Insight ~ Page 2 Insight ~ Page 3

Probate fees: a bullet dodged?

Along with a number of the other measures in the budget, the government has dropped its

controversial hike in probate fees. The measures would have seen these fees rise

from £155 to as much as £20,000 for the highest value estates.

However, we may not be out of the woods yet. In abandoning the

fee hike, the government said that there was too little parliamentary

time before the election to push it through. They have not

yet said whether the reforms will be abandoned for

the long term.

Probate fees are payable to the government when

someone dies. The money is sent in to the local probate

registry along with the probate form, inheritance tax

form, death certificate and the will.

It was originally £155 or £215

depending on whether a solicitor

was involved.

Under the proposed changes, the

old system would have been

replaced by a sliding fee scale

linked to the value of the estate. Estates worth between £50,000 and

£300,000, for example, would have paid fees of £300, but this would

have risen to £20,000 for those estates value at more than £2m.

Although estates of over

£2m are still comparatively

rare, around 2.5m people

own properties worth

more than £300,000 and

would therefore have seen

a four-fold increase.

The new system was

labelled as a stealth tax by

many, but the government

argued it would raise

extra money necessary for investment in the court and tribunals

services. However, critics argued that as the fees needed to be paid

before relatives would receive any money from the estate, it could

leave some families significantly out of pocket.

If the changes go through eventually, there is relatively little relatives

can do to minimise the cost. However, it does argue for good

inheritance planning to minimise your tax bill elsewhere.

Both groups have a full

suite of multi-asset,

equity, property and

fixed income teams

and there will undoubtedly be some rationalisation.

These mergers can often cause concern for investors. In particular,

the disruption created can see key fund managers leave and prompt

weaker fund performance. David Cummings, head of equities at

Standard Life and managed two of its largest funds, announced

plans to leave just three days after the merger was announced. The

two groups have a rich pool of talented managers, but unplanned

departures will hurt.

While both groups have emphasised that the merger is not a sign

of weakness, it comes at a difficult time for the investment

management industry. Active management is facing a significant

challenge from the increasing popularity of passive investment and

fees are under pressure. The two groups reason that combining

forces will help them weather the storm.

Where our clients have

holdings in either group

we will be monitoring

them closely. If problems

emerge, we will ensure

that we find a more

appropriate home for your

investments. However, we

don’t believe it is the time

to panic just yet.

Two of the UK’s largest

investment management

groups are to join forces.

Aberdeen and Standard

Life are behemoths in the industry and many of our clients will hold

investments with one and/or the other. Together they will form an

£11bn investment powerhouse with around £660bn of assets under

management.

It has been billed as a ‘merger of equals’, and the board will be equally

divided between Aberdeen and Standard Life directors. Aberdeen

founder and chief executive Martin Gilbert will become co-chief

executive of the combined group with Standard Life's chief executive

Keith Skeoch. As the larger firm, Standard Life shareholders will own

around two-thirds of the enlarged group.

The combined group will be headquartered in Scotland. It will

continue to use the Standard Life brand for the pension market, where

it has greater recognition, while the two groups will continue to use

their existing brands in the investment area for the time being.

The hike in probate fees was not the only initiative in the Finance Bill to be set aside when the General Election was announced.

Around half of the initiatives in Chancellor Hammond’s first budget have been put on hold until after 8 June,

including cuts to the dividend allowance, an overhaul of the non-domicile rules and changes to pensions.

What has been postponed?

Cuts to the dividend allowance

The annual dividend allowance was due to be cut from

£5,000 to £2,000 from April 2018. The £5,000 allowance was

introduced in 2015 by then-Chancellor George Osborne, replacing the

dividend tax credit. The same Budget raised the rate payable on higher levels of

dividend income.

The £5,000 allowance had been welcomed by small and medium sized business

owners who took their profits as a dividend, but also by investors who generated

dividends outside a pension or ISA wrapper. It meant that investors could hold a

portfolio of more than £100,000 without paying tax on any income generated.

The cut from £5,000 to £2,000 would have hiked the tax bill for these people and

as such, its postponement is welcome.

The Reduced Money Purchase Annual Allowance (MPAA)

If you have already started taking your pension as a drawdown scheme, you are

limited in the amount of further contributions you can make to a pension.

This is designed to stop people ‘churning’ their pension and claiming multiple tax

reliefs. This is the ‘money purchase annual allowance’ and is currently set at

£10,000. This was due to fall to £4,000 from April 2018. Again, this has also been

postponed until after the budget.

Deemed Domicile Rule Changes

Rules were to be introduced from April 2017 to reduce the number of years people

considered ‘not domiciled’ can be resident in the UK before becoming considered

‘domiciled’. A person’s domicile has important implications for inheritance tax.

There were also plans to extend the scope of the domicile rules to apply to income tax

and CGT. This has now been deferred along with the other measures.

