It is common knowledge that there is a potential inheritance tax liability for gifts you have made in the last 7 years before your death. Gifts include cash, property, shares, vehicles, household and personal belongings. It also includes any monies lost when you sell something for less than it is worth.

There is no inheritance tax due on any gifts you give if you live for seven years after giving them (unless the gift is part of a trust). This is known as the seven-year rule.

If you die within seven years of making a gift and there is Inheritance Tax to pay (only if the gifts are in excess of your £325,000 allowance), the amount of tax due depends on when you gave it. The inheritance tax rate is 40% for gifts made in the three years before your death and for those made three to seven years before your death, they are taxed as per below on a sliding scale known as ‘taper relief’.

Years between gift and death

Rate of tax on the gift

Years between gift and death Rate of tax on the gift
3 to 4 years 32%
4 to 5 years 24%
5 to 6 years 16%
6 to 7 years 8%
7 or more 0%

 

Please note that any gifts you make that you are still benefiting from such as continuing to live in the house you have gifted, will form part of your estate for inheritance tax purposes.

1. Spouse or Civil Partner Exemption

Any gifts made between spouses or civil partners, provided they live in the UK permanently, are exempt.

2. Charity and Political Party Exemption

There is no inheritance on any gifts made to charities and political parties.

3. Small Gift Allowance

You may make gifts of up to £250 to as many recipients as you wish in each tax year without needing to keep records. If any individual receives more than £250, the whole value of the gift must be taken into account. Additionally, any Christmas or birthday gifts you give from your regular income are exempt from Inheritance Tax.

4. Wedding or Civil Partnership Allowance

You can give £5,000 to a child and £2,500 to a grandchild or great-grandchild and £1,000 to anyone else who is getting married or entering a civil partnership in each tax year.

5. Annual Allowance

You have an allowance of £3,000. Gifts to one, or more, recipients to a total value of £3,000 will not reduce your Inheritance Tax allowance or be subject to the seven-year rule. For example, you could give one child/person £3,000, or you could give your two children/people £1,500 each and this will not count towards your inheritance tax allowance.

If you have not used your allowance for the previous tax year you can carry forward your unused allowance for one year only. Any unused allowance not carried forward will be lost. Therefore, if you have not used an allowance for the last two tax years you can gift a total of £6,000 away up until the end of the tax year (5th April). Then on 6th April you can also use your new allowance of £3,000.

If the value of all gifts in a tax year exceeds the annual allowance, the excess will reduce the amount of tax-free allowance available for your estate.

6. Gift out of Surplus Income

If you have a good pension and investment income and do not spend all of your income which means that it is just accumulating as capital, then you can also gift this income in addition to your annual allowance. You will need to keep careful records of your outgoings to show your surplus and the amount of surplus that is gifted.

It is important to keep a detailed record of the gifts you have made (what you gave, how much you gave/the value, when you gave and to whom) so that the appropriate exemptions/allowances can be used to minimise any inheritance tax liability on your death.

Who pays the inheritance tax (IHT) the giver or receiver?

In the majority of cases where someone has died and the assets in their estate exceed the allowance for their circumstances, then the estate will pay the inheritance tax. This means that the Executors (if there is a will) or Administrators (if there is not) are responsible for organising the payment of IHT to be made to HMRC. The IHT is generally paid directly from the bank account, or other qualifying assets, of the deceased.

Who is liable for IHT?

One of the historical issues around this problem is that a large amount of IHT has to be paid before a Grant of Probate or Letters of Administration (if there is no will), is issued by the Court. If there are no liquid funds in the estate, for example just property and no cash, HMRC will expect the Executors/Administrator’s to obtain a bridging loan to pay the initial amount so that the Grant can be issued and the property in the estate sold. If this is not possible in exceptional cases HMRC will issue what is called a Grant on Credit. This is very technical and something which one would need to take specific legal advice on. The IHT owed is then repaid as soon as the property in the estate is sold.

However, there can be a trap with the payment of IHT, whereby you will be personally liable for the tax, of which many people are unaware. If the deceased made lots of gifts during the seven years prior to their death and these exceed the deceased nil rate band of £325,000, then the recipient of the gift is liable to pay the IHT. This can catch people out who have received gifts in the years previous to death and all the money has been spent. It can be difficult to then find 40% of the value of a gift which would be due to HMRC at that stage.

What is a gift for IHT purposes? This can be cash, investments, property, cars, jewellery, art, furniture and the list goes on. Anything which has value and has the effect of reducing the value of the estate of the person making the gift is a gift for IHT purposes.

Over the years I have calls from many clients asking if they can give their house to their children but remain living in the property. This is an absolute no no as HMRC will still consider that asset to be part of the deceased estate and they will pay IHT on the full value, despite paying for the transfer and leaving themselves vulnerable with no security of tenure within their own home. We call these types of gifts, gifts with reservation of benefit, and even if the transfer was made 20 years ago or more, you cannot eat your cake and have it too.

