government to introduce a new relief to encourage lifetime giving
In this issue 12 In this issue
Case study: From home to home
6 As the Bank of Mum and Dad lends more than ever how can you make sure your money is secure? 8 The big interview: Family businesses don’t fail because the commercials don’t stack up but because the family fails. 12 From home to home – owning a property overseas can come with complications. 14 How to avoid costly misunderstandings as a co-owner of a business.
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16 It’s time for the Government to introduce a new relief to encourage lifetime giving.
How to avoid costly misunderstandings as a co-owner of a business
60 seconds with... Suzanne Kingston – the queen of arbitration
20 Pensions are often said to be the last form of discrimination in divorce. 22 Simplifying inheritance tax... not a chance! 24 60 seconds with Suzanne Kingston – the queen of arbitration.
6 As the Bank of Mum and Dad lends more than ever how can you make sure your money is secure?
Welcome to your new look Private Affairs
Andrew Playle Partner and Head of Private Wealth 0113 3888470 andrew.playle@mills-reeve.com
I am delighted to introduce you to our new look Private Affairs. The magazine combines our usual in-depth analysis of all the major issues in the world of private wealth with our new illustrative visual brand identity. We hope you like the new look and would love to hear your feedback, so please do not hesitate to get in touch.
In total sixteen of our private wealth partners were ranked with eight of them being ranked in the top tier. We were particularly pleased to see our new colleagues Suzanne Kingston and Sarah Cormack, who both feature in this edition, receiving their first Mills & Reeve rankings. Meanwhile, our family and children team have been named in Tier 1 of the 2019 eprivateclient Top Family Law Firms. The report features 52 firms, divided into three tiers with only 13 firms in Tier 1. This follows the private client team’s ranking in the 2019 eprivateclient Top Law Firms report.
In each edition of Private Affairs, we will be speaking to an inspiring leader about what they have learnt on their business journey. In our first edition, we talk to Rupa Patel, executive director at one of the UK’s leading pharmaceutical businesses, Day Lewis, whose family and family business it is a personal pleasure and honour for me to advise. I also wanted to let you know about a new vlog our family team are producing on YouTube. Family Law Vlogger gives you practical advice on what you should do if you are considering a separation or divorce. In other news the Mills & Reeve private wealth team have enjoyed another stellar performance in this year’s Chambers High Net Worth Guide with five out of eight practice areas receiving a top tier ranking. We were once again recognised as a National Leader (outside London) for Private Wealth Law.
We have also been awarded the Citywealth Magic Circle Law Firm of the Year – Regional award. The awards recognise the best advisors across the world and of course, we are very proud to be part of such an exclusive list. Finally, I wanted to congratulate Sue Brookes and Claudia Gilham who have been unveiled as next generation ‘superadvisors’ in Citywealth’s 2019 Future Leaders Top 100 list. As always, if you would like to discuss any of the issues covered in this edition, please get in touch with either the author of the article or your usual Mills & Reeve contact.
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Mills & Reeve: an award winning law firm Private Affairs | Autumn/Winter 2019
Hot on the heels of being named law firm of the year by both Legal Week and RollOnFriday, Mills & Reeve was named in The Sunday Times’ Best 100 Companies to Work For list for a record 16th year running, the only law firm to ever achieve this. The Legal Week judges were particularly impressed by the firm’s growth and ambition, as well as the talent management and employee development programmes. Staff at law firms across the UK vote for the RollonFriday award. The annual survey asks people to rate everything from leadership skills to the quality of the biscuits on offer in meetings! Claire Clarke, managing partner at Mills & Reeve, commented: “We like to see Mills & Reeve as a nonhierarchical firm and a great example of that was how we involved so many people across the firm, from lawyers to business services, in shaping our strategy.”
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Sue Brookes | Principal Associate 0344 327 6244 sue.brookes@mills-reeve.com
As the Bank of Mum and Dad lends more than ever how can you make sure your money is secure? Private Affairs | Autumn/Winter 2019
Getting the house of your dreams can feel like a pipe dream for many young people and first-time buyers are increasingly reliant on parents or grandparents to help.
