Our content this month are as follows:-

• Our Thanks to You
• News
• Tax
• INHERITANCE TAX PLANNING AND THE NIL RATE BAND PHIZACKERLEY v HMRC
• Books We Have Read
• Quotes of the Month

The vast majority of our new clients are introduced to us by existing clients; indeed many of you will have been introduced originally by another client. We deeply appreciate referrals and, as we say in our Welcome Book, when we receive referrals from existing clients we know the relationship is right.

The rate and quality of referrals has increased recently and we are very grateful to all of you who have referred colleagues, friends or family. Please keep them coming.

Reading the news lately could be a depressing experience, if you allow it to be. Interest rates are widely tipped to increase and the papers cannot wait to tell us about the string of disasters that will follow this, ranging from plummeting house prices to tumbling stock markets. There is no doubt that there are a large number of people who are overstretched presently on credit and they may well have to tighten their belts, but whether or not financial Armageddon is upon us remains to be seen.

At times like this it is worth remembering that the US government employs 40 economists to predict the movement of interest rates. That is, they predict whether they will go up or down they do not predict the rate; you could be forgiven for thinking this is a fairly straightforward job, but their predictions are wrong two thirds of the time! In the words of Sam Goldwyn, "Predictions are very difficult to make, particularly those about the future."

For our clients, holding assets in highly diversified (both geographically and by sector) portfolios, means that you are positioned efficiently in the event of any downturn. That is not to say that any drop in worldwide markets will not affect your portfolio, but the attention we pay to the management of risk means that you should be better able to deal with it and recover more quickly from any downturn. The major reason for geographical diversification is that, while all markets may react to a downturn, some will recover significantly more quickly than others and your portfolio is designed to benefit from that. We all know that nobody can predict the future but some people can face it more coolly than others.

There is widespread coverage presently of the government amnesty for those who have held cash offshore and not declared the interest. We have had one or two enquiries about whether clients with offshore bonds should be concerned. This amnesty concerns only those who have held cash offshore in bank accounts and not declared the interest. Offshore bonds are perfectly legitimate vehicles which provide a great deal of tax efficiency; those holding such bonds need not be concerned with the current activity. If you do have any concerns about any aspect of this matter please call Les or Noel.

You may also have noticed some comments in the newspapers about the treatment of nil rate band Will trusts. All clients are advised to update their Wills regularly and most Wills contain a provision for a nil rate band trust as a matter of course, for married couples. David Birchall of Shakespeare Putsmans solicitors has kindly contributed the article in the next section, which should put your mind at rest about this particular aspect of inheritance tax planning. Our thanks to David for his expert opinion on this matter.

By David Birchall of Shakespeare Putsmans Solicitors

Many of you will have read articles in a number of national papers recently about the result of the above case and the impact on Wills that incorporate the use of discretionary trust planning and the nil rate band.

The first message is do not panic! Nil rate band planning through a discretionary trust (or otherwise) is very much still a core part of the planning you should consider implementing through your Will. The case rested on its own particular facts and the nil rate band planning was caught by an anti avoidance measure that has been around for years. It appears that the specific planning in Phizackerley was implemented by a transfer of the deceased wife’s half share of the property to the surviving husband in return for him promising to pay a sum of £150,000 to the trustees. The problem is that HMRC decided that the deceased’s own half share of the house had effectively been given to her by her husband during her life. This meant that the husband’s promise to pay fell foul of an anti avoidance measure and the debt (the husband’s promise to pay) could not be deducted when the husband died.

A nil rate band discretionary trust can be funded in a number of ways including in the first instance assets other than the house. However, the main asset of wealth in an estate is often the family home and therefore it is very important that if the house is going to be used to fund the nil rate band it is carefully implemented. The history of ownership of the house must be considered and the correct method of using the value in the house implemented. Importantly, your Will should be drafted as flexibly as possible to give power to your executors and trustees to decide which option is best at the time, i.e. on the first death.

Using your nil rate band allowance and potentially saving £120,000 in inheritance tax is very much a part of estate planning although the original Will drafting may have to be reviewed or updated.

David Birchall, Partner
Shakespeare Putsman
Somerset House
Temple Street
Birmingham
B2 5DJ

Tel: 0121 237 3046
Fax: 0121 237 3096
Mob: 07920 208469
Email: david.birchall@putsmans.com

You may remember that we recently recommended "The Rules of Life” by Richard Templar. This month we are recommending a companion volume "The Rules of Wealth", which has the same readable format, getting information across in small easily digestible chunks. Lots of good advice in here, some of which may appear obvious, but our experience is that it never does any harm to be reminded of the obvious.

The book is readily available at bookstores and Amazon, but if you have any difficulty finding it please contact jayne@indexfundadvisors.co.uk.

“A fool and his money - how did they get together in the first place?" - Woody Allen

"If I cannot take it with me, I refuse to go." - Jack Benny