Private ClientFILE 2009

Brethertons are Will Aid Top Performers!

Despite the Credit crunch and severe economic downturn, Will Aid solicitors across the country pulled out all the stops during the month of November to raise money for the Will Aid charities and Brethertons was no exception!

In a letter received from Shirley Marsland, Will Aid campaign manager,

She said: “Thanks to you, Will Aid 2008 was the most successful ever! We have raised over £900,000 in donation income and an estimated £4.5m more in legacy pledges. This is an amazing achievement and is the direct result of you and your colleagues at Brethertons LLP having raised £5,270, making you the 4th most successful fundraising firm in the country during this campaign!

The money donated has already been distributed to the participating 9 Will Aid charities. Your generosity, hard work and dedication have meant that the money raised can now be put to work in projects which will transform people’s lives in the UK and around the world.”

Credit Crunch – Divorce Settlements in the Spotlight

A case currently being heard in the Court of Appeal could affect the financial arrangements of many divorced couples.

It involves investor Brian Myerson, who divorced his wife in 2008 at the peak of the recent boom. The settlement reached with his ex-wife involved giving her a lump sum of £9.5 million and a property in South Africa worth £1.5 million. Although he has mortgages and other liabilities of £2.5 million, this still left Mr Myerson with a considerable fortune, his investment company being then valued at more than £15 million. At the time, the settlement left Mr Myerson with 57 per cent of the couple’s total assets.

Then came the credit crunch. Mr Myerson’s shareholding in his company is now valued at less than £2 million, meaning he has a negative net worth in the region of £500,000. £2.5 million of the original sum due to Mrs Myerson is still unpaid.

Mr Myerson has gone to the Court of Appeal in a bid to have the 2008 settlement overturned. If successful, there could be a flood of appeals against earlier financial settlements made on divorce.

Linda Jones, Brethertons Family Partner says, “The courts have seldom been inclined to vary such financial arrangements. Although the case is extreme, it remains to be seen whether the Court will regard Mr Myerson’s subsequent bad fortune as a sufficient reason to vary the original order.”

Child Maintenance Rule Changes

In spite of reforms introduced in 2003, the Child Support Agency (CSA) was heavily criticised for failing to meet its objectives. With nearly £4 billion worth of unpaid child maintenance estimated to be outstanding, clearly something had to be done. To this end, in July 2008 the Child Maintenance and Enforcement Commission (CMEC) – a statutory non-departmental public body – was established to take on the work of the CSA.

Also in July 2008, the Child Maintenance and Other Payments Act (CMOPA) removed the obligation for new claimants who are on benefits to use the CSA. Unsurprisingly, statistics based on the first quarterly figures since this change was made show that the number of new cases being brought to the CSA has declined.

In October 2008, the obligation for existing CSA clients claiming benefits to continue to use the Agency was removed. All parents can now choose the child maintenance arrangements that best suit their individual circumstances. This could be a private arrangement or the statutory maintenance arrangements. A new Child Maintenance Options service (see www.cmoptions.org) has been established to provide information and support to help parents reach a decision.

Since October 2008, the benefit disregard level has been increased. Parents who are claiming benefits who have primary responsibility for the day-to-day care of a child can now keep up to £20 per week of any child maintenance receipts before their benefits are affected. The Government’s stated intention is that from April 2010, child maintenance will be fully disregarded when calculating out-of-work benefits.

In November 2008, the CMEC took over responsibility for the work of the CSA.

During 2009/2010, new enforcement powers will be introduced under the CMOPA to ensure that parents meet their child maintenance responsibilities. These will include allowing the CMEC to seize the passport and/or driving licence of parents who fail to pay, without the need to involve the courts as is currently the case. Work and Pensions Secretary James Purnell says that the Government is keen to support parents in these tough times, but for those who choose not to support their own children, “we will not stand by and do nothing. If a parent refuses to pay up then we will stop them travelling abroad or even using their car.” The Commission will also be able to seize money from bank accounts, where a parent has failed in their financial obligations toward their child, without having to go through the courts. Furthermore, the CMEC will also be able to apply for a curfew or to recover money from a dead person’s estate.

If the timetable goes according to plan, in 2011 a new ‘gross income’ scheme will be established. This is intended to reduce the time taken to calculate child maintenance by basing the amount a parent pays on gross income as per the latest available tax information held by HM Revenue and Customs. At this stage, parents still using the statutory scheme will be encouraged either to make their own arrangements or to move to the gross income scheme.

It is hoped that by 2013/2014, a single system of child maintenance will be in operation.

Pre-Nuptial Agreements – Parliament Must Act if Law to Change

Pre-nuptial agreements are persuasive, not binding, in English Law and look set to remain that way for the foreseeable future, following a decision by the Privy Council, which stated that ‘the validity and effect of ante-nuptial agreements is more appropriate to legislative rather than judicial development’.