New figures released in June 2019 from Legal & General and the Centre for Economics and Business Research reveal the average contribution from the Bank of Mum and Dad (BoMaD) has increased to £24,100 – a rise of £6,000 from last year. This makes BoMaD the 11th largest mortgage lender in the UK, an increase of 11% on 2018. So what are the key things to consider if you’re thinking of lending money to your children? The key is to be clear about what you’re agreeing to: • Is it a gift, loan or an advance of inheritance? • If a loan, what are the repayment terms? • Will the parents own a share in the property purchased? • Is the payment part of wider financial planning? Each option has its advantages and disadvantages so it is crucial for both you and your children to take advice and, before any money exchanges hands, agree what is going to happen. This helps prevent disputes further down the line.
Relationship breakdown If asked to help towards the purchase of a property, a key consideration should be whether your child’s spouse or partner will share in the money or property in the future. No one likes planning for separation but parents need to have an eye on their child’s current or future relationships and the legal claims if that relationship breaks down. On divorce, a spouse can make a variety of financial claims including for a lump sum of money, ongoing maintenance and a transfer of property which is owned by the other spouse.
An unmarried partner can still claim to be entitled to a share of a property unless you have taken the necessary preventative steps. This is a complicated area of law but involves looking at who has paid what towards the property and if there were any agreements or promises made about who would own it.
Owning a share of the property
Family governance For wider family financial planning, ideally any agreement should reflect a family constitution which has the overall aim of preserving wealth for future generations. A family constitution can be a very effective way to limit disputes or avoid them altogether. It also helps engage children with wealth protection planning.
If the intention is that BoMaD will own a share in the property, a declaration of trust will clarify exactly how the equity is divided (who owns what) and prevent misunderstandings and disputes further down the line. This gives comfort that the share owned by BoMaD will be returned on the sale of the property or some other trigger event. There are likely to be tax consequences with this option, so you should take proper advice before investing in the property.
The exact terms of a family constitution will depend on the specific circumstances of your family. All constitutions usually set out clear statements of principle and the wider family’s intentions regarding its wealth.
Gifts and loans Parents who want to keep wealth in the family for future generations should avoid gifting money outright to their children. Advancing money through a properly documented loan offers far more protection. The more formal the arrangement, the more protection it offers.
Cohab agreements and pre- and post-nups
Trusts and family investment companies
It is not just up to parents to protect wealth. Children can take steps themselves to secure or ring-fence assets. Cohabitation agreements and pre- and post-nups clarify who owns what, how finances will be managed and what will happen if the relationship breaks down.
Placing the money in a trust or a family investment company (FIC) and ensuring your child is not the ultimate beneficiary can also provide effective security against future claims. It is vital though to take specialist advice, not only on setting up the trust or FIC, but on its ongoing management to prevent any suggestion that it has become a “nuptial settlement�, which can be questioned later in any future divorce proceedings.
Remember that agreements must always be entered into properly and with the benefit of legal advice to ensure the best chance of being upheld.
Although it is not in itself legally binding, each family member signs to confirm his or her individual commitments. These can include an acceptance that family assets are to be ring-fenced from each individual family unit and that the overall management of the assets is for the good of the wider family, even at the expense of or contrary to the wishes of an individual or their partner or spouse. It can also require each family member to enter into a cohabitation agreement, pre- or post-nuptial agreements and have a will complying with restrictions on the devolution of shares or other family assets.
A bright future for the BoMAD? Whatever your circumstances, there are steps which can be taken to protect you wealth both now and in the future. Which option is most suitable will depend upon your aims so it is always important to take specialist advice early on.
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Private Affairs | Autumn/Winter 2019
THE INTERVIEW
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Family businesses don’t fail because the commercials don’t stack up but because the family fails.
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In each edition of Private Affairs, we speak to an inspiring leader about what they have learnt on their business journey. In our first interview, Sarah Wood talks to Rupa Patel, executive director at one of the UK’s leading pharmaceutical businesses, Day Lewis. She tells us about the day her father unexpectedly passed away and how she and her brothers put into action their years of succession planning.
