Frequently Asked Questions:
Q: Why do I have to have a Home Information Pack (HIP) in place before I can market my property?
A: You don't. This was a requirement introduced by the previous Labour government, but almost the first thing the new Coalition government did in May 2010 was to suspend HIPs. We don't expect them to return. While as solicitors we hated their introduction, we now rather miss them as they contained useful basic information which we now have to apply for separately!
However, there is still a requirement to have an energy performance certificate prepared for any house or business premises being offered for sale, to comply with a European Directive, but this is a good deal cheaper for the seller than a full HIP.
Q: Why is Stamp Duty charged in bands, rather than graduated according to the value of the property?
A: Stamp Duty is a source of huge revenue for the Exchequer and charging in bands makes more money.
Many believe there are fairer ways of levying the duty and this is a tax which is constantly under review by the Government and opposition parties.
Q: Why do purchasers have to pay an additional fee for the completion, by the solicitor, of a Stamp Duty Land Tax return?
A: Because before September 2003 solicitors only had to fill in a simple one page form providing details of a transaction to the Inland Revenue.
Now we are required to complete an 8 page tax return which takes time, and which cannot, regrettably, be absorbed into the normal conveyancing fee.
Q: How much do you charge?
A: We charge by reference to the time spent applying a standard hourly rate.
This may be supplemented in some cases by a value element or mark-up to reflect the value or complexity of the matter. We are required by the Law Society to inform you of our fees, the likely costs of dealing with your matter, and if these are going to increase above our initial estimate.
Q: Do you deal with contentious matters?
A: Not at present. They unfortunately cause so much work that it would mean abandoning all our other clients' work for an extended period.
Q: Why should I make a Will?
A: Apart from being able to direct what happens to your assets, your Will can also appoint an executor, who is the person or persons (you can have up to four) who can immediately take charge of your assets on your death.
Their appointment is effective immediately on your death whereas if you die without a Will then there is nobody who is able to deal with your affairs until they are appointed by the Court.
Your Will can also contain directions to your executors for your funeral arrangements as well as providing for specific gifts and pecuniary legacies.
The Will also deals with the residue of your estate (which is what is left after all the debts, legacies and expenses of administration, including any tax, has been paid), who you wish to benefit and if they are under the age of 18, at what age they can have their entitlement.
Q: There was a major change to Inheritance Tax with effect from the 9th October 2007, what was it?
A: Dramatic rule changes were announced on the 9th October last year which enabled any unused Inheritance Tax allowance (otherwise known as the nil rate band) to be transferred between spouses or civil partners.
For example if the first spouse or civil partner dies and leaves everything to the other, there will be a double allowance at the time of the second death currently £650,000 based on today's nil rate band of £325,000, before IHT is payable at 40%.
While there is no Inheritance Tax liability for most people for many it could still prove to be an expensive mistake to ignore Inheritance Tax. For example, tax bills are based on the value of your assets at the time of death and – contrary to what many imagined individual savings accounts (ISAs) and personal equity plans (PEPS) confer no protection at all from Inheritance Tax.
With property prices rocketing over the past ten years, it is not uncommon for couples to have properties worth well in excess of £325,000 even with prices currently static or falling. This can wipe out one of the nil rate bands immediately, so half a couple's Inheritance Tax free limit has gone already.
Add to this any other assets – including bank and building society deposits, investments and ISAs, furniture, cars and jewellery and an estate's liability to Inheritance Tax remains a potential burden for many.
Q: What can I do on an annual basis to save Inheritance Tax?
A: You can do a number of things to save inheritance tax;
- For starters, individuals may make a gift of £3000 a year which would immediately fall out the estate for Inheritance Tax purposes. Parents can each make gifts in respect of the marriage of a son or a daughter of £5,000, Grandparents and Great Grandparents of £2,500 and anyone else £1,000.
- Any number of small gifts up to a value of £250 each can also be made in a year and be exempt from Inheritance Tax.
- Another useful exemption is gifts out of surplus income. For these it is important that as a result of the gift, there is no need to access capital to replace the income gifted, otherwise the gift fails.
- The amount available to make gifts can change annually and can be gifted to different people – the important point is that there is an intention to give some or all of the surplus income annually – if for some reason it is not possible to do so in one year, that does not render the previous gift ineffective.
The wisest thing to do is to keep an record of annual after tax income and then from that figure deduct the necessary household expenditure such as lighting, heating, Council Tax, insurance, repairs, food, holidays, motoring costs etc – everything that you spend on your lifestyle – the surplus, if any, can then be gifted.
People with larger estates need to get advice and everyone needs to keep good records. This is now particularly important when the spouse who dies first does not use their Inheritance Tax allowance.
This is because the transfer of a nil rate band is not automatic and has to be claimed after the survivor's death and the Government is demanding a raft of paperwork to prove the full Inheritance Tax allowance was unused.
Documents required include Wills, Grants of Probate, Estates Accounts and Deeds of Variation, Death Certificates and Marriage Certificates or Civil Partnership Certificates.
Q: My father has died, and I am the only executor named in his will, do I have to apply for a grant of probate?
A: Whether you apply for a grant of probate depends on what assets your father had. If he owned a property, which you need to sell, a grant will be required.
If his assets were spread around banks and building societies it may be possible to close the accounts and get the assets in without a grant, different banks and building societies have different rules on the amount that they will pay out without one.
Q: I'm worried about my elderly mother, who will make decisions for her if she is unable to make her own as she gets older?
A: If your mother has capacity now she can appoint an attorney to deal with her property and affairs or personal welfare if she was ever to become mentally or physically incapacitated. Since the end of 2007 this must be done using a Lasting Power of Attorney (LPA).
Q: I have been separated for two years. Can I automatically get a divorce?
A: If you have been separated for two years there are two matters which you have to prove to the court before a divorce will be granted. You must be able to show that you have lived apart for a continuous period of at least two years and that your ex-spouse consents to a divorce. The term 'living apart' is quite complex, and we will be able to advise you whether you satisfy this requirement.
Q: I have been living with my partner for ten years, am I entitled to half our home even though it is in his name alone?
A: You are not necessarily entitled to a share in the property. It will depend on whether you have contributed financially or otherwise to the property, and what was agreed between you and your partner when the property was bought or when you moved in.