inheritance tax Archives

Tees’ expertise resolves complicated divorce financial settlement

Posted on 20 March 20251 April 2025 by Sarah O'Sullivan

Underlying issues resurface to make for a complex financial case between a husband and his ex-wife.

For context:

Tees were instructed to represent Benjamin* in concluding a financial settlement with his ex-wife following their divorce. Prior to Benjamin becoming a client of Tees, he had sought legal advice elsewhere to represent him whilst going through their divorce.

It had come to light that even though their divorce was settled, the financial issues remained unresolved. Influential factors in the time that passed between the divorce and Benjamin’s legal representation from Tees are where the case faces complexities.

Throughout Benjamin’s marriage with his ex-wife, he was a stakeholder at a successful company within the motor industry. Following on from the divorce, he had since sold his shares but remained an employee, therefore earning additional shares which had vested prior to a nine-figure sale.

What happened next:

As Benjamin and his ex-wife had not reached a financial settlement at the time of divorce, it then became a question of her entitlement to the following:

the initial shares, and
any future shares.

This was complicated by the associated risk of a potential future tax liability on the shares.

With this in mind, the parties engaged in negotiations to achieve a financial settlement, in the region of a significant seven figure sum.

A multi-disciplinary service:

Financial settlement aside, Tees identified complicated inheritance and tax issues which could become expensive for Benjamin. Pulling in expertise from other areas of the business, Benjamin was provided with the correct tax and associated legal advice.

A detailed scheme was set up to protect the husband on future tax issues, contained in the financial consent order and a related Deed of Indemnity.

This case, valued at approximately £20 million, is a strong reflection of the exceptional quality at Tees. We are proud to offer our clients a comprehensive, multi-disciplinary service, drawing on expertise from a wide range of specialisms.

If you’re unsure of what to do next after a separation, our experts are here to guide you through the process.

Assets in the UK and France: Should I have one Will or two?

Posted on 2 February 202523 March 2025 by Sarah O'Sullivan

Before 17 August 2015, the usual advice to people owning property in both the UK and France was that it was preferable to have two separate Wills governing the assets in each country.

French inheritance law with its rules of forced heir ship for beneficiaries such as children applied to all French land and buildings, and for French residents, French inheritance law applied to their movable assets such as bank accounts too. The rigidity of these succession laws often posed problems for UK nationals who, for example, could not pass their assets entirely to the surviving spouse as they would in the UK, due to the entrenched rights of children.

In this article, French law expert and specialist in cross-border Will and Trust arrangements, Sarah Walker, outlines the issues that need to be considered if you own property or indeed, are thinking about buying property in France and have not addressed this in your Will.

How has the law changed in relation to succession?

With the arrival of the EU Succession Regulation known as Brussels IV in 2015, it became possible for British nationals living in either the UK or France to choose to apply English law, and the testamentary freedom that comes with it, to their French assets.

This has appealed to many people, not least because of the simplicity of applying one set of laws to your estate as a whole and having one universal Will covering all of your assets.

However, it is really important to take advice from a lawyer who is conversant with both English and French inheritance law and tax to see whether a choice of English law will be the best option in your specific circumstances, and also whether you should have one Will or two.

One Will or two, what’s best for me?

Whether or not you would be better off with a universal Will or separate Wills will depend on:

the location, value and nature of your assets
your personal circumstances and wishes regarding the distribution of your estate.

A cross border Wills specialist will be able to help you meet as many of your aims as possible and give you clarity about the inheritance tax position in both countries. It is particularly important to take this type of advice if you are resident in France or have plans to become resident in the future.

It is worth noting in this context that France and the UK have different views of residence and domicile and French tax resident status can apply to you more commonly than you might imagine.

What are the risks of ignoring French assets?

If you instruct your UK solicitor to prepare your English Will with the intention that you will see a separate lawyer to deal with France at a later date, the risk is

you may never get around to doing so;
you may run into problems if the two Wills are not compatible.

In some scenarios it can be the case that, through having a separate French Will, you may avoid the need for a Grant of Probate on your death if one is not needed for other assets in the UK.

It is fairly common for this to be the case with a married couple who own all of their assets jointly, for example. This can mean that your French estate can be dealt with more quickly than would otherwise be the case.

Are there any exceptions to how choice of law can be applied?

There are methods of owning French property which mean that a property will devolve outside the terms of any Will and regardless of any choice of law. These are:

a matrimonial property regime;
a corporate structure, or
some forms of joint ownership such as a ton-tine arrangement.

Most English solicitors will not have the expertise to advise on this, and yet clearly it is very important that the full picture in this respect is known before any Will can be prepared that incorporates the French property concerned.

Has inheritance tax been affected by Brussels IV?

