The Private Client Bulletin highlights current issues relating to private property, family law, tax and trusts, estate planning, wills and retirement to help you make better-informed decisions. In this edition you will find:
• Would you say no to a tax-free £30,000 per year: New NHS guidelines could save patients money
• Chancellor’s bonus arrives: Basic Personal Allowance increase of £600 for 2008/09
• Capital Gains Tax Reformed: The Finance Act 2008
• Nil-Rate Band Discretionary Trusts: The need for regular trustees' meetings
• Planning for an equestrian development: ‘Horsi-culture’ is one of planning’s grey areas
Would you say ‘No’ to a tax free £30,000 per year?
The new NHS guidelines on Continuing Healthcare could save patients and their families substantial amounts of money. Under these guidelines, it is possible to claim back the costs of long-term health care from the NHS.
For some years the Health Service Ombudsman has been investigating complaints on the assessment procedures used to determine if a patient’s fees for continuing health care should be met by the NHS.
A number of NHS decisions were challenged in the courts and found to fall short of legal requirements. As a result, many patients have received a refund of fees paid for care, which should have been borne by the NHS.
Subsequently, a guidance document ‘The National Framework for NHS Continuing Healthcare and NHS-funded Nursing Care’ was published in June 2007. These guidance notes were implemented as of the 1st October 2007.
What does this means for patients?
Individuals who have ongoing healthcare needs and who are not in an NHS hospital may be eligible for NHS funding if they are receiving continuing health care. This care can be provided in the patient’s home or in a nursing/care home and provides a package of services provided or funded by the NHS.
What does it cost?
If eligible, it costs nothing. The NHS will provide what is needed without charge or will pay for healthcare andpersonal care provided privately. In a care home this means the total fees (including those for board and accommodation) will be paid by the NHS. At home, the NHS will pay or provide health care (perhaps from a community nurse or specialist therapist) and pay for personal care (ie, help with bathing, dressing and laundry). There is no means test; therefore no account is taken of your relative’s income or capital.
Who is eligible?
An individual whose “primary need” is health care is eligible.
Assessment is made by applying four key indicators. These are:
- Nature (the type of condition or treatment required and its quality and quantity)
- Complexity (symptoms that interact making them difficult to control or manage)
- Intensity (one or more needs which are so severe that they require regular medical interventions )
- Unpredictability (unexpected and difficult changes in condition that present a risk to the patient or others).
Eligibility and assessment
The NHS decides potential eligibility through a screening process. If this shows someone may qualify, a full assessment is undertaken. This assessment considers physical, mental, psychological and emotional needs and engages all health and social care professionals involved in the case and with the family.
What happens if an individual is not eligible?
If an individual is found ineligible for NHS Continuing Healthcare payments, (under afore mentioned criteria) then care will have to be paid for by the recipient unless eligibility for local authority funding can be established. Local authority funding is subject to a means test. The NHS will still provide for any medical needs or contribute to your healthcare through the nursing contribution, which is currently £101 per week.
Services Withy King can provide
We can assist clients in making claims for Continuing Health Care payments and for other benefits, including nursing contribution.
Further information
Please contact our Private Client Department.
If you would like to read the National Framework Guideline document visit the Department of Health’s website.
Following the political outcry over the abolition of the 10% starting rate of Income tax (or the ‘10p tax’), the Chancellor, Alistair Darling, announced on 13 May 2008 that the basic Personal Allowance for the 2008/09 tax year would increase by £600 from £5,435 to £6,035. At the same time, the basic rate tax band would be reduced from £36,000 to £34,800.
If you are under 65, (or 65 and over but only qualify for the basic Personal Allowance) an employee or receive a personal or company pension, the changes will be reflected in your pay and pension payments from September 2008. The allowances will be backdated to the start of the tax year (6 April).
The changes will only affect basic-rate taxpayers. If you qualify for higher age-related allowances, your tax allowances won't change.
Capital Gains Tax Reformed – the Finance Act 2008
With the passing of the Finance Act 2008, the capital gains tax (CGT) system has been reformed from 6 April 2008. This change has come about in an attempt to simplify the CGT regime. What do these changes mean in practical terms?
The new rate of CGT
For a gain made before 6 April 2008, the rate of CGT payable was determined by your rate of income tax, treating the gain as the highest part of your income. Higher rate taxpayers previously paid CGT at 40%.Lower or basic rate taxpayers would have paid it at 10% or 20%. The Finance Act 2008 has streamlined the rate of CGT payable into one single rate of 18%, payable on all chargeable assets.
Changes to relief from CGT
Both the ‘indexation allowance’ and ‘taper relief,’ previously afforded to certain gains, have been removed from the CGT regime. As a consequence, inflation will not be taken into account when calculating any gain. Taper relief previously allowed some higher rate taxpayers to pay as little as 10% CGT on gains from the sale of particular assets and some basic rate taxpayers as little as 5%. Investors are now required to pay the flat rate of CGT at 18%. Without the benefit of a reduction, the impact will be particularly apparent to investors who have held assets for a number of years and who may, as a result, suffer an 80% increase in their effective rate of CGT following the changes.
