North London Solicitors

People who suffered losses as a result of the collapse of mutual insurer Equitable Life in 2000 will be pleased to know that the compensation payments they receive as a result of the passing of the Equitable Life (Payments) Act 2010 will be tax free.

 

The compensation on offer amounts to only 22 per cent of the amount lost and where the policyholder’s loss is deemed to be less than £10, no compensation is payable. The payments commenced in June, 2011.

 

Equitable Life collapsed after the House of Lords ruled that a promise made by the insurer to pay the holders of pension policies which had a ‘guaranteed minimum pension’ must be met.

 

If you have been mis-sold an investment product, contact us for advice.

When an estate includes assets whose values can fluctuate, such as shares or property, a situation can arise where the value of an estate for Inheritance Tax (IHT) purposes is greater than the market value later on. This is currently one of the biggest problems facing executors, since as the recession progresses, most assets other than cash are falling in value.

 

Where assets are disposed of at a loss within twelve months of the death of the testator (the legal term for the person who left the will), IHT relief is available. This works as below, but note that the relevant date is twelve months after the death, not after probate is granted: a powerful incentive to make sure that the administration of the estate is progressed with reasonable speed.

 

If the assets which have lost value are quoted shares, a claim can be made on their sale, but not on a transfer. If the assets consist of land, the time period for a claim is four years from the date of death. The loss claim can only be made by the ‘appropriate person’ (in most cases the executor) and therefore any asset transferred which is then sold at a loss will not qualify for relief. A claim cannot be made unless the loss is at least 5 per cent of the value at the date of death or £1,000, whichever is greater.

 

There is clearly room for tax planning here, not only regarding the timing of transfers but also whether assets should be sold or transferred and then sold. Which approach is best will depend on the tax situation of the beneficiaries as well as the estate.

 

Lastly, there is a similar relief which is available for lifetime gifts. Where an asset which has been gifted prior to death has fallen in value and is subject to IHT, a claim can be made for the reduced value to be substituted in the valuation of the estate at the date of death. This relief is only available if the transferred asset is still owned by the person to whom it was gifted or their spouse or civil partner.

Trustees who ‘get it wrong’ have traditionally been able to go to the court to rectify a mistake they have made if they failed to take account of something which turned out to be significant. When this occurs, a beneficiary can go to court and ask for the transaction to be voided. Technically, this depends on the trustees having breached their duty of trust to the beneficiaries (through ignorance of the relevant issue).

 

Recently the Court of Appeal had to consider to applications brought where the trustees of trusts had made errors in carrying out transaction which led to avoidable tax liabilities. In these cases, professional advice had been sought by the trustees. The consequence of this was that the claims to make the transactions void were rejected.

 

The trustees had not breached their duty of care. They had acted on negligent advice.  

 

In the words of Lord Justice Lloyd, “Where matters of tax were relevant… it was likely to be part of the duties of the trustees, under their duty of skill and care, to take proper advice as to those matters. However, if the trustees, aware of the need to consider relevant matters, sought advice as to the position while considering what, if anything, to do under their discretionary powers, then …the trustees could not be said to be in breach of their duty if they proceeded to address the exercise of their discretionary power on the basis of the advice given to them as to, for example, tax consequences. Accordingly, in a case where the trustees’ act was within their powers, but was said to be vitiated by a breach of trust so as to be voidable, if the breach of trust asserted was that the trustees failed to have regard to a relevant matter, and if the reason that they did not have regard to it was that they had obtained and acted on advice from apparently competent advisers, which turned out to be incorrect, then the charge of breach of trust could not be made out.”

 

The only path open to the trustees now is to consider suing the tax advisers for negligence.

 

If you have received negligent tax or investment advice, we may be able to help you obtain redress.