Whilst Brussels IV allows for a choice of succession law, it has not changed the position at all with regards to inheritance tax. If you are domiciled in the UK or own UK assets, then consideration must be given to the inheritance tax implications in both countries if you also have property in France.

An English solicitor with knowledge of both French and English inheritance and tax law can be invaluable in helping you decide how best to structure your Will(s) in this respect.

For example, whilst you may now be able to choose to leave your French property to people unrelated to you such as stepchildren or an unmarried partner, these individuals will pay French inheritance tax at 60% on any share passing to them.

Potential tax and trust issues to be aware of

Some concepts that are possible under French law and which a French Notaire may suggest, such as including an “usufruit” in your Will can have negative inheritance tax consequences in the UK.

It is also important to bear in mind the potential issues that can arise when an English Will comes to be interpreted and administered in France following your death. In France there are ordinarily no Executors, instead the assets vest in the beneficiaries directly. Problems can sometimes arise if the French authorities seek to tax the assets twice on a perceived transfer of ownership to the Executors and then on to the beneficiaries.

If your English Will contains trusts then it is important to be aware of the French rules regarding tax treatment of trusts and the reporting obligations, which can be punitive. An English Will prepared without due consideration of the French position can cause complications in France when a French lawyer comes to transfer the property to the beneficiaries after your death.

Often it will be advisable to prepare a separate French Will or to draft the English Will in a particular way to avoid problems of this nature, or an unnecessary tax bill.

Finally, it is important that any steps taken or documents drafted for assets in either country dovetail together to avoid any conflict or accidental revocation. Giving proper consideration to these issues at the time you are preparing your Will can give you peace of mind and be of huge benefit to your beneficiaries through saving them time and money further down the line.

October 2024 budget: What does it mean for individuals and businesses?

Posted on 2 October 202429 March 2025 by Sarah O'Sullivan

As Rachel Reeves prepares to deliver her first budget as Chancellor of the Exchequer on 30 October, businesses and individuals are bracing for significant economic shifts. With an apparent £22 billion deficit, Reeves is expected to announce a range of measures aimed at driving growth while maintaining monetary responsibility.

Reeves is favouring real-term growth in public spending through a combination of tax increases and selective borrowing. These policy adjustments will have broad implications for taxpayers, businesses, and many more.

As a leading firm in legal and financial advisory services, Tees offer expert advice and solutions for individuals and companies looking to understand the impact of the proposed measures.

Potential budget highlights

Income tax adjustments

Reeves is likely to adjust income tax thresholds, potentially pushing more earners into higher tax brackets. With the Institute for Fiscal Studies (IFS) estimating that lowering the personal allowance or basic-rate limit by 10% could yield billions, those in higher brackets need to prepare for greater tax liabilities.

Pension tax relief reforms

Significant reforms to pension tax relief could be on the table, with the potential to raise up to £15 billion annually. These changes are expected to affect those benefitting from higher-rate tax relief, potentially making pension contributions more costly for both individuals and employers.

Capital gains tax (CGT) increases

Reeves may also increase CGT rates or broaden the taxable base, potentially aligning it more closely with income tax. While this could generate revenue, it risks impacting investment portfolios.

Inheritance tax (IHT) adjustments

Changes to IHT, particularly around pensions, business assets, and agricultural land, are expected to raise additional revenue. Caps on exemptions and potential reforms to relief on Alternative Investment Market (AIM) shares could have a significant impact on estate planning.

Fuel duty increases and environmental taxation

Ending the freeze on fuel duty could raise £6 billion annually, a move aligned with environmental goals. This may impact businesses with high fuel consumption, particularly in logistics and transport sectors.

Windfall taxes on banks and private equity

The October budget may introduce windfall taxes on banks and higher taxes on private equity profits, targeting the substantial gains these sectors have seen amid rising interest rates.

Windfall Taxes on Banks – As banks benefit from widened net interest margins, a proposed one-off windfall tax could significantly impact their profitability and lending capacity. While this measure aims to generate revenue for the Treasury, it may lead to reduced lending, particularly affecting small and medium-sized enterprises (SMEs) that rely on bank financing.
Increased Taxes on Private Equity Profits – Reeves is also expected to align the taxation of carried interest in private equity with income tax rates, currently at 28%. This could discourage investment in higher-risk ventures and shift private equity firms toward lower-return strategies, potentially slowing innovation and start-up funding in the UK.

Revised fiscal rules

Reeves may introduce or revise fiscal rules, creating space for increased investment without destabilising public finances. Businesses looking to benefit from potential growth areas, including green infrastructure and housing, will need strategic advice to take full advantage of these opportunities.

As the UK prepares for Reeves’ budget, Tees is ready to assist clients in understanding and responding to the challenges and opportunities presented by these potential measures. Our team of legal and financial experts are equipped to provide tailored advice, helping businesses and individuals alike plan in a changing economic environment.