Newly introduced is the ‘Entrepreneurs’ Relief’. This has strict rules attached to it and will only be of use to those disposing of qualifying business assets. Operating to reduce the CGT rate on the first £1m of relevant gains, this relief will lower the standard 18% to 10%. Any excess beyond the £1m in a lifetime will be taxed at the original rate of 18%. There is no age requirement to claim this relief, but assets must be owned for one year prior to the date of disposal to qualify.
Share pooling
The share pooling regime has also been simplified. Previously, where a shareholder disposed of only part of his or her shareholding there was a complex set of rules to determine which of the shares were treated as sold for CGT purposes. This included the need to identify shares sold on a ‘same-day’, ‘bed-and-breakfasting’ or a ‘last-in-first-out’ basis. All shares held in a single company will now be merged into one single pool, regardless of when they were originally acquired.
Shares held as of the 31 March 1982, will be included in the pool at their 31 March 1982 valuation. It is no longer possible to use an original cost higher than the March 1982 value. Those subsequently purchased at their qualifying cost (without indexation or taper) will be merged at the same rate.
Each share in the pool will be treated as having a base cost equal to the average base cost of the shares in the pool as of the date of the disposal. In theory, this is a simplified system; however, the difficulty lies with the uncertain valuation of the shares held pre-1982.
Annual exempt amount
The CGT annual exempt amount will remain. If you sell an investment, you will not have to pay CGT on the first £9,600 of gain in this tax year.
Nil-Rate Band Discretionary Trusts: The need for regular trustees meetings
Nil-Rate Band Discretionary Trust (NRBDT) still has its place, but following the introduction of the transferable Nil-Rate Band between spouses in the Finance Act 2008, it has largely fallen out of favour. The reason for this is, that in many cases, it is now possible to achieve tax savings (similar to those traditionally made by setting up a NRBDT) by simply relying on the transferable Nil-Rate Band.
There will, however, be cases where a NRBDT is already in existence or is set up in the future. It will be common for the Trust to comprise an IOU from the surviving spouse or make a charge over the home. The Revenue will look at such arrangements closely to see if they may argue that the arrangement is a 'sham', thereby disallowing the Inheritance Tax saving.
To minimise the risk of the Revenue successfully arguing such a point, the Trustees should ensure they have evidence showing the Trust is running as a proper discretionary trust and that they are considering the needs of all the potential beneficiaries; not just those of the surviving spouse. If they cannot do so, the danger is that the Revenue will say the spouse has been treated as the only beneficiary. As a result, the value of the assets held in the Trust should be aggregated with his or her own estate for Inheritance Tax purposes. This would defeat the main purpose of the Trust.
Trustees should therefore have regular meetings (at least once a year). At such meetings they should consider the appropriateness of continuing to hold the IOU/charge, whether they should request repayment of the IOU/charge or part of it, what payments of income/capital should be made (if any) and to which beneficiaries. These questions should be considered in light of the needs of all of the discretionary beneficiaries, which will usually include the children and grandchildren.
It is a good idea to take and keep minutes of these meetings, recording decisions of the Trustees for production to the Revenue, if they require it
Planning for an equestrian development
It is commonly assumed that agricultural land and land used for equine purposes are one and the same. Unfortunately, that is not so. ‘Horsi-culture’ is one of planning’s grey areas.
When considering planning issues (subject to some exceptions), planning permission is required for development. This includes any material change in the use of any land or building, engineering or other operations.
Under planning legislation, the definition of agriculture is the breeding and keeping of livestock (including any creature kept for the production of food, skins and/or fur) or the use of the land for grazing purposes.
Sometimes, a question arises about whether equine occupation of land falls within agricultural use. Two reported cases have been decided as follows:
- The breeding and training of horses for show jumping was not an agricultural activity because such horses did not satisfy the criteria for agricultural animals under planning legislation.
- The use of land for the grazing of racehorses and point-to-pointers was found to be agricultural. As the horses were simply grazing the land, this fell within the planning legislation’s definition of agriculture.
In practice, the distinction between grazing horses on the land and exercising them is one that planning authorities tend to follow, especially when the latter leads to erections of jumps, fences or artificial surfaces.
Field shelters are an area of particular uncertainty. Provided the shelter is readily moveable and is not permanently located on a base, it should be possible to argue that it is a temporary structure. In this case, planning permission would not be required. However, the reality is that shelters may be permanent. If buying land with an existing shelter, the planning history needs to be carefully checked. Most local authorities are likely to be sympathetic to a field shelter of suitable size and design, provided it is discreetly located and away from public rights of way.
Sometimes the use of land can change; therefore, it is important to consider how you intend to use the land at the outset. If planning permission is likely to be required, then the planning history of the site should be carefully checked. It is always possible that a planning application has previously been attempted and failed. In this case, the reasons for rejection should be investigated before committing to a purchase.
Discussing your proposals with the local authority before committing to the deal is a prudent measure. Authorities will have to follow guidance on development in rural areas. The main issues involved with proposals will always include design and the visual impact of the proposed development, vehicular access to the site and safe and sufficient access to suitable riding places on private land or on a bridleway network.
Open and constructive dialogue with the authority (perhaps with guidance from a specialist planning consultant) can help clarify any questionable issues and hopefully prevent problems arising.
At Withy King we are frequently approached by clients looking to buy agricultural land or fields for equestrian use. Whether you are looking for general advice or legal expertise, our team is available to offer you an independent and tailored approach to your needs.
Please contact the Private Property Department for further information.