Do you pay tax on inherited money in the UK?

Inheritance tax, deceased estates and lifetime tax planning are complex areas. There are many solutions available and it is important to consider all of the taxes in turn before deciding to make a gift or giving money into a trust. We have a very experienced team on hand to advise and plan on all the aspects I have mentioned above and can help with as much or as little as you require.

My advice? Ensure that your affairs are in order with proper planning to reduce any nasty surprises later down the line! Contact us today to find out how we can help.

Legal routes available

Often grandparents are closely involved in their grandchildren’s lives and upbringing, and as a result they are often the first port of call when the parents are having difficulties or are struggling to care for the children themselves.

Child Arrangement Orders

The term ‘custody’ no longer exists in relation to Orders for children to live with a specific person. Under section 8 of the Children Act 1989, a type of Child of Arrangement Order called a ‘live with’ order can be applied for which determines, as the name suggests, the individual(s) with whom a child should live.

Special Guardianship Orders

Alternatively, Special Guardianship Orders can be obtained under section 14A(1) of the Children Act 1989 in certain circumstances and were introduced to bridge the gap between Child Arrangement Orders and adoption as they provide a stable and permanent home to a child without legally severing the ties to their birth parents. Sometimes this makes it a more suitable approach.

What is required to apply for Orders?

If grandparents wish to apply to the Court for orders in relation to their grandchildren, it is compulsory that they first attend a Mediation Information and Assessment Meeting (MIAM) with a qualified family mediator, to see if matters can be resolved using alternative dispute resolution, avoiding the need for Court proceedings. Where the parties are unable to reach an agreement, the mediator will issue an FM1 form which must be sent to the Court with applications. Grandparents will be exempt from attending a MIAM if emergency proceedings have been issued, or the Local Authority is issuing care or supervision proceedings in relation to the children.

Do I have an automatic right to apply to Court?

In most circumstances, grandparents do not have an automatic right to apply to Court for orders concerning their grandchild, and it is likely that the permission of the Court will need to be sought.

However, there are exceptions to this rule, and in the following circumstances, grandparents do not need to apply for permission of the Court first:

  • Where the grandparent is already named in a Child Arrangements Order as the person with whom the child is to live.
  • Where the child has lived with the grandparent for at least 3 years, not necessarily continuously, but not more than 5 years previously. Residence with the grandparent must not have ended within three months of the application.
  • Where you are a relative and the child has lived with you for at least 12 months immediately prior to your application.
  • Where there is a Child Arrangements Order already in force and the grandparent has the permission of each person who is named in the order as a person with whom the child should live.
  • The grandparent has the permission of those who have Parental Responsibility for the child (if any).
  • The grandparent has Parental Responsibility, for example, because they are named in a Child Arrangements Order as a person with whom the child is to spend time, but they are not named as the person with whom the child should live.

If you do not fall into one of the above categories, you would have to make an application to the court for permission to apply.

Who has Parental Responsibility priority?

All birth mothers automatically have Parental Responsibility for their children (unless the children have been adopted). Having Parental Responsibility gives someone the ability to make decisions in relation to the childs schooling, medical treatment etc. Parents who are married at the time of the birth, or subsequently marry, will both acquire Parental Responsibility, as do those who are named on a child’s birth certificate since 6 April 2009.

Grandparents cannot make stand-alone applications for Parental Responsibility. In the event the Court makes a ‘live with’ Child Arrangements Order or a Special Guardianship Order in favour of a grandparent, they will often make a Parental Responsibility Order at the same time, without the need for a separate application.

Special Guardianship vs ‘live with’ Order

A Special Guardianship Order is more secure than a ‘live with’ Child Arrangements Order because lasts until the child is 18, and a parent will need the permission of the Court to apply to have the Special Guardianship Order discharged. A Child Arrangements Order, on the other hand, will come to an end when the child reaches 16.

A Special Guardianship Order does not bring the legal relationship between the parent and their child to an end, and Parental Responsibility will not be removed from the parents. Special Guardianship Orders give Special Guardians an enhanced form of Parental Responsibility which can be exercised to the exclusion of others, save for specific exceptions. For example, Special Guardian’s cannot act independently of parents with Parental Responsibility in matters where their permission is required by law, for example, sterilisation or circumcision of the child, adoption proceedings, change of the child’s name or removing the child from the UK for more than 3 months.

Permission to apply for Child Arrangement / Special Guardianship Orders
If an application to the Court for permission to apply for a Child Arrangements Order or Special Guardianship Order is made, notice must be served on anyone who has Parental Responsibility for the child, which in certain circumstances can include the Local Authority.

What is a Viability Assessment?

