Foreword

I would like to wish all of you a prosperous 2008. Last year was pale and interesting if the average private client practitioner’s face was anything to go by. Not content with trying to kill us all with last-minute EPA making, while simultaneously trying to work out what the new procedures will be under the Mental Capacity Act, HM Government unkindness then hit again a fortnight later, with more tax changes.
The number of former private client practitioners applying for Christmas vacancies in Argos increased exponentially and the seminary colleges are no longer empty. Positions as elves in Santa’s grotto were so fiercely contested that a fist fight erupted between a solicitor and a legal executive in a shopping centre in Wolverhampton. Both of the good ladies are in Court on Tuesday next.
I was rickshawing around town raffling off my old textbooks for charity, when I suddenly realised that the changes to inheritance tax had made them a whole lot more valuable again. So my collection of ‘boring tax stuff through the ages’ is now available copied on disc.
Hundreds of executors have been bombarding my site on eBay since I published the Nintendo Wii version. It enables you to find the nil-rate band for the past 150 years in a dark, bewildering maze of ancient Statutory Instruments, and you also get to have a virtual fight with the new chairman of HMRC and a bunch of demonic cronies on the way. You get a laser weapon and they get to share a plastic spoon.
But we need to remember that all of these changes give us new opportunities, and not only within the seasonal retail sector or as excuses for leaving the country. I only wish we had the opportunity of not having these opportunities foisted upon us quite so often.
I imagine all those millions of names, addresses and account details I received on disk from some oddball outfit in October might also be considered an opportunity. It makes a nice silver-coloured mat for my coffee cup anyway. I wonder what it is really for?
Court of Protection work under the MCA apparently now has much more of ‘a flavour of a real Court’. I expect someone will make dust and old wig flavoured ice cream in the summer to prove this literally. But it will suit firms with good COP teams of lawyers and systems already in place. It is likely to rid the market of some of the ‘dangerous dabblers’ as well as some of the quality competition, who have simply lost the will to live.
Added to that, the recent costs judgement by Master Haworth (found at Neutral Citation Number: [2007] EWHC 90088 (Costs) – the title’s a scream aint it?) emphasises the importance of appropriate delegation within a team, while recognising that, in cases involving brain injury at least, the work of a Receiver cum Deputy is not as easy as we were all led to believe in the previous Ashton judgement. I was clearly not the only one who wondered who had all the easy to deal with and predictable brain-injured clients. So this is good news for professional people seeking payment at a sensible rate for what can sometimes be a thankless task.
We will see how the public take to Lasting Powers of Attorney but, no matter how cynical we are tempted to be, we need to remember that it was all the same last time round, in 1986. There were angry letters in the Gazette saying what a daft idea these new fangled forms were, and that nobody would ever make them. How to pretend someone still had mental capacity was still a part of the solicitor’s qualification process into the 1950s, I believe. I am thinking of asking for it to be revived.
The Treasury must be congratulated for the amount of spin generated by the Inheritance Tax changes. In my view, or the majority of well-advised couples, nothing has really changed and the amount of tax they are liable to is just the same.
How many of your clients (and friends and family for that matter) thought, even briefly, that each person now had a £600,000 nil-rate band? The Pre-Budget Report has not changed the situation at all for single people or unmarried partners. ‘Single people’ includes people who are now divorced and who are not, and have never been, a widow or widower.
For second deaths occurring on or after 9th October 2007, the Inheritance Tax impact of the ‘bunching’ of estates at the time of that death may indeed now be mitigated in some circumstances. (tough if you died earlier.) This will involve a special ‘transfer claim’ application to the tax office. The survivor’s ‘accountable persons’, usually the executors of their Will, can make the claim.
A transfer claim will involve ascertaining the proportion of the unused nil-rate band of the first to die and then transferring that to be set against the taxable value of the survivor’s estate.
How this is intended to work in practice is best explained by way of an example:

