For many sensible reasons, now is a good time to consider protecting family wealth through estate planning. The authors of this article consider the current pandemic crisis, the impact on asset values, and tax and estate planning issues.
The COVID-19 pandemic has brought many uncomfortable subjects into open view, and put more pressure on existing conversations. A clear example is succession and asset transfer. Worries about severe illness and death, protecting legacies and helping children and grandchildren all fuel a greater focus on these issues.
To discuss tax and estate planning in the current environment are Hannah Wailoo, partner, and Nicola Solomou, solicitor, in Trowers & Hamlins’ international tax and private wealth department. They are based in the firm's London office. The team specialises in international estate and tax planning, as well as immigration advice for high-net worth individuals.
The editors are pleased to share these views with readers; the usual editorial disclaimers apply. To respond, email the editors at firstname.lastname@example.org and email@example.com
"Protecting your family: estate and tax planning in new landscapes"
Essential details for personal wealth and succession planning in the current COVID-19 situation and a look forward to what the 2020/2021 tax year may have in store for individuals and their families.
UK Wills and COVID 19
There has been a drive for people wanting to review and update their wills but self-isolation and social distancing pose difficulties to comply with certain formalities for the preparation and execution of Wills in order to ensure that the will is valid and can be upheld.
Wills Act 1937 section 9 governs this process. For an English will to be valid, it must:
-- Be made by a testator who is at least 18 years old;
-- Be voluntarily made and without pressure from another person;
-- Be made by a testator of sound mind;
-- Be in writing;
-- Be signed by the testator in the presence of two independent witnesses in the presence of the testator (and in the presence of each other), after the testator has signed; and
-- Suggest that the testator intended by their signature to give effect to the will.
Technology offers a partial solution as meetings to take instructions on wills can be facilitated via calls, videoconferencing and emails. Lawyers preparing wills are obliged to assess capacity and ensure that the will is being made voluntarily. In some cases, not meeting face-to-face can hamper this.
At the time of writing, the Law Society has been discussing with the Ministry of Justice whether to temporarily relax the legal restrictions regarding executing wills during this period. Options include allowing witnessing via video conference, abandoning the requirement for witnessing or extending the special provisions under the Wills Act for “privileged Wills” (ordinarily for military servicemen) to the public for the duration of this crisis. Privileged Wills do not need to be witnessed if in writing or can be made orally.
There are practical arguments for simplifying the will-making process in the face of current disruption. Making extensive hasty changes to two hundred year old laws will not happen without hesitation by lawmakers despite the exceptional circumstances. Relaxing these rules must be balanced against the risks and scope for abuse; two independent witnesses are required to protect the vulnerable against potential fraud and undue influence.
Another possibility is to allow judges greater flexibility in determining the validity of wills made at this time.
Legal professionals acting in the execution of a will are recognised as "key workers" by the Ministry of Justice. However, until the law changes, to avoid any uncertainty about the enforceability of a will, a will's execution should comply with the law. Those seeking to implement or update their Will during this period should take professional advice on the process that must be followed to ensure validity.
At the time of this article, no changes to the existing laws have been introduced.
Tax residency, visas and COVID 19
HMRC has given clarification to non-UK residents and expats that may have "over-stayed" their time in the UK due to travel restrictions and quarantine, which in ordinary circumstances may cause them to become UK residents for tax purposes.
HMRC clarified its rules on what will qualify as “exceptional circumstances” under the Statutory Residence Test. If days spent in the UK are due to exceptional circumstances they can be ignored when counting days of presence in the UK, up to a maximum of 60 days. These include being:
-- quarantined or advised by a health professional or public health guidance to isolate in the UK due to COVID-19;
-- advised by official government advice to not travel from the UK due to COVID-19;
-- unable to leave the UK due to the closure of international borders; or
-- asked by an employer to return temporarily to the UK due to COVID-19.
There is currently no mention of the "60-day" period being increased. A change to the number of days requires a change to legislation rather than HMRC discretion. As we moved into a new tax year on 6 April 2020, HMRC may not consider that further revision is necessary given that the current rules could allow a further 120 days as we span the two tax years.
Agreeing exceptional circumstances with HMRC is not a straightforward process, and therefore record keeping is vital; for example evidence of arrival and departure dates, doctors' notes, evidence of government issued guidelines, and information provided to travelers by their airline or other travel provider. It is advisable that individuals leave the UK as soon as they are able to.
Care must be taken in respect of time spent working in the UK as even under exceptional circumstances, such time in the UK is not disregarded for the "work tie" and "working full time" assessments.
The days spent in the UK could impact other elements of residency assessment such as the "country" and "90-day" ties.
Individuals in the UK with visa restrictions have also faced concerns. The Home Office has issued guidance to suggest that in such cases, visas can be extended to 31 May 2020.
Pre-Autumn Budget 2020 planning
The UK's most recent budget on 11 March 2020 took place against the backdrop of the global outbreak of COVID-19. Since the outbreak, further emergency budgets have introduced regulations to support public services, individuals and businesses during this unprecedented situation. Amidst the uncertainty, it is almost certain that the schemes and large debt payments will result in an Autumn Budget with tax rises.
Areas where we do have certainty from the March Budget include the 2 per cent additional SDLT surcharge to be levied on non-UK resident buyers of residential property - scheduled to come into effect on 1 April 2021. Whilst this will not impact anyone currently in the process of purchasing, non-UK residents who complete a purchase on or after that date will be liable to this increased tax rate. Other changes were announced, including the reduction in the Entrepreneurs Relief threshold from £10 million ($12.45 million) to £1 million (effective immediately); confirmation of the VAT reverse charge coming into operation in October 2020; and the increase in the rate of structures and buildings allowances from 2 per cent to 3 per cent.
For many sensible reasons, now is a good time to consider protecting family wealth through estate planning. Although property and stock portfolio values have depreciated in light of the current circumstances and sterling is at an all-time low, these lower asset values can present opportunities. For example, reduced CGT exposure on disposals of assets by way of gifts or the creation of family trusts.
However, caution must be exercised as it is difficult for valuers to place an accurate value on an asset in the current climate. HMRC is likely to look closely at values on transactions made in the current climate when assessing tax liabilities.