About Tees

Tees is a leading UK-based legal and financial advisory firm with over 110 years of experience. It offers expert services in a wide range of areas, including tax planning, wealth management, corporate law, and estate planning.

Our team of specialists can help individuals and businesses navigate complex legal and financial matters, ensuring they are well-positioned for the future.

We provide bespoke financial planning, pension advice, wealth management, estate planning, and corporate law services, helping clients adapt to changing regulations, maximise their financial potential, and achieve their long-term goals. Additionally, we can assist businesses in transitioning to greener alternatives, managing the financial impact of increased fuel duties, and capitalising on new government investments.

This material is intended for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice or investment recommendations. Past performance is not a reliable indicator of future returns, and all investments involve risks. Some information quoted was obtained from external sources we consider to be reliable.

Tees is a trading name of Stanley Tee LLP, regulated by the Solicitors Regulatory Authority. Registered in England and Wales, number OC327874

Tees is a trading name of Tees Financial Limited which is authorised and regulated by the Financial Conduct Authority. Registered number 211314. Tees Financial Limited is registered in England and Wales. Registered number 4342506.

Estate planning: Equity release and inheritance tax

Posted on 26 June 202329 March 2025 by Sarah O'Sullivan

Paul and Margaret Evans are a retired couple in their late 70s. They own a valuable property worth £1.2 million and have savings and investments worth £800,000. They have two children and wish to minimise the impact of inheritance tax on their estate, while ensuring they have sufficient funds for their retirement.

Client objectives: Paul and Margaret Evans wish to reduce their potential inheritance tax liability and maximise the amount they can pass on to their children. They also want to maintain their current standard of living and have the flexibility to access additional funds if needed.

Strategy: To achieve their objectives, Paul and Margaret decide to explore the option of equity release as a part of their inheritance tax planning. Equity release allows them to release a portion of the value tied up in their property while continuing to live in it.

Recommendation and Implementation:

Initial Meeting: Paul and Margaret discuss with Toni Chalmers-Smith, their financial adviser at Tees Wealth, inheritance tax planning and equity release. Toni assesses their financial situation, including their property value, savings and investments, and determines the potential inheritance tax liability.

Equity Release Option: After reviewing Paul and Margaret’s financial situation, Toni recommends a lifetime mortgage as the most suitable equity release option. A lifetime mortgage allows them to borrow against the value of their property, either as a lump sum or in smaller amounts over time.

Loan Amount and Interest Rates: Toni calculates the loan amount Paul and Margaret can release based on their age, property value, and health conditions. They also discuss the interest rates, repayment options, and implications for their estate.

Estate Protection: To ensure that the inheritance for their children is maximised, Paul and Margaret decide to opt for an interest roll-up plan. This means they won’t make regular interest payments, and the interest will be added to the loan balance. The loan, including the accumulated interest, will be repaid upon their death or if they move into long-term care.

Inheritance Tax Planning: By releasing a portion of their property’s value, Paul and Margaret can use the funds to make gifts to their children, reducing the overall value of their estate. They consult with a solicitor at Tees to ensure the gifts are structured appropriately within the inheritance tax rules and exemptions.

Ongoing Review: Paul and Margaret maintain regular contact with Toni and their solicitor to review their estate planning strategy and make adjustments as needed. They understand that changes in legislation or their personal circumstances may require modifications to their inheritance tax planning approach.

Outcome

By utilising equity release for inheritance tax planning, Paul and Margaret achieve several objectives:

Inheritance Tax Savings: By gifting a portion of the released equity to their children, Paul and Margaret effectively reduce the value of their estate, potentially resulting in significant inheritance tax savings.

Retained Standard of Living: Paul and Margaret can access the released funds to maintain their current lifestyle, cover healthcare expenses, or enjoy travel and leisure activities during their retirement.

Flexibility: With an interest roll-up plan, Paul and Margaret have the flexibility to choose how and when they access the funds, whether as a lump sum or in smaller amounts over time with a drawdown facility. This provides them with financial security and peace of mind.

Legacy for Children: By reducing their inheritance tax liability and making gifts during their lifetime, Paul and Margaret can pass on a larger portion of their estate to their children, ensuring a more substantial financial legacy.

Important Considerations:

If you are releasing equity to gift money to another person, this will be exempt from IHT if you live for 7 years thereafter, and do not derive any direct or indirect benefit back.  However, if you die within 7 years of making the gift, it will be brought back into account with the rest of your estate when calculating the tax.

It’s crucial to note that equity release, including lifetime mortgages, is a complex financial product. Mr and Mrs Evans sought professional advice from a qualified financial adviser and solicitor to ensure they understood the risks, costs, and implications of their chosen strategy. Everyone’s circumstances are unique, and it’s important to consult with a specialist within this area of advice.