Mr A dies in April 2007 leaving his £400,000 estate as to £200,000 to his spouse, Mrs A, and £200,000 to his two children;
This wasted part of his Inheritance Tax-free nil-rate band of £300,000 at the time because while he made use of £200,000 of it (67 per cent or so of the total available to him) the rest of his estate passed under the spouse exemption to his wife;
Mrs A dies in June 2009 leaving her £400,000 estate (£200,000 inherited from her late husband and £200,000 of her own money) to the two children. By then the nil-rate band is £325,000. So, the amount of inheritance tax payable is £400,000 less the nil-rate band of £325,000 = £75,000 x 40 per cent Inheritance Tax = an Inheritance Tax bill of £30,000;
But Mrs A’s executors can now make a claim to the tax office for 33 per cent (in round figures) of Mr A’s nil-rate band (i.e. 100 per cent less the 67 per cent of it used already). That can be added to her own nil-rate band. It is the value of the nil-rate band at the time of the second death which applies so that means 33 per cent of £325,000 or £107,250 can also be set against the value of Mrs A’s inheritance taxable estate;
Mrs A’s estate of £400,000 can now be set against an enhanced nil-rate band of £325,000 + £107,250 = £432,250, so no inheritance tax is payable.

At first glance the transfer claim facility looks as though it might be quite attractive. But it is important to remember that:

Making a transfer claim is not the same as effecting strategic forward-looking tax planning. It is more like placing a sticking plaster over what might have been achieved with more certainty and more advantages if the first to die had a suitable Will in place when they died;
There are potentially serious negatives to not having a more suitable tax-efficient (and otherwise protective) arrangement in your Will. Leaving everything to the survivor means you are very much relying on them keeping their own Will arrangements up to date and not falling out with your chosen beneficiaries, remarrying and leaving everything to their new spouse, or using or losing some or all of the assets through excessive spending, divorce, bankruptcy or care fees;
Making a transfer claim will involve resurrecting all the details of the estate of the first spouse or civil partner to die and in the case of remarriages, possibly more than one such estate. This could prove distressing for the surviving family at a particularly difficult time;
Making a transfer claim could be expensive, create delays and be difficult to achieve in practice;
The necessary ‘proof’ required by the tax office may simply not be available. It may for, instance, involve engaging in complex issues of valuation and tracking down gifts made during the lifetime of the first to die. All these factors (and others) will affect the availability of the transferable nil-rate band. Any number of potential problems could limit the availability of the transferable nil-rate band.

So, all is not as it was spun. Reminder: I must re-read Charlotte’s web.

Features

Don't blame the actuaries for longer life Free
Harvey Cole examines the implications of longer life on pension funds and challenges the view that actuaries are not keeping up with changes in the market over the past few years.

From lawyers to leaders This article is for subscribers only
A formal training structure should not be the preserve of the magic and silver circle firms argues MARTIN RICHARDSON

A voice for the vunerable This article is for subscribers only
A new volunteer advocacy scheme piloted by Age Concern could both help those lacking mental capacity, and provide valuable insight into the role of the advocate. NEIL MAPES explains.

Keeping it in the family This article is for subscribers only
FRANCESCA LAGERBERG and RACHAEL DRONFIELD of Grant Thornton UK LLP consider the Pre-Budget Report announcements on Inheritance Tax and how it will help with planning relating to the family home.

New ways of working This article is for subscribers only
While the core principles of the Mental Capacity Act have been understood for some time, the significant changes it has introduced or slightly daunting for those working in this area of law. MARTIN TERRELL examines the Act in practice.

Reimbursement of fees for private operation European Surgeries Ltd v Cambridgeshire Primary Care Trust. Free
In October 2003 Mr Harry Cooper underwent a private cataract operation on his left eye at the Cromwell Clinic in Huntingdon. The operation was carried out by a German ophthalmology surgeon and was arranged by European Surgeries Ltd, a medical service provider.

Inheritance realities Free
Contrary to popular belief, the likelihood of one single person inheriting a small fortune from a long-lost realtive is fairly slim.

Regulars

Ship-shape or shape-shift? Free
We're told that there’s up to £15bn in apparently ownerless assets floating around the system in the UK alone. Even if we assume that this is a huge overestimate and there’s only around £5bn, that’s still quite an agreeable amount to find down the back of the sofa. Factor this together with the number of discrepant asset schedules that come in for probate valuation and it looks like a good bet that many PRs are — unwittingly — not fully aware of the true extent of their deceased’s portfolio. This is not surprising given how any portfolio will change in shape and complexion over the months and years, consider the buoyant mergers and acquisitions market in recent times and the effect of stock splits, dividend payouts and the like.