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Few moments in life are as difficult as suddenly losing a loved one. When Kirit Patel passed away, his children not only had to deal with the grief of losing a much-loved father, but also consider the impact on the family business. Well-known for his charisma and community commitment, Kirit co-founded Day Lewis Pharmacy in the seventies alongside his brother JC. Together, they grew the company from two pharmacies to a chain of over 250, making it the largest independent multiple in the UK, according to The Pharmaceutical Journal. As many as 3,000 people attended his memorial. How can a business possibly prepare for such a leadership transition, from someone so successful and influential that he was described in the industry as “a king” and “the godfather”? Private Affairs | Autumn/Winter 2019
Can you tell us about when you first took over as one of the leaders of the business? That must have been a difficult time. What happened?
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That weekend was a blur. It was all about the family. Then it got to Sunday and we thought ‘What do we do tomorrow?’ We had to be there for our business family too.
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On the Friday night, I was in the office with my dad talking about a house I was thinking of buying. It was about a minute from my parent’s home and he was really excited because he thought my mum would love us living so close. We talked about some work for Monday too. And that was it. I left the office.
having developed them for the business. Within a week, we had worked with one of our NEDs to clarify our responsibilities and were ready to send a message out to the business and the wider industry.
It was my anniversary so I went to Cambridge for the weekend. Out of the hundreds of phone calls I could have received, that was not the one I expected. It was very sudden. That weekend was a blur. It was all about family. Then it got to Sunday and we thought, “What do we do tomorrow?” We had to be there for our business family too. All three of us – myself and my brothers, Jay and Sam – went in one car to the office.
I can’t remember Day Lewis not being part of my life. Growing up, our dad would take us to the office on Saturdays. As teenagers, we worked in the warehouse or pharmacies every summer. It was almost a second home – it was just assumed we would be there, doing homework or more likely photocopying our faces and misbehaving!
How quickly did you and your brothers take the reins? Earlier in my career, my dad had planned for me to be part of the business alongside my brothers and uncle, but I had been quite happy for them to be the leaders. It’s a really big commitment to run a business of our size. That changed in those few hours and days of my dad very suddenly passing away. When it came to it, I decided I wanted the responsibility too and to pitch in with my brothers – not one, not two but all of us in it together. It just made sense for the business to pool all our skillsets as Sam is an accountant, Jay is a pharmacist and I had all this knowledge about values and culture
How did you first get involved in the family business?
Were there ever any other paths you were thinking of pursuing? I’ve always been very independent and wanted my own career. I decided on dentistry and I absolutely loved it but just before I graduated, I sat down with my dad and realised I didn’t want to be confined in a small room. I needed to be out meeting people and we came to the conclusion I could be well-placed to look after the property and real estate side of the business with my uncle. I didn’t even know what terms like ‘profit’ and ‘loss’ meant at that point so I undertook a Masters in Property Management. Later on, I completed an MBA where my thesis was on succession planning and values in family businesses.
What is it like working with your brothers? Do they ever drive you up the wall? We’re only a couple of years apart in age so we are close. Part of the reason for that is that my dad always wanted us to do things as a family. He wanted to climb Mount Kilimanjaro so we all climbed it! He wanted to go sky diving and we all jumped, including my mum! Those experiences meant we’ve always looked out for one another. Plus, we were never allowed to snitch because if we did then we’d all get told off! We’ve also worked really hard to make our work relationships strong. We joined the Institute for Family Business 10 years ago and suddenly I was in a room full of people who had been on the same journey as me. It was clear family businesses don’t fail because the commercials don’t stack up but because the family fails. We decided to look at our own family governance structure and realised that getting all of us in a room to talk about such important decisions didn’t work because we didn’t have the right way of communicating with each other. Ever since, all of us, my mum, and our partners have attended family counselling, seeing a psychologist every two months. It’s a forum for us to share things that are going well and things that aren’t. We’ve learnt how to have those really difficult conversations.
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...my dad always wanted us to do things as a family. He wanted to climb Mount Kilimanjaro so we all climbed it! He wanted to go sky diving and we all jumped, including my mum!