Digital returns

The Government has also delayed digitising the tax system. The ambitious plans

would have required small businesses to send digital records to the tax authorities

every three months. The delay was welcomed by tax experts who said more evidence

was needed from users testing out the new system.

What happens next?

While all these changes no longer form part of the condensed Finance Bill, the

government says they will be reconsidered once the new Parliament start and could

form part of the new Government's first Finance Bill.

While a delay is welcome, no-one should be counting any chickens...

Mega-merger

There will be overlapbetween the twogroups and it isthought that the newgroup may shed asmany as 1000 jobs. This would be aimedat cutting costs and losing under-performing fundmanagers.

£155is the typicalprobate fee now

£20,000

Proposed fee onestates over £2m

It is not knownwhether thischange of planis long term

The Finance Bill that wasn’t

The Government had already rolled back

on a number of initiatives, notably plans to

raise national insurance contributions for

the self-employed. Class 4 NICs were due

to increase from 9% to 10% in April 2018,

and to 11% in 2019, bringing it closer to the

12% currently paid by employees.

Chancellor Philip Hammond had come

under fire for the changes, which broke a

2015 manifesto pledge. However, his

official Commons statement said there

would be “no increases in National

Insurance rates in this Parliament”, which

leaves the option of re-introducing the

changes after the election.

With Parliament due to be dissolved on 3

May, the government said there was

insufficient time to get the Finance Bill in its

entirety on the statute book. This doesn’t

necessarily mean that the initiatives will be

abandoned altogether. At the time, Jane

Ellison, a Treasury minister, said the

government would legislate for the

postponed measures, “at the earliest

possible opportunity at the start of the next

parliament”. However, elections are

unpredictable and the result may change

the government’s priorities.

IMPORTANT NOTICE

The contents of this newsletter are intended to inform, not offer specific advice on your individual circumstances. If you think any of the points we have featured may be to your benefit, pleasecontact us for further advice. We cannot accept responsibility for any financial loss incurred as a result of reading and acting on this newsletter without receiving individual advice and our writtenendorsement. Our comments are based on our understanding of current tax and HMRC legislation which often changes.

Taking your pensions benefits early, including the tax free cash sum, can reduce the pension you will receive in retirement. Taking withdrawals may erode the capital value of the portfolio,especially if investment returns are poor and a high level of income is taken; this could result in a lower income if an annuity is eventually purchased. That high-income withdrawals may also not besustainable. Please note that income drawdown is not suitable for everyone and advice should always be sought before entering into such an arrangement as future pension income is notguaranteed as there is a reliance on investment returns and performance. The value of your investment will rise and fall in value depending on which portfolio you invest in and inflation can reducethe future value of your investment.

Churchill Investments plc is authorised and regulated by The Financial Conduct Authority

Insight ~ Page 4

Key issues in personal financial planning Spring 2017

Insight

Probate Fees..........................2

Mega-merger.........................2

What Finance Bill?..............3

Residence Nil Rate Band...4

In thisissue

The battle lines are becoming increasingly clear for June’s general

election. While the result is widely considered to be a foregone

conclusion, 2016 showed that the electorate can surprise. We see

three main areas for savers and investors to keep an eye on:

The pensions triple lockThe pensions triple lock looks set to be a key election issue. The lock guaranteesan increase in the state pension equivalent to inflation, earning increases, or 2.5%,whichever is the highest. The lock has been good news for pensioners, but iscontroversially expensive at a time when government finances are stretched andpensioner wealth has outstripped that of the working population.

The triple lock was introduced by the Coalition Government in 2010, designedto protect and increase the state pension. At that time, low inflation had seenpensioner incomes increase slowly relative to earnings. However, the policy hasbecome more and more expensive and the Office for Budget Responsibilityforecasts that it will cost the Exchequer around £15bn more than an indexationpolicy would have done by 2060.

Labour and the Liberal Democrats have committed to retaining the pension triplelock, while the Conservatives are weighing their options. They had previouslycommitted to retaining it only for the length of this parliament. At the same time,the Government has also said it will not respond to the Cridland review, whichrecommended that the triple lock be abolished and state pension age be raisedto 68, until the next parliament.

TaxationBefore the last election, the Conservatives promised no rises in VAT, nationalinsurance contributions, or income tax. It got into some hot water over this whenit announced plans to raise national insurance for the self-employed, and was forced to abandon its plans. Tax is likely to be a battleground in this electionas well.

While the Conservatives have made no commitments to increase taxation, theyhave made it clear that they will not reiterate the ‘no tax rises’ commitment madein the last election. Chancellor Philip Hammond has said that he wants ‘fullflexibility’ when it came to running the nation’s finances. Nevertheless, they havesaid that they remain committed to a lower taxation agenda.

Labour has said that it will put up tax for the wealthy, and indicated that this meantanyone earning over £80,000. There has been speculation that this may meanbringing down the limit at which the 45% taxation level kicks in (this is currently£150,000). This would hit those earning £150,000 by around £4,000 per year - a further £70,000 of income would be payable at the additional rate. Also underdiscussion is a 60% tax level, plus other taxes on savings and investments.