Tees is a trading name of Tees Financial Ltd, which is authorised & regulated by the Financial Conduct Authority, Registered in England, and Wales number 4342506.

Tees is a trading name of Stanley Tee LLP regulated by the Solicitors Regulation Authority, Registered in England in England, and Wales number OC327874.

Spotlight on EIS vs VCT and AIM investing

Posted on 6 April 202328 March 2025 by Sophie Soraf

If you’re an investor looking to diversify your portfolio and maximise tax efficiency, you could consider more complex investments such as an Enterprise Investment Scheme (EIS), Venture Capital Trust (VCT) or shares in Alternative Investment Market (AIM) listed companies, providing you are comfortable holding high-risk investments.

EIS vs VCTs explained

Enterprise Investment Schemes and Venture Capital Trusts are investments made into small, unquoted trading companies which are trying to raise capital in their early stages of development.

The rationale behind both EIS and VCT schemes is that they benefit the economy by promoting innovation amongst the small higher-risk business community which in turn drives productivity, creates jobs and boosts economic growth.

EIS and VCT schemes are appealing to investors who are typically seeking greater diversity across their portfolio as the investments held have a low correlation to more mainstream holdings in pensions and Individual Savings Accounts (ISAs).

What tax benefits do these schemes offer?

Since their launch in the 1990s, EIS and VCT schemes have become increasingly popular, in large part due to the tax benefits they enjoy. Schemes such as these have been particularly important to investors who may be struggling to find ways to invest tax-efficiently, for example those who are close to breaching pension allowances, but who still want to save for retirement in a tax-efficient way.

There are a number of generous tax breaks. For example, when you invest in an EIS or a VCT, you get income tax relief of 30%: invest £100,000 and you could get up to £30,000 back. In order to qualify for these benefits an EIS investment must be held for at least three years and a VCT for five years, but investors would normally expect to hold the investments for longer.

For EIS schemes there is also ‘deferral relief’ which effectively allows you to defer capital gains tax payable on profit earned from an investment by reinvesting it in an EIS. So you only have to pay the CGT due on your initial investment once you exit from your EIS, but you could carry on deferring the tax bill by reinvesting your gain indefinitely.

There are also ways of using an EIS to minimise your inheritance tax bill. After two years from when you buy the EIS-qualifying shares, as long as you still hold the shares on death, your investment should be free of inheritance tax liability. There is no inheritance tax advantage with VCTs however, as when you invest you acquire shares in the trust, rather than in the underlying companies.

How do EIS and VCT schemes differ?

In the case of an EIS, investors typically purchase shares directly in firms, while VCTs are listed companies and follow a similar approach to that of investment trusts, allowing investors to spread the investment risk over a number of companies by subscribing for shares in the VCT itself.

For the 2023-24 tax year, the following limits apply:

For the 2023-24 tax year the following limits apply:

For an EIS, the maximum annual investment you can claim tax relief on is £1m. This is increased to £2m, as long as at least £1m of this is invested in ‘knowledge-intensive’ companies.

Investments in an EIS can be carried back to the previous tax year.

For a VCT, the maximum annual investment you can claim tax relief on is £200,000. New investments in VCTs cannot be carried back to previous tax years.

VCTs may pay out tax free dividends to investors, although early-stage companies may not be able to afford this, without affecting growth, so investors certainly shouldn’t rely on receiving dividends. Dividends payable from EIS are taxable.

What are the risks of EIS and VCT schemes?

Despite the attractive tax benefits of these schemes, they are only suitable for people who are comfortable holding high-risk investments. This is because EIS and VCTs invest in smaller, fledgling companies that are inherently likely to be more fragile enterprises and could fail.

Another risk to consider is the illiquid nature of the investments as they are harder to sell than mainstream investments such as listed shares or unit trusts. As a result, such schemes are considered to be high risk and will normally only be suitable for a relatively small proportion of your overall portfolio.

If you are considering a long-term investment and want to maximise tax efficiency and diversify your portfolio, our independent financial advisers can provide you with expert guidance on such schemes, advising on the full range of investments and ensuring that the associated risks are fully understood.

Alternative Investment Market (AIM) investing

The Alternative Investment Market was launched 25 years ago (in 1995) with the aim of helping smaller companies that needed capital to grow but couldn’t afford the costs associated with listing on the London Stock Exchange, or were unable to meet the stringent requirements needed to float. As at Feb 2023 there were around 727 companies listed on AIM, with a combined market value of over £90bn.

Not all AIM-listed companies are start-up companies, but they tend to be smaller and potentially higher risk than those listed on the FTSE. The main investors in AIM shares will therefore normally be institutions and wealthy individuals.

What are the tax advantages of investing in AIM-listed shares?

Since 2014 investors have been able to include AIM-listed shares in their stocks and shares ISAs, meaning there is no Capital Gains Tax to pay on disposal and no Income Tax payable on dividends. More and more people, therefore, have considered including AIM-listed shares within their ISA portfolios in recent years.