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The three of us also do a lot of personal work. We’ve had life coaching and done personality profiling to find and address our blind spots. We actually call ourselves “JRS” and we have a two-page set of JRS Ground Rules! Key are the principles of listening, encouraging each other and being tolerant. We’ve touched on communication, training and development and building a close bond with family members. Do you have any more succession planning tips for other family businesses? When all this happened, I didn’t know about probate or related HMRC queries so it’s really key to have the right advisers. We had a finance director who knew enough to be able to sort everything out and ever since then picking the right people to work with us has been a priority. They have to really understand you both as a family and as a business. You’re involving your children in the business in the same way that your dad did with you, even taking them to meetings and when you speak at conferences! Do you think they may one day be leaders in the business? We’ve each got two children under four years of age so it’s early days still! What I want is what is best for the business. It’s about having the right people to manage and run it. So, let’s wait and see and let them have their journey first. What’s more important for the business now is our current senior team and how we build them up over the next five, 10, 20 years. We’re thinking of bringing in a Next Generation Board like the one me and my brothers used to sit on. It was a shadow board of the main board with people from the level below the Senior Management Team undergoing coaching and taking on more responsibility. It’s never too early to think about what happens in the future and how to keep the values of the business alive. What do you think the future holds for Day Lewis? I really want to make this point: what we have been through has been phenomenal and we are still on a journey. Half the time we are winning, and the other half we are holding it together. It’s only been three years. What I hope for is to keep improving, keep the business stable and to honour my dad’s legacy. For him –and now for me, Sam and Jay – it’s not just about creating a successful business: it’s about making a positive impact on the world and our communities.
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Private Affairs | Autumn/Winter 2019
CASE STUDY
From home to home We all dream of having a home in a different country but as with all good things, owning a property overseas can come with complications, some of which we explore through this month’s case study.
The Facts William and June are married British nationals. Shortly after their marriage, they purchased a house in France which they regularly visit with their two children. Their eldest son, Henry, will graduate from university this year, while their youngest, George, is sitting his GCSEs. William and June have starting thinking about making wills. Assuming that they purchased the property in their own names they can make an election to apply UK laws to the succession of the house because they are British nationals. So far, so simple. Understanding forced heirship If they do not make an election, local laws will apply and these can sometimes have a surprising effect. In the case of France, and indeed most of Europe, local laws apply a system of “forced
heirship” in the event of an owner’s death. This means the owners cannot leave the property to whoever they would like as would be the case in the UK. Instead, local laws dictate that bloodline descendants must inherit and the rules set out who and in what proportions benefit is taken. Provision is usually made for surviving spouses in the form of a life interest. Sometimes forced heirship is not a problem and the rules reflect what the owners would have done given absolute freedom. However, occasionally forced heirship laws can cause complications. In this case, June is William’s second wife and he has another son, James, from his first marriage. Important differences in French and UK law If William and June purchased the house en tontine (which is a somewhat analogous to joint
ownership under English law) then French law would treat June as having always owned the property in the event that William were to die first. On her death, June’s bloodline under the forced heirship rules would benefit, but James is not of June’s bloodline and so he would not benefit. On the other hand, if June elected to apply UK law then she would have freedom to benefit whoever she wished, provided she looked after her dependants, and so could benefit James if she wishes. No solution is perfect because of the risk of June and James falling out, but James can at least in theory be a beneficiary of the property under June’s will if she makes an appropriate election. Benefits of a Societe Civile Immobiliere Another option would be for William and June to have purchased the house through a corporate structure such as a Societe Civile Immobiliere (SCI), which is a type of French property company. They would then own shares in a company holding a property and those share, as moveable assets, would pass in accordance with the laws of England & Wales, being the law of William and June’s domicile (ie, where they are most closely connected to).
The SCI works well where there are multiple family owners and where ownership may change hands through successive generations and is often simpler and cleaner. The SCI would own and manage the house and has a distinct legal identity from its shareholders (the family) but it is fiscally transparent in terms of tax and each individual is taxed on their share. It can also be used to hold multiple properties which are let out to provide an income but if you own a UK portfolio of properties they are accounted for separately. An offshore company holding offshore real estate will not be subject to the various UK tax rules which seek to penalise non-domiciliaries for holding UK real estate through corporate structures. Of course there are double tax agreements between the UK and France which often help too.