The Liberal Democrats, as ever, fall somewhere between the two. The party saysit will make the wealthiest pay their ‘fair share’ by clamping down on taxdodging and ensuring that unearned wealth is taxed more aggressively thanearned income.

BrexitOnly the Liberal Democrats have committedto fighting for Britain to remain in the singlemarket, “as a minimum”, saying that theBritish people voted ‘for a departure not adestination’. They also want to give the UK avote on the final terms of any Brexit deal.

Labour’s position is to accept that UK’srelationship with Europe must change, but itdoes not want a “reckless Tory Brexit”. It saysthat immigration should not be the toppriority, but building a new relationship withthe EU, “not as members but as partners”. It says it will scrap the existing Brexit whitepaper and lay out a different negotiatingstrategy.

The Conservatives position is looser, thoughit is thought that part of Theresa May’s reasonfor calling the election is to strengthen herhand in the Brexit negotiations and to preventher being forced from either side.

The greatest impact from this election willprobably be felt in indirect ways: A strongvictory for Theresa May would almostcertainly strengthen sterling and improvesentiment towards UK financial markets.Investors like certainty and with aConservative government, they know whatthey are getting. A Labour victory, in contrast,would bring uncertainty and may necessitatea significant re-think for many investors,exerting downward pressure on the currencyand markets.

Watch this space...

Election fever

For further informationOur website www.churchillinvestments.co.uk contains our regular newsletter Insightand other publications and articles of interest ~ it also provides access to online valuations.

Contact detailsTo arrange an appointment, or for further advice, please contact us on 01934 844444 or Email: info@churchillinvestments.co.uk

Churchill Investments plc, 9 Woodborough Road, Winscombe, North Somerset BS25 1AB

As the General Election approaches, the focus seems to be on tax risesrather than tax cuts. However, from this April it is possible to increasethe inheritance you can leave to your children by up to £80,000, risingto £140,000 by 2020. This is the new residence nil rate band,introduced by Chancellor George Osborne in 2015.

The main residence nil rate band is an allowance of up to £175,000

available for those who pass on their main residence to lineal

descendants such as children or grandchildren. This sits on top of the

existing nil rate band of £325,000 to create a £500,000 allowance for each

individual. It will ultimately allow parents to pass on a £1m house

to their children free from tax.

As well as the stipulation that the house must pass to lineal

descendants, the overall value of the estate must be below

£2m, after which the allowance is tapered.

However, there are a number of inheritance tax planning

strategies that can help keep an estate below the threshold.

‘Lineal descendants’ for the purposes of the residence nil rate band

include children (including adopted, foster or step children) and

grandchildren. That said, the property doesn’t necessarily have to pass

directly to them to qualify and the new allowance is still available if the

property is left via certain types of trust. However, the residence nil rate

band will be lost where the property is placed into a discretionary will

trust for the benefit of children or grandchildren.

It is worth remembering that you don’t

necessarily still have to own the

property at death to qualify.

There are rules designed to

help those who have

downsized or may have

sold their property and

moved into residential

care or with a relative since

8 July 2015.

If this applies to you, it is worth

some detailed financial planning.

The standard nil rate band is currently frozen at £325,000 until

April 2021. This can be used for all assets. The new nil rate band,

introduced this year, can only be applied to an individual’s main

residence. The additional amount will be phased in starting at

£100,000 this year, increasing by £25,000 a year until it reaches

£175,000 in April 2020.

As with the standard rate band, the residence nil rate band is

transferable between spouses on death. This means that the

allowance is not lost if the family home passes to the survivor on

first death (passing on assets to your spouse is exempt from

inheritance tax). Ultimately, after April 2020, a couple will be able

to benefit from a combined nil rate band of £1m (2 x £325,000 plus

2 x £175,000).

This applies even if the first spouse died some years ago, long

before the introduction of the new allowance. The allowance will

still be there to be transferred to the surviving spouse.

However, it is possible to lose the allowance - notably, when the family

home is passed to someone or something other than a lineal descendant or

if the estate is greater than £2m.

In detail

Planning options

The residence nil rate band will be reduced by

£1 for every £2 that the estate exceeds £2m.

As such, there will be no extra allowance available

on estates of more than £2.2m (£2.35m in 2020/21 when

the full allowance kicks in), though they will still retain the original

£325,000 allowance.

With this in mind, there may be steps you can take to reduce the value

of your estate to retain the extra nil rate band. This might be through

lifetime gifts, or schemes such as Discounted Gift Trusts or Loan Trusts

and using your pension tax efficiently. Again, there are financial

planning steps we can take to improve your position.

It is worth rethinking how you plan to pass on your wealth including the family

home in light of the new residence nil rate band; reviewing your will, for

example, or planning some lifetime gifts.

Tapering for highervalue estates

The Residence Nil Rate Band