The decision not to enforce a pre-nuptial agreement was taken by the Privy Council in a hearing involving two US Citizens who are resident in the Isle of Man. The case was the first substantial one following the referral of the law on pre-nuptial agreements to the Law Commission last year.

Accordingly, any alteration in the law relating to pre-nuptial agreements will have to await a change in the law by Parliament.

However, the Law Lords agreed that an agreement entered into after a marriage is contracted (a ‘post-nuptial’ agreement) would generally be enforceable, provided there was no exploitation of a dominant position by one of the parties to it. Such an agreement should always be made with the benefit of independent legal advice on both sides.

The position remains, therefore, that a pre-nuptial agreement which has been properly drafted with legal advice taken on both sides, whilst not binding, is persuasive to the court regarding a couple’s intentions for the distribution of their assets should their marriage fail. Accordingly, a ‘pre-nup’ will, in many cases, be worth consideration, especially where the family assets are very substantial.

If a pre-nuptial agreement is not made, it is sensible for married couples who are able to do so to consider making a post-nuptial agreement, which will normally be effective if the appropriate conditions are met.

Linda Jones, Brethertons Family Partner says “Putting in writing how family assets should be distributed in the event that a marriage fails may sound unromantic, but it can save much bitterness as well as money if the worst does come to the worst. We can advise you on the creation and negotiation of pre- and post-nuptial agreements.”

Executors be Warned

HM Revenue and Customs (HMRC) have quietly made a change to their policy regarding Inheritance Tax (IHT) that could leave executors of estates facing unexpected IHT liabilities.

The new risk results from the way HMRC intend to deal with estates in which gifts (‘gifts inter vivos’ in the parlance) are made in the seven years prior to death. Such gifts are called ‘potentially exempt transfers’ in IHT terminology, because they affect the IHT position unless the donor survives seven years after making the gift.

HMRC have previously raised any enquiries about gifts inter vivos within 60 days after the papers relating to the estate have been filed. The new policy abolishes this time limit, meaning that HMRC could potentially instigate an investigation into the gifts made prior to death several years after the estate tax returns are filed. If they find undeclared gifts, IHT may be payable on them.

This has potentially very serious implications for executors as not only may they be personally liable for any IHT that subsequently becomes payable, but also penalties can be levied. This could all take place years after the estate has been wound up and the assets distributed to the beneficiaries.

Furthermore, it makes it wise to conduct a proper review of the deceased’s financial records relating to the seven years prior to the death and to retain the records in case there is an enquiry.

Settling IHT Bills with National Heritage Property

Having significant assets in an estate is no guarantee that payment of Inheritance Tax (IHT) bills will be straightforward. The normal rule is that IHT is due no later than six months after the end of the month in which the deceased died. However, on certain assets which can be difficult to sell, such as the deceased’s house or shares in a family company, you can pay IHT by yearly instalments over ten years. The first instalment is due on the date when the whole of the tax would normally have been due. When IHT is paid by instalments, interest is also payable and the statutory rate of interest payable in such cases can prove to be rather expensive.

However, IHT bills do not necessarily have to be settled with cash. If the estate contains ‘National Heritage Property’ (NHP), you may be able to do a deal with HM Revenue and Customs (HMRC) to transfer that property to the Crown in settlement of IHT and/or interest. For an asset to be accepted as NHP, it must be in the public interest for the State to acquire it. It includes buildings of historic or architectural interest, land of historic, scenic or scientific interest and objects and collections of national artistic, historic or scientific interest that form an integral and major part of the cultural life of this country. Recently, for example, it was announced that Lord Hastings, the owner of Seaton Delaval Hall in Northumberland, had entered into negotiations with HMRC to transfer a part of the Hall to the National Trust in order to meet an IHT liability which arose on the deaths of his parents in 2007.

In practice, however, the IHT due must be paid first, following which the NHP is transferred. HMRC then refund the IHT. This means that the IHT payment may have to be financed by borrowing for a period.

Any assets which are bequeathed to a UK registered charity will be treated as having nil value for IHT purposes, so assets which do not meet the rigorous tests necessary to be accepted as NHP can be donated to charity tax free. However, the way charitable gifts are dealt with in a will needs careful consideration as charities can be aggressive in their demands for settlement of bequests. Where the estate is asset rich but cash poor and cash is bequeathed, this can sometimes lead to executors taking action that is not in the best interests of the beneficiaries as a whole.

Trustees’ Responsibilities – Be Careful

Traditionally, trustees used to regard their responsibilities as being almost exclusively the safeguarding of the assets of the trust. The Trustee Act 2000 raised the bar somewhat and it is clear that many trustees are unaware of their new responsibilities. Operating as a trustee in ignorance of one’s obligations is a risky strategy, particularly in the present economic environment.