Sarah Cormack | Partner 020 7648 9232 sarah.cormack@mills-reeve.com
Gillian Kennedy-Smith | Principal Associate 020 7648 9240 gillian.kennedy-smith@mills-reeve.com
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Matthew Hansell | Partner 0121 456 8297 matthew.hansell@mills-reeve.com
How to avoid costly misunderstandings as a co-owner of a business Private Affairs | Autumn/Winter 2019
Many UK businesses are co-owned and managed, whether using a company structure or through a partnership. While businesses will usually have a detailed business plan there can be issues that the co-owners/managers fail to deal with, and which could potentially cause significant problems going forwards. In particular, the following sorts of questions need to be addressed…
⎕ What rules should there be about bringing
⎕ What happens if one of the co-owners dies?
⎕ Should there be a dividend policy? In what
⎕ Would the surviving co-owner(s) buy
⎕ At what point should a management team
⎕ What would the price be? Market value
It is crucial to the success of the business that there is a common understanding on these issues. Without this there will be all sorts of risks of misunderstandings and confusion over how to deal with these issues should they arise in practice, and with the potential fall-outs.
Should the company be sold?
out their interest and, if so, how will that be funded? or a pre-agreed price?
⎕ Does life insurance need to be taken out
both to provide for the company and to ensure that the business can continue to function (ie, key man insurance) and perhaps separately to enable the surviving co-owner(s) to buy out the interest of the deceased?
⎕ What happens when an owner-manager
is ill and cannot continue to work (and does there need to be private health insurance or critical illness insurance)?
⎕ When should the business be sold? ⎕ What happens when one of the owner-
managers wants to retire? Does the continuing owner buy him out and again, at what price?
family members into the business?
circumstances should a dividend be paid? be brought in? And how would they be remunerated and incentivised?
That common understanding needs to be set out somewhere and this is often done through the Articles of Association combined with a Shareholders’ Agreement, if a company, or through a Partnership Agreement, if that structure is used. The business and the individuals can then put in place any financial planning needed to ensure that the understanding can be implemented. As ever, a bit of careful planning up front can avoid a lot of problems in the future.
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Virginia Edgecombe | Partner 01603 693293 virginia.edgecombe@mills-reeve.com
It’s time for the Government to introduce a new relief to encourage lifetime giving Philanthropy is discussed a lot these days but it’s not a word that I’m particularly keen on, writes Virginia Edgecombe. It suggests that charitable giving is limited to the likes of David Harding who it was recently reported gave £100 million to Cambridge University, brilliant though that is.
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It’s a grand word, giving the impression that acts of philanthropy are only possible for the super-rich, rather than the majority. However, the evidence is that people really like giving and, if given the opportunity, will often choose to use their wealth to benefit society. Tax planning – the new approach There are specific tax advantages to planned charitable giving, in relation to income tax, capital gains tax (CGT) and inheritance tax (IHT), but society’s attitudes to tax planning more broadly have shifted in such a way as to make giving more attractive to the wealthy.
Private Affairs | Autumn/Winter 2019
Reputation is increasingly important. Not only do we have The Sunday Times Rich List but not long ago the same newspaper published a list of the UK’s top tax payers. While organising one’s affairs in a tax efficient way is attractive, seeking to exploit a loophole in legislation these days has become high risk unless there is an established practice of exploiting that particular loophole which HMRC accept. The appetite for high-risk strategies has reduced with many individuals being interested in their reputation
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...nowadays the important question is should philanthropy be encouraged? Is being a good citizen within the family and community important?
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and being regarded as good citizens. It is notable that The Sunday Times’ recent publication of “the top 50 taxpayers”, perhaps as importantly, included “notable absentees” from the list. These absentees may well have structured their affairs entirely legally, but are still being “named and shamed” by the media. There is then, of course, The Sunday Times Giving List, publicising the charitable donations of more than 300 significant donors – a far preferable list in which to appear. Family wealth planning: a new focus Alongside this shift of focus in tax planning, we’ve noticed an increased interest in clients thinking about how they and their family interact with their wealth. They’re asking what it’s all for. So often they say that they don’t want their wealth to mess up their children’s lives. Wealth generators are therefore keen to explore, and record, their vision and values; how they expect their children and later generations to deal with the family wealth, so that they can be educated on their obligations and duties in respect of it. They want a framework of how it is to be used and include provisions for clear governance. A typical family “blueprint” would consider: • Self-sufficiency – should family members be expected to work or should the family wealth provide for all their needs? • Entrepreneurship – should it be encouraged and supported? • Does the family want to be in business together going forwards or should wealth be split with family members going their own way? • Where there’s a family business, should family members be encouraged to engage with it or be supported in pursuing their own personal objectives? • Philanthropy – is it to be encouraged? Is being a good citizen within the family and community important and, if so, what does it mean? Wealthy individuals are wanting to instil in their families a good way of operating and to develop a healthy relationship with the family wealth. They want to set the culture and direction of travel for the future. At the same time, research suggests that millennials are more likely to give than previous generations.