Furthermore, most AIM stocks qualify for Business Property Relief and are exempt from IHT if held for more than two years, making this type of investment one for consideration when planning for inheritance tax.

As described earlier in this article, AIM shareholders are also able to benefit from Income Tax relief and Capital Gains Tax relief when the investments are held via an Enterprise Investment Scheme or Venture Capital Trust.

Considering EIS, VCT and AIM investments? Talk to us

These types of investments have grown in popularity over recent years, as they are now among the few remaining tax-efficient investment avenues still available to wealthier investors.

If you are unsure as to whether investing in tax-efficient vehicles such as EIS, VCT or AIM is suitable for you or you need professional advice on any other area of saving and investing, we are only a phone call away.

Don’t invest unless you’re prepared to lose all the money you invest. This is a high‑risk investment, and you are unlikely to be protected if something goes wrong – two-minute read IMPORTANT information about key risks.

Tax rules can change, and tax benefits depend on individual circumstances. The value of investments can go down as well as up and you may not get back the amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

This material is intended to be for information purposes only and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Some information quoted was obtained from external sources we consider to be reliable.

Use your will to save inheritance tax

Posted on 4 August 202220 March 2025 by Sophie Soraf

The question of how to structure your will is a complex one involving consideration of a range of different factors. Married couples with significant assets should consider the option of using an appropriate will trust on first death due to the tax planning opportunities available.

What is the inheritance tax nil rate band?

The inheritance tax “nil rate band” is the threshold below which no inheritance tax is payable. In recent years the nil rate band rules have become ever more complex with the introduction of three new elements alongside the standard nil rate band; they are:

transferable nil rate band
residence nil rate band
downsizing relief.

The complexity and quirks of the legislation offer many opportunities to save inheritance tax through (amongst other things) an appropriately structured will.

Please note: references to spouses and married couples include civil partners and it’s assumed that all the persons in the examples are UK domiciled. Depending on your circumstances there may be other tax and/or legal issues to consider so it’s always important to take advice.

Married couples where one or both of the couple have previously been widowed

Married couples where one or both of the couple have previously been widowed may be able to save significant inheritance tax by maximising their ability to transfer the unused nil rate bands of their late spouses (known as the “transferable nil rate band”).

Example 1:

Bob and Mavis, a married couple, have both previously been widowed. Bob’s late wife, Gill, died in 2008 and Mavis’s late husband, Jim, died in 2009. Both Gill and Jim left their estates to their respective surviving spouses.

Bob and Mavis each have assets worth £650,000 (which they own separately). Unusually, they do not own and have never owned their own homes (so residence nil rate band does not apply to them, more on which below).

They would like the survivor of them to inherit the assets of the first to die and on the second death for the total estate to be divided equally between Bob’s son and Mavis’ daughter. In the circumstances the full standard nil rate band applies to both of them and to their late spouses’ estates.

Bob dies in 2019 and leaves his entire estate to Mavis. Mavis dies in 2021, leaving everything to her daughter and Bob’s son in equal shares. For simplicity, assume no changes in asset values between their deaths.

The inheritance tax position: On Bob’s death there will be no liability for inheritance tax because of the spouse exemption. On Mavis’ death her executors will be able to use her nil rate band (£325,000) and claim a transferable nil rate band (also £325,000). However, even though she has now been widowed twice, she can only claim one transferable nil rate band.

Therefore, the inheritance tax liability on Mavis’ death will be £1.3 million – £650,000 x 40% = £260,000.

Example 2:

The facts are the same as in Example 1, except that Bob and Mavis make wills leaving the available nil rate band of the first to die and any transferable nil rate band from that person’s late spouse to a nil rate band discretionary trust.

On Bob’s death his entire estate (£650,000) will pass to the nil rate band trust. Mavis is included as a beneficiary of the trust so can benefit from funds if required at the discretion of the trustees. There is no inheritance tax liability on Bob’s death because of the nil rate band and transferable nil rate band available to his estate (his own nil rate band and the transferable nil rate band from his late wife, Gill.)

On Mavis’s death her estate of £650,000 will also be free from inheritance tax because her executors can claim her own nil rate band and the transferable nil rate band from her late husband, Jim. Hence there would be no inheritance tax on the death of either Bob or Mavis.

Mavis’s estate is left to the two children and the trustees of the discretionary trust could then decide to wind up that trust and appoint the assets to the two children.

Please note: There would be a small inheritance tax charge on the discretionary trust, which will vary depending on how long the trust runs for. In the example, if the trust was wound up shortly after Mavis’s death this charge would be approximately £4000. This would still mean an overall inheritance tax saving of approximately £256,000!

It should also be noted that this approach could have saved significant tax even if only one of them had previously been widowed (whichever one of them died first).

