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Investing Safely

Transferring an unused inheritance tax nil-rate band

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When it comes to inheritance tax (IHT) planning, one question we are often asked is, how to transfer any unused nil-rate band (NRB). Since 9th October 2007, it’s been possible to transfer any unused percentage of the NRB from a deceased spouse or civil partner to the surviving spouse or civil partner.

This transferable NRB is available to survivors of a marriage who die on or after 9th October 2007, regardless of when the first spouse died. In the case of civil partners, the rules are slightly different, and the first death must have taken place on or after 5th December 2005. This was the date when the Civil Partnerships Act received Royal assent in the UK.

If the first death in a marriage or civil partnership happens after the couple are divorced, then no transferable NRB is available. If the first death happened before 13th November 1974, then the full NRB might not be transferable. This is because the amount of the spouse exemption was limited before 1975.

The transferable NRB isn’t automatically applied, so it needs to be claimed. The time to claim is following the second death, not when the first spouse or civil partner dies. Claims are made using the HM Revenue & Customs form IHT402. There is a time limit for claiming the transferable NRB, which is generally two years from the end of the month in which the second spouse or civil partner died.

In order to claim, the executors or personal representatives will need to send form IHT402 and any supporting documents to HM Revenue & Customs. HM Revenue & Customs offer the following example to illustrate how the transferable NRB works in practice:

A spouse died when the threshold was £250,000. They left legacies totaling £125,000 to their children with the remainder to the surviving spouse or civil partner. The legacies to the children would use 50% of the threshold, leaving the other 50% unused.

On the death of the surviving spouse, when the threshold is £325,000, this would be increased by 50% to £487,500. If the surviving spouse’s estate isn’t worth more than £487,500 there’ll be no IHT to pay on their death. If it is, there’ll be IHT to pay on the value above that figure.

Introduced in April, the new residence nil rate band (RNRB) can also be transferred between spouses and civil partners. The unused percentage of the RNRB from the estate of the first spouse or civil partner to die can be claimed following the second death. Unlike transferring the unused NRB, with the RNRB, the transfer can take place regardless of when the first death happened. In fact, the unused percentage of the RNRB can be used even if no residential property was owned at their time of death.

There will always be an additional 100% RNRB, with the exception of cases where the first spouse or civil partner’s estate was valued at more than £2million.

One last thing, it’s been said that the happiest mourner at a rich person’s funeral is the Chancellor of Exchequer, so please don’t hesitate to contact Wells Gibson if you are concerned what impact inheritance tax might have on your own estate and wealth transfer plans.

Staying safe from investment scams

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There are many ways to lose money to fraudsters.  Keeping your money safe, especially online, is challenging when fraudsters use increasingly sophisticated ways to deceive investors.

The financial services regulator, the Financial Conduct Authority (FCA), has issued a new warning over the growing threat of loan fee scams which specifically target borrowers.  According to the FCA, more than £3.5 million was lost to this form of fraud during the last year.  Reports to the FCA’s consumer helpline about loan fee fraud increased by 44% in 2017, which demonstrates how much this type of scam is growing.

Victims of loan fee fraud are often targeted online when searching for personal loans.  The fraudster tells their victim they need to pay an upfront fee to secure a loan, but ultimately the loan never materialises.  Worse yet, victims are often encouraged by the fraudsters to make multiple advance payments.  This form of scam appears to be particularly effective because the victims become increasingly desperate to access the loan they have been promised.

The FCA says that the average loan fee scam victim lost £740 last year.  This is a sizeable amount of money for anyone to lose.

Mark Steward, Executive Director of Enforcement and Market Oversight, FCA, said,

“We’re seeing an increasing number of cases of loan fee fraud reported to us.  Fraudsters target people making online loan applications and who think they’re being contacted by a legitimate loan provider, when they are not at all.

Scammers take advantage of the excitement people feel when they are offered or accepted for a loan and make the loan conditional of an upfront fee, which can increase to hundreds of pounds.  Of course, no loan ever materialises.

Before applying for a loan always check who you’re dealing with, be sceptical, make sure the loan provider is authorised by the FCA.  Check our register at fca.org.uk.”

Victims of loan fee fraud tend to be the most financially vulnerable in society, including people on lower incomes or with low credit ratings.  However, victims of investment fraud are often wealthier, more experienced investors.

A previous analysis of the victims of investment fraud, commissioned by the FCA, found that over 55s were the age group most likely to fall prey to fraudsters.  This victim profile appears to have changed slightly in more recent years, with the rise in online scams for things like binary options leading to younger investors being targeted through social media use.

Suspected investment scams can be reported to the FCA atwww.fca.org.uk/scamsmart. The most important rule of thumb when staying safe from fraud is this; if it seems too good to be true, then it usually is.

Always seek a second opinion before parting with your money.  Only ever deal with authorised and regulated financial advisers, and check first on the FCA financial services register at www.fca.org.uk/firms/financial-services-registerto make sure you are dealing with a legitimate adviser.