Where there are serious concerns about the parents’ care of the child, or there is ongoing care, emergency protection or supervision proceedings, the Local Authority will often carry out an early Viability Assessment of grandparents, to assist in their decisions about who should care for the child. The Court will place significant weight on such assessments. Grandparents can apply for the leave of the Court to make an application, and to be joined in any ongoing proceedings, in order for the Court to consider their application for Special Guardianship.

What is assessed?

For the Court to grant permission to a non-parent to apply for a ‘live with’ Child Arrangements Order or Special Guardianship Order, there must be compelling reasons to depart from the presumption that the child will be better cared for by a biological parent. The Court takes into account the welfare of the child, but at this stage it is not their paramount concern. The Court must also consider:

  • The nature of the application being made.
  • The grandparent’s connection with the child.
  • Any risk that the application will disrupt the child’s life to such an extent as to cause the child harm.
  • Where the child is looked after by the Local Authority, what plans are in place for the child, and the parents’ wishes and feelings. Once permission to apply is granted
  • If the Local Authority is not already involved with the children, once you have the permission of the Court to make an application for a Special Guardianship Order, you must serve the Local Authority with notice of your intention to apply, three months in advance of issuing it at Court. This notice triggers the Local Authority to prepare a detailed report, without which a Special Guardianship Order cannot be made.

The report will deal with background information about the child, family and prospective Special Guardians, the child’s wishes and feelings, their cultural and religious upbringing, and arrangements for contact with relatives and other relevant people. The report must take account of any harm the child has suffered, or the risk of harm posed by the parents in future. The report also considers the implications for the child, alongside the child’s current and historic relationship with the proposed Special Guardian, and will assess the merits of making an Order. The report will also need to comment on the parenting capacity of the proposed Special Guardian and how the proposed order might meet the child’s long-term needs. The report will provide the Court with recommendations.

The Local Authority must also provide support services, such as respite care, counselling, and financial support for Special Guardians, and must make an assessment of what is needed and what can be provided. These assessments can be challenged, and so it is important for potential Special Guardians to obtain legal advice if they are unsure whether the support offered to them by the Local Authority will meet their long-term needs. In some circumstances Local Authorities can offer alternatives to Special Guardianship Orders, such as kinship fostering arrangements.

If you would like further advice or information concerning grandparents’ rights our specialist Family Team would be pleased to hear from you and can be contacted on 0800 84 94 101 or complete our contact form and we will call you back.

Is an employee entitled to notice pay if they have been on long term sick pay?

Our clients question

We have an employee who has unfortunately been off sick for a long time. He has exhausted their entitlement to sick pay, and we have received a medical report which confirms he will not be fit to return to work for the foreseeable future. We have no suitable redeployment options available. We are currently discussing the situation with him, and he has asked us to confirm what he would be entitled to if he is dismissed due to ill-health, particularly bearing in mind that he has exhausted his sick pay entitlement. Would he be entitled to notice pay in this situation?

Answer

The employee will be entitled to notice in accordance with his contract, or the statutory minimum notice if that is greater. The statutory minimum notice required by an employer is 1 week for each year of service, up to a maximum of 12 weeks. So, for example, if a contract of employment says that someone is entitled to 4 weeks’ notice, but they have been employed by the employer for 6 years, they will be entitled to 6 weeks’ notice.

However, the position regarding notice pay when someone is dismissed due to ill-health in these kinds of circumstances can be complicated, because it isn’t necessarily straightforward whether they should receive pay for their notice period or not.

Logic suggests that if the employee has used up their entitlement to sick pay, then they should not be paid for the period of notice – after all, if the employer did not dismiss and simply left them as an employee, then they would not get paid. However, the law is not that logical or simple! Under the legislation, an employee in this situation is entitled to be paid for notice of dismissal given by their employer if their notice period is either the statutory minimum, or up to 6 days more than the statutory minimum. However, if their notice period is 1 week or more greater than the statutory minimum, they are not entitled to be paid during their notice period.

Here are some examples help to illustrate the workings of this strange statutory provision:

An employee has a contract of employment which provides for 1 month’s notice. The employee is dismissed after 30 months due to ill health and his entitlement to all sick pay has been used up. He is therefore entitled to statutory minimum notice of 2 weeks (2 full years’ service). His contractual notice at 1 month is more than 1 week greater than this, so the employee is not entitled to be paid.

The same employee has 4 years’ service when he is dismissed. His statutory notice is now 4 weeks, so he is entitled to be paid as his contractual notice of 1 month is less than 1 week more than his statutory notice.

An employee with 20 years’ service has a contract of employment which provides for 3 months’ notice. She is dismissed for ill health and her entitlement to all sick pay has been used up. Her statutory notice is 12 weeks (the maximum), so her contractual notice at 3 months is 1 week more than this. She is therefore not entitled to be paid.