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Might it be time for a new relief to encourage lifetime giving? We have encountered some interest in gifts that allow a donor to make a gift to charity in such a way that the donor retains a right to income from the gift during their lifetime, but the charity is guaranteed the capital sum donated on the death of the donor. Such gifts are possible in the USA, but not yet in the UK.
Wealthy individuals are wanting to instil in their families a good way of operating and to develop a healthy relationship with the family wealth.
In the UK, Philanthropy Impact (a charitable organisation whose mission is to grow modern philanthropy) has been making the case to HMRC for the creation of such gifts called “Charitable Remainder Gifts” (CRG’s) to promote charitable giving amongst high net worth individuals and the affluent.
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Structured giving Clients want to see their giving make a difference. What sort of charities should they support? How do they identify need? How do they evaluate success? Should they have their own charity? Or will a “donoradvised fund” within a master charitable trust set up by a provider fit the bill? Then there is the question of social impact investment – for some it may be attractive to recycle the return received from an investment in a social enterprise or charity into other social investments, alongside traditional grant making. Taking advantage of the under-used Social Investment Tax Relief (SITR) may also be beneficial. There are now so many options available and advising clients on their choices is a specialist area of its own. Disappointingly, however, the evidence is that donors generally are not as structured as they could be, or would like to be, around giving – indeed, there is under-use of the tax reliefs available. According to Government research, charities are missing out on £600 million per year because people are not enabling them to claim Gift Aid on donations. Failure to claim gift is bad news for a higher / top rate tax payer too as it means they can’t claim back the difference between the tax rate they pay and the basic rate of their donation.
Very crudely, and in its simplest form, the donor making a CRG would make an irrevocable commitment to give to charity. The donor would receive income from the donation during his lifetime, with this income being subject to income tax. The donor would benefit from a one-off calculation of income tax relief for backward or forward offset. The initial donation would also be deemed to be a gift to charity for the purposes of CGT and IHT. The benefit to the charity is that it would create supporter engagement with a living person as well as guaranteed future income. Meantime, the donor retains their financial security. It seems to me that the case for CRGs is very strong. There are already tax advantages in leaving assets to a charity on death, but it’s not unreasonable to think that the scope for expanding philanthropic giving in the UK would be increased by the introduction of CRGs. However, apart from the introduction of new reliefs, the most important thing is to make sure our clients are getting the right advice to ensure that they are making the most of the options currently available.
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Philip Way | Partner 0344 327 6242 philip.way@mills-reeve.com
Pensions on divorce Private Affairs | Autumn/Winter 2019
Pensions are often said to be the last form of discrimination in divorce. When you are in the throes of separation, it is easy to forget about the value of your spouse’s pension but, very often, a couple’s pension savings can be just as valuable as the family home.
The immediate need to put a roof over your head can dominate your thinking and lead you to ignore the family’s pensions when sorting out a divorce settlement. This approach can leave people, and particularly women, in a weaker financial position after a divorce which could easily have been avoided if they had been given the right advice. The complexity of pensions makes them difficult for lawyers and clients to understand. Philip Way, a partner in our family and children team, has recently been involved in writing a report by the Pension Advisory Group. A mixture of lawyers, actuaries and financial advisers worked together on the report to try to give a better understanding and consistency of approach in cases involving pensions on divorce and to reduce the number of people who unnecessarily suffer an impoverished old age following a divorce. Philip was selected to contribute to the report because of the wealth of experience that he has in dealing with pensions on divorce. He has often come across couples where one person holds a company pension and the other person holds a personal pension.