Under the Act, trustees have the specific responsibility to assess the suitability of trust investments and to keep these under review. In this task, they should consider investment spread and risk in the same way that other investors would do. Secondly, trustees are required to obtain proper advice when this is necessary or appropriate.

The point at which the balance between making investment returns and managing the investment risk is struck will depend on the trust deed and on the needs of the beneficiaries.

A trustee should therefore make sure he or she is familiar with the trust deed and their role and should take advice as required on the management of any assets owned by the trust. Where the trust has the ability to invest in a range of assets and it is feasible to do so, the investment portfolio should be kept under review. In some cases, the trust assets are effectively fixed – for example, the trust may own a house or shares in a family company for which there is no ready market. However, even in such cases, if trustees become aware of interest in the trust assets by a potential purchaser, they should take steps to follow up such interest unless the trust deed forbids the sale of the assets.

“This is potentially an important issue for trustees,” says Elizabeth Young, Brethertons Wills, Trusts and Probate, “as any failure causing loss to the trust that is serious enough to be deemed to be a breach of trust can lead to a claim on the assets of the trustee, as the trustee’s appointment is a personal one. People who are, or are considering being, trustees should examine the trust deed and seek to minimise their risk where appropriate, for example through the use of indemnity clauses or the use of trustee insurance.”

Accessing Common Land

Under the Countryside and Rights of Way Act 2000, there is a general right of access to ‘access land’. Access land is land that is specifically accessible to the public under an enactment or land which is not ‘excepted land’.

The main categories of excepted land are:

• land used for a park, aerodrome or golf course
• land used as a park or garden
• land within 20 metres of a dwelling or a permanent building used for housing livestock
• land used for livestock or for training racehorses
• land covered by pens for the temporary detention of livestock; and
• land covered by buildings or the curtilege of such land.

The concept of curtilege is one which can prove difficult. It can be defined as the enclosed land around a house or other building and this is normally taken to include the enclosed area (e.g. by a fence) which is appropriate for the building.

The main problem with the legislation is that the maps showing access land (which are being developed and posted on the website of the Countryside Agency) will not identify excepted land, so the exception to the right of access by the public must be enforced by the landowner.

If you need to address the question of rights of access to land, we will be pleased to advise you.

Planning Permission is Only Part of the Story

If you are considering building an extension to your property, you may think that it is simply a matter of getting planning permission and finding a builder. A recent case shows, however, how important covenants affecting property can be in determining whether developments of any kind can go ahead.

The case involved an upmarket housing estate called Heron Island, which is near Reading. The estate is adjacent to the Thames. One of the homeowners wanted to build a three storey extension to his property that would have partially obscured the view of the river for some of his neighbours. The neighbours objected to the planning application. The planning inspector’s opinion was that whilst there would be some loss of view for one household, this did not result in a material diminution in living standards. There is no general right in law to a view. The planning application was granted on appeal.

The objectors then used a different line of attack. The properties were conveyed with a covenant prohibiting owners from doing anything which would constitute a ‘nuisance or annoyance’ to the other owners on the estate. One owner in particular argued that he put great store on his river views, which would be greatly curtailed by the extension. Also, the windows in one aspect of the development would interfere with his privacy. Other owners gave evidence that their views of the river would be partially obscured.

One of the more interesting aspects of this case was that the obstruction of the view was minor. However, the judge, who visited the estate and had the benefit of seeing computer-generated evidence, had to decide the question ‘would reasonable people, having regard to the ordinary use of their houses for pleasurable enjoyment, be annoyed and aggrieved by the extension?’ On that basis, he concluded, “In my view the three storey red brick extension would trouble the minds of the ordinary sensible English inhabitant of any of those three houses and in those circumstances it does constitute an annoyance within the meaning of the covenant.”

Tenancy Deposit Scheme – Court Opts for Leniency

The Housing Act 2004 contains provisions for the protection of tenants’ deposits in England and Wales.

Tenancy deposit protection schemes were introduced in 2007 to protect residential tenants from unscrupulous landlords who would retain their deposits without good reason. In theory, the penalties for landlords who do not comply are severe and can include paying the tenant three times the amount of the deposit in dispute. Since its introduction, the arbitration scheme set up to deal with disputes arising between landlords and tenants has dealt with the small number of disputes arising so effectively that as yet the courts have been little troubled with disputes concerning residential deposits.

Recently, a case was heard that involved a landlord who had failed to comply with the time limits for the provision of information as laid down in the legislation. The landlord had complied with the tenancy deposit scheme in all other respects.

The court judged that leniency was warranted and the ‘three times deposit’ penalty was not levied.

It will have to be seen whether this decision serves as a template for future decisions or not. In the meantime, landlords are reminded of the potential dangers of failing to comply with the law.