The same employee has a contract which provides for 1 month’s notice, or one week for each year of service up to a maximum of 12 weeks, whichever is the greater. Her notice entitlement is therefore 12 weeks, which is the same as her statutory notice. She is therefore entitled to be paid.
It is worth noting that the position may be different if the employer makes a payment in lieu of notice, so if you are considering doing that then it is best to take advice (we can help!).

So why was the legislation drafted in this way? We have no idea! The rules have been like this for many years, and we have never understood the logic behind them, nor have we read anything which shines any light on the thought process (if there was one!) which went into the drafting.

Please do contact our Employment Team if you need assistance with any aspect of employment law.

Please note that this update is not intended to be exhaustive or be a substitute for legal advice. The application of the law in this area will often depend upon the specific facts and you are advised to seek specific advice on any given scenario.

Family life is everything to all of us and when a part of that breaks down, whether it be a marriage breakdown or separation from a partner or problems regarding arrangements for children; we are here to help.

We understand that making the initial contact with a law firm at what is already an emotional time can be a difficult decision to make. We want to ensure that from the very start, you feel well informed about the process and what steps we take to give you the best advice possible from the outset up to the conclusion of your matter.

Where are Mayo Wynne Baxter located?

Our Team is based throughout Sussex. We have offices in Eastbourne, Seaford, Brighton, Lewes, East Grinstead, Peacehaven, Storrington and Crawley.

Due to the Pandemic face to face appointments have been replaced with telephone or zoom appointments over the past 18 months. However, face-to-face appointments will be available, if preferred. Some people will prefer online meetings as it is often easier to fit around work or childcare and we are still very much open to facilitating meetings in this way.

How can you contact us?

Email – enquiries@mayowynnebaxter.co.uk

Contact form – enter your details and we will call you back within the hour

Webchat – Pop’s up when you are on the website in the bottom right corner – speak to a real human, no robots!

Telephone – 0800 84 94 101

All initial enquiries are passed to one of our paralegals who have an understanding of the law and who will be able to take the relevant details from you and arrange an appointment at a date and time to suit you.

Costs

One of the first questions new clients ask is how much the process will cost. We offer an initial fixed fee appointment at a fee of £250 plus VAT. The cost of the initial appointment will be confirmed to you by the paralegal when arranging the appointment with you. During the appointment the legal advisor will be able to provide you with a further estimate of costs based on the circumstances of your case. A guide to how much particular cases tend to cost from start to finish are published on our website.

Family Fees

The benefits of a Fixed Fee Appointment
Our fixed fee appointment is designed to give you a full overview in relation to all your options and ensure that you come away with the answers to any questions you may have about your particular circumstances. You will receive advice on where you stand legally to enable you to make an informed decision on how you wish to proceed. The appointment is likely to last 1 – 1.5 hours. We understand that after this appointment you may need time to go away and think about your options, or you may feel ready to instruct us so that we can help you resolve your matter.

We understand many people are reluctant to provide detailed information to a non-solicitor before their appointment, however, it often helps the solicitor to gain an understanding of each case and ensures more time is spent discussing the relevant issues and options during your meeting. We will also send you a pre-appointment questionnaire which you can choose to fill in if you want to provide some additional information.

Information we need from you:
To enable an appointment to take place our Paralegals require the following:

  • Contact details of all parties
  • Names
  • Addresses
  • Dates of birth of both parties

All information provided to us is completely confidential. We will need to do a conflict check to ensure there is no conflict, i.e. we have already spoken to your spouse/partner.

Background Information

Our paralegals will ask you for some background information in relation to the advice sought. It is helpful to provide as much information as possible at this stage as the information provided will enable the advice you receive to be tailored to your specific needs.

Setting up an appointment

The paralegals will arrange an appointment for you at a date and time to suit you. Appointments can take place over the telephone, via Zoom and if appropriate, face to face.

A confidential file will be opened for you and our Database Team will email you a welcome letter which sets out our terms and conditions together with our anti money laundering identification policy.

All clients are required to provide us with identification documents which must be dated within three months, together with confirmation of instruction before any appointment can take place. This will be emailed to you prior to your appointment.

Once a file is opened an email will be sent confirming the date and time of appointment together with details of how to make payment prior to the appointment.

If you have been recommended to one of our team, please let us know at the outset and every effort will be made to arrange an appointment with that specific legal advisor.

We do not underestimate how difficult making that initial contact with us is, whether it be in relation to seeking advice in relation to divorce, separation from a partner or difficulties in relation to arrangements for children following a breakdown in a relationship. All our paralegals have vast experience in identifying the issues you may have and will show empathy and understanding at the outset to ensure the process is as seamless as possible.

We want to ensure we look after all our potential clients as best we can and to ensure we are doing that; we commit ourselves to being ‘mystery shopped’. This provides us with the feedback we need to ensure we always offer a high level of service, whether an existing client or not.