It is also the case that there are other reasons why the first of them to die might want to leave some or all of their assets to some form of will trust, e.g. to protect the intended inheritance of their own child. These issues are not considered here for simplicity but you can contact us to discuss any of these issues.

Standard nil rate band has been frozen until at least April 2026

The amount of the standard nil rate band has been frozen at its current level (£325,000) since 6 April 2009 and the government has announced that it will remain at that level until at least 5 April 2026.

Many married couples do not use the nil rate band on the death of the first of them to die, taking advantage of the transferable nil rate band. However, the freezing of the nil rate band means that the benefit of the transferable nil rate band can often be eroded by inflation. A nil rate band trust can avoid this erosion so could save tax on second death (assuming the nil rate band does not increase significantly in future).

Example 3:

Tony dies in 2021 leaving his entire estate to his wife, Georgina. This includes an investment portfolio worth £325,000 (which Tony was advised had strong growth potential). Neither of them has previously been widowed and their full nil rate bands of £325,000 are available.

Georgina dies in 2025 leaving a chargeable estate of £1.5 million, which is inherited by their children. This includes the investment portfolio she inherited from Tony, which is now worth £425,000.

While the investment portfolio has grown by £100,000 since Tony’s death (and so will increase the inheritance tax charge on Georgina’s death), the nil rate band remains unchanged.

Example 4:

The facts are as per Example 3 except that Tony leaves a nil rate band discretionary trust in his will. After his death the decision is taken to fund the trust by transferring the investment portfolio to it. Under the terms of the trust, Georgina can benefit if required at the discretion of the trustees. The portfolio is left in the trust.

The £100,000 growth on the investment portfolio is now held in the trust and is outside of Georgina’s estate for inheritance tax. This will achieve an inheritance tax saving of £40,000 compare to example 3. There would be some capital gains tax issues to consider.

Clawback rules

In 2017 the Government introduced an additional nil rate band for people who leave an interest in their home to certain qualifying beneficiaries (including children). This is known as the residence nil rate band. The rules for residence nil rate band are very complex so specialist advice should always be taken.

One point to note is that the residence nil rate band starts to be clawed back once your estate exceeds £2 million. The clawback rules are very complicated, but will eliminate residence nil rate band altogether, once the estate reaches a maximum of £2.7 million (depending on your circumstances, residence nil rate band could be eliminated before that level). Assets that qualify for business property relief or agricultural property relief are included when working out whether clawback applies.

Some married couples can reduce or even eliminate the impact of the clawback by using a nil rate band discretionary trust.

Example 5:

Martha and Henry are married and have a combined estate of £2.7 million, divided equally between them. Neither of them has previously been widowed and both have their full nil rate band of £325,000 available. Their estate includes their home worth £900,000. On Marta’s death in 2018 she leaves her entire estate to Henry. Henry dies in 2021, leaving his estate to their two children.

Because Henry’s estate (including the assets inherited from Martha) is at the maximum clawback threshold, no residence nil rate band applies.

Example 6:

The facts are the same as example 5 except that Marta leaves her available nil rate band to a discretionary trust. Henry’s estate is now worth £2.375 million, meaning that only a partial clawback of the residence nil rate band applies. Henry’s executors will be able to claim a residence nil rate band of £187,500, saving inheritance tax of £75,000.

Please note: The impact of the residence nil rate band clawback rules will become more widely felt over the next few years following the government’s decision to freeze the clawback threshold at £2 million until at least 6 April 2026. Many estates will become subject to a full or partial reduction in the residence nil rate band assuming asset values rise in the interim. Again, a nil rate band discretionary trust can mitigate this in appropriate circumstances by keeping down the value of the survivor’s estate.

Downsizing relief

Residence nil rate band may not be available (or fully available) where you sell your home. A common example is where elderly clients sell their home and leave the property market altogether or downsize late in life to funds care needs.

Where you sell your home or downsize on or after 8 July 2015, there is an alternative relief called downsizing relief which may be available instead of or alongside any remaining residence nil rate band. However, the rules for this are extremely complex and you should take advice to make sure it will be available. The £2million clawback threshold mentioned above, also applies to any downsizing relief so, again, there are opportunities to reduce or eliminate the impact of clawback in appropriate cases.

Impact of equity release on nil rate band

Decisions about equity release or other borrowing secured on your home can impact on the amount of residence nil rate band available. It’s important to take both legal and wealth management advice when making decisions about your home, where your estate is or may be subject to inheritance tax.

French Trust Rules: How to prevent your Family Trust from being undermined

Posted on 10 May 202123 March 2025 by Sarah O'Sullivan

Many English trusts have a connection with France, often because they own French assets like a holiday home or involve beneficiaries, trustees, or settlors residing in France. Understanding how French trust rules apply is crucial to avoiding unexpected tax liabilities and legal complications.

