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Family Asset Protection Trusts

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H M Revenue and Customs introduced compulsory registration of all trusts in September 2022. A number of our clients had been contacted by the companies who had advised on and set up, a Family Asset Protection Trust, asking them to arrange registration of their trust.

It has become apparent that many people are being advised by such companies to enter into these trusts at considerable cost believing that their property will be protected against inheritance tax and/or care home fees.

These companies are advising clients to transfer their property or cash into these trusts during their lifetimes and advising them that their property or cash would no longer form part of their estate and that the trust would then own them. The inference being that their value would not be taken into account on death for inheritance tax purposes or when moving into permanent care and calculating their contribution towards care fees.

However, local authorities are permitted to investigate a person’s financial history, including money transferred outright to another person or into a trust. The local authority can deem this to be deliberate deprivation of capital i.e. the transactions had been entered into specifically to reduce the value of a person’s estate. In such instances, the local authority can disregard the transfer and deem the person to still own those assets. The local authority have been known to look back into transactions up to 15 years prior to a person going into care for transfers. The long and short of it is that if the transfer had been entered into due to concerns over care fees, it will be deemed to be deliberate deprivation of capital.

In addition, if an asset has been transferred and the person retains some benefit in that asset i.e. they transfer their house but continue to live in it, they are deemed to have reserved a benefit in the asset. For inheritance tax purposes this is known as a gift with reservation of benefit, which does not reduce their estate for the calculation and its value is still taken into account.

Unfortunately, it appears these trusts, which often cost thousands of pounds, are not correctly explained to clients and they end up entering into what Age Concern describe as “a worthless piece of paper”. Sadly, they can also lead to future costs where the trust company are named as trustees and any changes are needed to the trust.

If you have any queries about Family Asset Protection Trusts or wish to discuss care home fees or inheritance tax planning, please contact our private client team.

Sarah Bruce, Legal Executive, Haverhill/Saffron Walden office
19 April 2023

Inheritance Tax and The New Residential Allowance

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The Inheritance Tax Allowance is still currently £325,000.00 per person. However in April 2017 a new allowance was introduced called the Residential Nil Rate Band. This allowance is currently £125,000.00 per person reaching the maximum allowance of £175,000.00 by the tax year 2020/2021.

If an estate is left to a spouse or civil partner then there is no inheritance tax payable because of spouse exemption. Therefore the allowance can transfer to the surviving spouse’s estate. On the death of the surviving spouse/civil partner his or her estate will benefit from an allowance of £325,000.00 plus £175,000.00 (if the death is after 2020) plus the transferable nil rate band and the transferable residential nil rate band which were not previously used of the same amount. This will give a combined allowance of £1,000,000.00 before inheritance tax is payable.

There are certain criteria required to be eligible for the Residential Nil Rate Band Allowance and Tapering Relief for estates of a certain value

For more information please contact our private client department.

Can Attorneys And Deputies Make Gifts?

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Does a Lasting Power of Attorney or a Deputyship Order provide an attorney or deputy with the authority to give away surplus assets of the donor in the hope of achieving an Inheritance Tax saving? In short, the answer is ‘no’.

A recent case in the Court of Protection has highlighted the issue of gifts made by a deputy acting under a Deputyship Order. The case concerned a widow of 92 years, (‘P’), who lived in a care home.  Her only daughter had predeceased her and P had inherited the whole of her daughter’s estate.  Two relatives were appointed as deputies to manage P’s property and financial affairs.

The deputies applied to the Court of Protection for retrospective authority for various gifts the deputies had made to themselves, their family, and friends.  It was found that over £230,000 had been given away (which amounted to 44% of the widow’s estate.)

The Court refused to grant authority for the majority of gifts and the deputies were held to be personally liable to P’s estate for the unauthorised gifts.  The deputies’ appointments were also revoked.

The Mental Capacity Act 2005 sets out the powers of an attorney acting under a Lasting Power in relation to gifts. The attorney can only make gifts:

  • ‘on customary occasions’ to persons (including themselves) who are related to or connected with the donor, or
  • to any charity to whom the donor made or might have been expected to make gifts,
  • and only if the value of each such gift is not unreasonable having regard to all the circumstances and, in particular, the size of the donor’s estate.

‘Customary occasion’ is defined as:-

(a) the occasion or anniversary of a birth, a marriage or the formation of a civil partnership, or

(b) any other occasion on which presents are customarily given within families or among friends or associates.

Deputies and attorneys should therefore understand that they only have very limited authority to make gifts.An attorney who wants to make gifts for purposes not authorised in the circumstances outlined above must apply to the court for permission.

For further information about Lasting Powers of Attorney please contact us on for expert and professional advice.

Charities and Your Will

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Christmas is seen as a time for giving so if you are thinking of making or updating an existing Will, have you considered leaving money to charity?

The Charity Commission has revealed that 35,000 people in England, Scotland and Wales who died in 2014 made donations in their Wills, benefiting more than 2,200 charities. Whilst this may seem like a large amount, more than 550,000 deaths were registered in England, Wales and Scotland in 2014. Working on these figures, it would therefore appear that roughly fewer than one in ten people leave money to charity when they die.

If you leave something to charity in your will, then it will not count towards the value of your estate. Furthermore, if you leave at least 10% of your net estate after any exemptions have been taken into account to charity, this cuts the rate of any Inheritance Tax you pay from 40% to 36%.

For more information, please contact our Private Client department for expert and friendly advice.

Inheritance Tax; Budget Changes

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The Chancellor has outlined a promise he says he could not fulfil in coalition. From April 2017, parents can pass £1m on to their children free of inheritance tax. A “family home allowance” worth £175,000 per person will be added to the existing £325,000 tax free allowance from April 6, 2017.

This means that individuals can pass on assets worth up to £500,000, including a home, without paying any Inheritance tax at all. The full benefit of the relief, however, will not be felt until the tax year 2020/21, owing to the fact that there will be a phasing in period of the additional relief from 2017/18.

George Osborne said: “The wish to pass something onto your children is the most basic, human and natural aspiration there is”.

Please follow this link to view the UK government’s latest document

Please contact us for further expert advice regarding.

Problem With Transferring Property To Family Members

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For many people their home is their only or main asset and such people are often concerned about that asset having to be sold in order to meet the costs of care. Often people seek to transfer their homes to third parties (usually their children) to avoid them being brought into assessment, and perhaps not surprisingly there are anti-avoidance rules to prevent such an arrangement being abused.

One businessman has recently found out the risks of transferring his property to his son the hard way when his son’s bankruptcy left the family’s substantial buy-to-let property portfolio exposed to his son’s creditors.

The son’s name appeared on the title deeds of numerous properties for which his father had largely paid. When the son was declared bankrupt, his creditors focused on the portfolio as a potential means of recovering what they were owed.

A judge found that a purported declaration of trust had been post-dated and that both father and son had given unreliable evidence in an attempt to protect what they viewed as family assets. The ruling meant that the portfolio formed part of the son’s property in bankruptcy and was available to his creditors.

If you would like further information about this topic, please contact us today for expert and professional advice.