At first glance, the two schemes may look to be of similar value but, with expert input, it can often be proven that the company pension will produce a much higher income than the personal pension and that the company pension should be shared with the other spouse. Similarly, the value that is attached by the scheme actuary to a public sector pension such as a police pension can often be unintentionally misleading. The true value of the scheme may well be much higher but, without proper advice, one spouse may accept equity of, say, £200,000 in the family home in exchange for the other spouse retaining a pension said to be worth £200,000 but which expert evidence could have shown to be worth double that figure. The Pension Advisory Group report deals with the whole range of issues relating to pensions on divorce including the complex process of legally sharing pensions on divorce and tax points such as the way to maximise the benefit of lifetime allowance for the most valuable of pension schemes on divorce. Without a detailed knowledge of all these wrinkles and potential pitfalls, negotiations of divorce settlements can be unnecessarily dragged out and expensive
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Private Affairs | Autumn/Winter 2019
Zahra Siddiqui | Partner 0161 234 8862 zahra.siddiqui@mills-reeve.com
Simplifying inheritance tax… not a chance! The Office of Tax Simplification has issued its second report on “simplifying the design of inheritance tax” and made various recommendations to the Treasury. Our partner Zahra Siddiqui gives her initial thoughts on the latest reform proposals.
Recommendation 1: The report recommends the Treasury should consider, as a package, to reduce the sevenyear rule for lifetime gifts to fall outside the inheritance tax (IHT) calculation on death to five years, abolishing taper relief and the 14 year rule which sometimes bites.
Recommendation 5: BPR is a valuable relief for some businesses which carry out both trading and investment activities, such as property letting. The trading threshold for BPR is lower than that required for CGT reliefs and the report recommends that the Treasury consider whether this is appropriate.
Zahra: The current rules are unnecessarily complex and the simplification should be welcomed. The proposals would reduce the administrative burden for executors following a person’s death. However, there would be winners and losers under the changes.
Zahra: Again, the recommendation is unsurprising. Aligning the threshold with CGT would make things simpler but it could negatively impact the availability of BPR on many businesses. This is a concern and we will be watching it closely. The report also suggests that it should be considered as part of a package alongside the proposed alignment of IHT treatment of furnished holiday lets with that of income tax and CGT. This would be a welcome change.
Recommendation 2: Reforming the exemption for gifts made out of surplus income by limiting the exemption to a fixed percentage of income or replacing it with a higher annual gift allowance. Zahra: In principle, simplification here would be helpful as the record keeping required for claiming this exemption is very onerous. However, for people with significant surplus income this would restrict what is currently a generous exemption. Recommendation 3: Removal of the capital gains tax (CGT) uplift to market value on death, where business property relief (BPR) or agricultural property relief (APR) or the spouse exemption from IHT applies. Zahra: I would not welcome this. It would result in increased tax and it is hard to see how it would make things simpler as it would require ongoing retention of historical records. For anyone with assets which they intend to pass down the family on death this could have a significant impact. Recommendation 4: Removal of BPR from shares traded on the Alternative Investment Market (AIM). Zahra: This is perhaps unsurprising – it’s an easy win for the Treasury, and the AIM market now comprises some significant businesses. The removal of the relief may affect the value of some of the AIM shares and investors’ interest in this market.
Recommendation 6: Leaving the residence nil rate band untouched. Zahra: This is a very complex area of law and an area where simplification would have been really welcome – but it seems to have been skirted over! Recommendation 7: Proceeds from term life assurance policies should be free from IHT whether or not they are written in trust. Zahra: This would make things simpler and I would welcome it. The report recommends a separate review of the tax system as it applies to pensions. Recommendation 8: The report acknowledges that simplification is required when it comes to trusts but makes no recommendations as HMRC’s ongoing trust consultation has a wider remit. Zahra: It’s fair to say this is not particularly helpful! We will, of course, continue to watch how the Treasury reacts to the recommendations and report back in future editions on further developments.
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Private Affairs | Autumn/Winter 2019
60 seconds with… Suzanne Kingston Suzanne Kingston | Consultant 0344 327 6263 suzanne.kingston@mills-reeve.com
Known as “the queen of arbitration”, Mills & Reeve were delighted to welcome Suzanne Kingston to the family and children team in April 2019. The recipient of numerous awards and accolades, including Spears’ Family Lawyer of the Year 2015 and Citywealth Lawyer of the Year 2016, Suzanne is internationally renowned for her expertise dealing with complex financial disputes on divorce.