Understanding French residency and its impact on Trusts

A person is generally considered a French resident for any calendar year in which they spend 183 days in France, even without a permanent home there. Additionally, a person may be deemed a French resident if their main home is in France. This makes it easy for an English trust to inadvertently acquire a French connection, particularly if there are numerous beneficiaries.

Why legal expertise matters

Navigating Anglo-French legal matters requires specialised knowledge. Sarah Walker offers expert assistance in preparing French Wills, advising on French estate and inheritance tax planning, and handling trusts with French assets.

What is a Trust?

A trust is a legal structure used in England and other jurisdictions to allow designated individuals (trustees) to manage assets for the benefit of others (beneficiaries). However, trusts are not recognized in the same way in France. Since 2011, France has imposed tax regulations on foreign trusts connected to the country, applying a broad definition of what constitutes a trust.

How English Trusts can acquire a French connection

Here are some common scenarios where English trusts may become subject to French regulations:

Case study 1: The Discretionary Trust

Isobel Turner established the Turner Family Trust in 1989. It’s a discretionary trust with her children and grandchildren as intended beneficiaries.
In 2019, Isobel’s great-nephew Zak spent eight months working in France and became a French tax resident.
Despite Zak having a minimal likelihood of benefiting from the trust, its connection to France could trigger French reporting and tax obligations.

Case study 2: The Will Trust with French Assets

Joseph, a UK resident, creates a Will trust for his wife and children, including his French holiday home.
Upon his death, the trust will fall under French regulations due to the presence of the French property.
A separate French Will could have bypassed these issues.

French Trust regulations and compliance

Foreign trusts connected to France must comply with strict reporting requirements, including annual declarations to the French tax authorities. Additional declarations are required if the trust is modified or terminated.

Non-compliance penalties:

Fines of €20,000 or 12.5% of the trust’s total assets.
French authorities can investigate up to 10 years of past non-compliance.
Severe cases can result in criminal sanctions, including up to 5 years in prison and a €500,000 fine.

French wealth tax and inheritance tax

Trusts may be subject to the annual French wealth tax at 1.5% of worldwide assets if the settlor or beneficiaries are French residents.
French inheritance tax may also apply upon the settlor’s death or when assets leave the trust.
Income distributed to French residents is subject to French income tax.

While the UK-France double tax treaty may offer relief, this remains a complex area requiring specialised legal advice.

How to avoid the French trust regime

To mitigate the risk of French trust rules applying to your trust, consider these proactive steps:

Create a separate French will: This ensures French assets are dealt with under French law without interfering with your English will.
Avoid trusting French assets: Unless absolutely necessary, consider other estate planning solutions for French properties.
Exclude French residents as beneficiaries: Keep French residents off the beneficiary list unless unavoidable.
Choose non-French trustees: Appoint trustees who are not French residents to prevent further tax complications.
Seek legal advice before relocating: If a beneficiary or trustee plans to move to France, professional legal advice can prevent unforeseen tax exposure.

Do other countries have similar rules?

Yes. While French trust rules are well-known, other countries may also impose stringent regulations on foreign trusts with local connections. It’s vital to seek legal advice for any cross-border estate planning.

For personalised guidance on managing trusts with French connections, contact Sarah Walker . With her expertise in Anglo-French legal matters, she can help ensure your trust remains compliant and tax-efficient.

One farming family, over 30 years of trusted legal and financial advice

Posted on 12 April 202129 March 2025 by Sarah O'Sullivan

For over three decades, Tees has provided expert legal services to multiple generations of the Miller* family, a prominent agricultural family with extensive farming, land and property interests located across several English counties.

Our senior partner and specialist in rural succession and estate planning, Catherine Mowat, has worked closely with the Millers for many years, helping them capitalise on opportunities for efficient estate planning and take advantage of valuable Inheritance Tax reliefs.

Alongside Catherine’s team, our Commercial Property, Residential Property, Commercial and Wealth Management teams have worked together collaboratively in order to help the Miller family effectively manage their business and property interests.

Passing assets on to the next generation

Catherine has worked extensively with the Millers over a number of years to put in place comprehensive arrangements that will enable more senior family members to pass on their assets effectively to future generations, whilst minimising the Inheritance Tax (IHT) payable on their estate.

The family were advised to make substantial lifetime gifts to their children and grandchildren, enabling assets to be passed on to younger generations in a controlled way.

How does Inheritance Tax (IHT) work?

IHT is a tax on the capital value of assets (including money, property and possessions) either when somebody has died or on some gifts made during lifetime. On death, it is generally payable at a rate of 40% on all assets over the value of £325,000, although there are exemptions and reliefs that can be used to lessen the amount due. Another way of reducing the IHT payable on your estate is to make lifetime gifts. If you make gifts more than seven years before you die, there will usually be no IHT due on these gifts on your death. If tax does arise, only gifts given less than three years before you die attract the full 40% IHT rate, making lifetime gifts an excellent opportunity for passing on assets to minimise tax.

