Business News August 2010

This issue we look into the legal wrangles of will making and tax issues

Negligent will drafting is, sadly, an all too frequent occurrence. Potential beneficiaries often find that a will does not provide the inheritance that they expected to receive or even that the will is entirely invalid!

Needless to say disappointment alone will not give the right to sue a solicitor for negligence. It will be necessary to prove that the maker of the will did actually intend to benefit the disappointed person/s. By definition the maker of the will is no longer available to give evidence and so this is not always easy.

A solicitor (and any other will writer) owes a duty of care not only to the person making the will but also to any beneficiary under the will.

You may be able to claim against the draftsman of a will if you feel it has been drafted negligently. Typical examples of will drafting negligence include where a solicitor:

1. Failed to reflect the deceased’s wishes in his/her will to the detriment of a beneficiary/interested party;

2. All or part of the will was so poorly drafted that the deceased’s wishes could not be construed or there were contradictory clauses;

3. Drafted a will in which some of the legal formalities were not met, for example the will was not validly signed and witnessed; the testator lacked the necessary mental capacity to make his/her wishes clear; or the will was signed under undue influence, for example the deceased was pressured into signing the will. Often in these claims, interested parties to the estate may suffer significant losses, sometimes including tax consequences;

4. Took too long to draft a will and the deceased died before it was executed;

5. Failed to advise properly as to the consequences of the tax regime.

Solicitors also have a duty to administer the estate properly. If the solicitor fails to do so then he or she could face a claim by the executors for financial loss suffered as a result of the solicitor’s negligence, for example failure by the solicitor to invest the assets properly.

Claims against any professional require detailed knowledge of the law of professional liability and experience of the tactics of bringing and defending such claims. Bridge McFarland’s professional liability team specialise in pursuing claims for professional negligence. We have extensive experience in resolving claims against solicitors and other professionals. We are members of the Professional Negligence Panel and the Professional Negligence Lawyers Association.

For an initial discussion please contact Patrick Taylor, Partner or Katherine Wolter on 01522 518888.

Four tax planning points following the budget
The measures announced in the Coalition’s first budget took most commentators by surprise. These have been well detailed in the national press. Here we focus on areas that give rise to tax planning opportunities for businesses.

Capital gains tax – Changes to Capital Gains tax were expected but the form that the changes took were not. There were two main changes:

1. The tax rate for higher rate taxpayers has been increased to 28% from budget day. For basic rate taxpayers the rate stays at 18%.

2. The amount of gains that can get Entrepreneurs’ Relief (ER) has been increased to £5,000,000. Entrepreneurs’ Relief applies to the sale of a business, with the gains being taxed at 10%.

Planning point: The maximum tax saving from ER is now £900,000. Previously the maximum saving was £80,000. Anyone contemplating a sale or disposal of a business or a part of their business should check that it meets the qualifying conditions or what needs to be done to make it qualify. ER is a very complicated and illogical relief and it should not be assumed.

Corporation tax – From April 2011 the rate of corporation tax is being reduced to 20% for small companies and 27% for large companies. A small company is one whose profits are less than £300,000.

Planning point: Given the differential between the rates of income tax and corporation tax, considerable tax savings can be made by incorporating all or part of a business.

Capital allowances – This is the relief given for purchases of plant and machinery by a business. The announced changes don’t take effect until April 2012.

Firstly, the rate of allowance on most assets will reduce from 20% to 18%. This will increase the amount of profits on which a business pays tax.

Secondly, the Annual Investment Allowance (AIA) will reduce from £100,000 to £25,000. The AIA is the amount of capital expenditure that a business can claim 100% relief in a year. The majority of small businesses can usually claim tax relief on all of their investment in plant & machinery under the AIA.

Planning point: A business considering a substantial purchase of machinery over the next few years should look to doing this before the AIA reduces in April 2012.

Income tax & National Insurance – There were no changes to rates or allowances for the current year. However from April 2011, NI rates increase by 1% across the board.

One interesting announcement was a NI holiday for new businesses. New businesses started on or after 23 June will be exempt from Employer’s NI of up to £5,000 for the first ten employees. Unfortunately details of how this measure will work will not be unveiled until September.

The 50% Income Tax rate introduced by Labour has not been altered and that comes into effect this year. For very high earners it is possible in limited circumstances to avoid this by the use of employer sponsored trusts.

Published August 2010