Private Affairs: Suzanne, what brought you to family law? Suzanne Kingston: I have always been interested in wanting to combine the intellectual rigor of law with a psychological element. Family law offered the perfect mix! PA: What does a typical day look like for you? SK: I’m a morning person so I like to walk to the office, get in early and start the day prioritising my to-do-list. The joy of the job is that there is no such thing as a typical day. I could be in court, or mediating or arbitrating a case. As a family lawyer, I see my role as a dispute resolver and within family law we are fortunate to have a variety of ways to bring about a resolution for our clients.
Family law is also so diverse. Each client is different and their individual needs need to be understood and respected. And I’m always fascinated by how many different areas of law a case can span. We often need experts in relation to property, corporate, tax, trusts, partnership and insolvency law. One of the great benefits for clients of Mills & Reeve is that these experts are all under one roof. Alongside my client work, I also teach family law arbitration and collaborative practice and am involved in various organisations so I’m always on the go.
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Being at the cutting-edge of the law and meeting some truly inspirational people along the way has made it a memorable experience. Private Affairs | Autumn/Winter 2019
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PA: What has been your proudest professional achievement? SK: It has to be spearheading family law arbitration in England and Wales and then going on to help other countries set up their own arbitration schemes for family disputes. Being at the cutting-edge of the law and meeting some truly inspirational people along the way has made it a memorable experience. For those who don’t know, in family law arbitration the couple appoint an arbitrator who hears the dispute – whether finances or children related – and makes a final, binding decision on it. It allows separating couples to resolve disagreements far more quickly and cost-effectively than the court process does. It also offers confidentiality and a large degree of flexibility so couples can tailormake the process to suit their circumstances and aims. PA: If you hadn’t been a family lawyer, what do you think you’d be doing now instead? SK: In days gone by I would have loved to have been a ski instructor but I’m not so sure about my knees now!
PA: How do you relax? SK: By the time this edition of Private Affairs is published, I will be well underway to training for my first triathlon as well as having completed the Bordeaux Marathon – don’t worry, this is the cheese and wine marathon! PA: We hear you have an enviable record for attending Glastonbury! What is your top Glastonbury moment? And who would be on your wish-list for Glastonbury’s 50th anniversary next year? SK: My top Glastonbury moment was seeing Adele on the Pyramid Stage on a glorious Sunday evening. It was wonderful to hear the purity of her voice and be in a crowd of 120,000 adoring fans! Another great memory was seeing Dolly Parton appear in the legend slot. She certainly knew how to work a crowd and was a vision to behold in a cream trouser suit when everybody else was covered in mud! Next year I would love to see Florence and the Machine because I missed her last time she was at Glastonbury. Also, I think there should be an 80’s tent so that I could relieve my youth – the Human League, ABC and Heaven 17! Anyway I must sign off now because I am getting ready for Robbie Williams on Sunday!
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My top Glastonbury moment was seeing Adele on the Pyramid Stage on a glorious Sunday evening.
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Trust alert! All UK express trusts must register with the HMRC Trust Registration Service if they have a UK tax liability. Please contact us urgently if you have a trust and you need advice as to whether this trust needs to be registered. Registration also applies to any non-UK resident trusts which receive income from UK sources or has assets in the UK on which it is liable to pay UK taxes. The law relating to registering trusts with HMRC Trust Registration Service is changing. The new law will be in place by January 2020 and it is looking likely that all UK resident express trusts, together with certain non-EU resident trusts, will need to be registered regardless of whether they have a UK tax liability. The proposed deadline for registration is 31 March 2021. All trustees should be considering whether to register. Trustees should also be annually reviewing their trusts to check all compliance matters, including FATCA/CRS. We are able to assist with a Trust Health Check to to help you comply.
Sheryl Lewis Trust and Probate Administrator 01223 222379 sheryl.lewis@mills-reeve.com
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Co-editors
Sarah Wood | Principal Associate 0121 456 8454 sarah.wood@mills-reeve.com
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