These lifetime gifts also caused the estate value belonging to the children to rise, increasing their IHT liability. Here, our Wealth team stepped in to help set up suitable life insurance arrangements, written in trust to minimise the impact of a significant tax bill.

Why should I write my life insurance policy in trust?

Writing your life insurance in trust is a way to avoid paying IHT on the eventual payout. When you place an asset into a trust, you essentially give up ownership of that asset to the trust and appoint trustees to oversee it (this can be a solicitor, like Catherine, or somebody else). As the assets (in this case, the life insurance policy) don’t officially belong to you, they aren’t classed as being part of your estate and are therefore not subject to IHT.

Catherine has also worked with the Millers to draft essential estate planning documents such as Wills and Powers of Attorney, and acts as a trustee for the various trusts within which the family’s business and property assets are held. Her many years spent advising this family have enabled her to build a strong relationship with the Millers, bound by mutual trust and respect.

Taking advantage of Inheritance Tax (IHT) relief

Over the years, our Wills, Trusts and Probate team has worked closely with the Millers to ensure their entitlement to valuable IHT reliefs. For example, Catherine’s advice has enabled the family to take full advantage of Agricultural Property Relief (APR) on their eligible assets.

What is Agricultural Property Relief (APR)?

APR allows farming families to pass on agricultural property at a reduced or 0% rate of IHT, either during a person’s lifetime or in their Will. To apply for APR, the land or property must have been owned for at least seven years, or occupied for two years and must be used for growing crops or rearing animals, or take the form of farm buildings, cottages or houses. It does not apply to farm equipment or machinery, derelict buildings, harvested crops or livestock. APR can be due at 100% or 50%, depending on the circumstances.

Catherine also regularly reviews the balance of the Millers’ business activities to ensure that no entitlement to Business Relief (BR) is lost, by using the ‘Balfour’ test.

What is Business Relief (BR)?

BR allows business owners to pass on certain business assets at a reduced or 0% rate of IHT, either while they are still alive or via their Will. The owner must have owned the assets for at least two years before they died for them to be eligible. BR is due at 100% for:

A business, or interest in one
Shares in an unlisted company

It is due at 50% for:

Shares controlling over 50% of the voting rights in a listed company
Land, buildings or machinery owned by the deceased and used in a business in which they were a partner or controlled
Land, buildings or machinery used in the business and held in a trust the business has the right to benefit from

To be eligible for BR, a business must also be classed as a predominantly trading business. However, many farms are becoming increasingly diversified, with activities such as cottage rentals and holiday lets shifting the balance from trading to investment.

Catherine used the Balfour test to assess the Millers’ farming business and used the results to advise the family on achieving the best balance between trading versus investment activities within the farming partnership for BR purposes.

Strategic land and property solutions

Our Commercial Property team regularly steps in to assist the Miller family in matters relating to the lease or sale of land and properties, which include a range of sites with commercially let units, and other strategic deals such as granting options. Rural specialists within our Commercial Property team will negotiate and facilitate these various land transactions.

An example of the type of planning advice we offer might be in relation to land owned by a family trust on which planning permission has been obtained for development. In this situation our Corporate team would step in to advise on the incorporation of a ‘freezer’ company.

The team would also prepare bespoke articles of association, ‘freezing’ the value of certain interests in the company in order to cap ownership. This ensures that the growth and value of the land will be passed on to the next generation tax-efficiently and limit their IHT liability.

What is a ‘freezer’ company?

Also known as a family investment company (FIC), a ‘freezer’ company is essentially a private limited company whose shareholders are all family members. Commercial solicitors can help the family prepare bespoke articles of association that set out the rights and interests each party holds within the company. For example, the parents can set themselves up as voting shareholders – thus maintaining control over the company – but ‘freeze’ the value of their interests in the company to cap their ownership.

Meanwhile, the children can be non-voting shareholders but own the majority of the shares, allowing the growth and value to pass on tax-efficiently to the next generation. This makes ‘freezer’ companies an ideal vehicle for intergenerational wealth management, allowing assets to be passed on during your lifetime whilst still retaining control of them. If you live for more than seven years after setting up the company, no IHT will be due (according to the rules of lifetime gifting).

A full- service firm rural families can depend on

For over a century, Tees has been a trusted partner to farming families like the Millers, helping them pass the family business from generation to generation. In this time, our agricultural specialists have developed a unique understanding of the challenges facing the rural community.

From tailored business advice to passing your land and assets tax-efficiently to the next generation, our specialist agricultural lawyers can help you navigate the complex relationship between business, land and family interests.

*Please note that the family’s name has been changed for anonymity.