How to approach changes in tax law with clients

By Holly Maxwell-Gumbleton, Solicitor, Mayo Wynne Baxter.

Did you listen to Rachel Reeves’ speech at the Labour Party Conference? The semantics were interesting. She mentioned the word ‘tax’ countless times, as would be expected from the Chancellor of the exchequer – tax avoidance, tax evasion, tax loopholes and more tax compliance officers. The language that Reeves adopted was hoping to foster agreement with Labour’s very reasonable argument: if we sniff-out the tax dodgers and scrap the non-doms tax status we may just generate enough funds to mend the ‘broken NHS’, not to mention the rest of the UK’s ailing infrastructure.

Interestingly, Reeves did not make any direct references to inheritance tax which she is, of course, saving up for the actual budget at the end of this month. At the time of writing, we are now expecting a watered-down version of the non-dom tax status, but also reforms to the current IHT regime with special focus on pension pots being brought into the orbit of IHT. It will be particularly galling for those who have carefully planned their retirement based on the current set of tax rules; they will need to urgently review their investments and dig out their carefully written wills.

Although I write this from the perspective of a private client lawyer, all professionals have to consider potential risks and pitfalls based on the information that we are given with the backdrop of the ever-changing tax legislation. But every new Budget brings on the recurring headache of how to address updates to the previous advice we have given to our clients.

I have been a solicitor for over 20 years and during that time witnessed many budgets, dealt with the incremental IHT thresholds, add-on exemptions as well as the escalating complexities of the Trust Regime, the latter of which means that any first-rate firm of solicitors now has a dedicated Trust Department. Over this period, I have guided new and returning clients with simple tweaks to their Wills through to total rewrites. The clients seeking advice due to a change in family dynamics and increasing extent of their assets happily accept that this advice is chargeable. When they return for advice because IHT law has changed, they are slightly less tolerant, and so they should be, their autonomy has just been jettisoned. To cope with the upcoming influx of enquiries following the budget we should take stock of how to approach our clients in order to cultivate long-term relationships.

1. Set realistic expectations.

• It is important to lay the foundations that we can only advise the client based on the current tax legislation. Provide them with working examples so that they can see how the current tax rules will affect them and their loved ones.

• Don’t scare the client but certainly point out that dying having not updated their wills and legal affairs will be at a much greater cost than spending funds now on updating such documents.

2. Be transparent with the cost.

• Clients are much more able to accept the costs if they know why they are paying it.

• Taking instructions should take a minimum of an hour to ensure that all the relevant information is obtained as well as taking the time to consider the person’s mental capacity, undue influence and probing any areas that they may have considered irrelevant. Preparing a will or indeed any document that is tailored to the client’s objectives and extent of their estate should take a minimum of an hour. Preparing the letter of advice to ensure that the client properly understands the documents should also take an hour or so. Not to mention writing up every interview in case it is required in the future as Court evidence if the Will is challenged by a disappointed beneficiary. That’s three hours minimum for just one well thought-out Will and although that may cost more than an off the shelf Will the client will appreciate that it is money well spent.

3. Put the Onus on the client to review their wills and other legal documents not only when life throws a curve ball but also at every budget.

• Remind the client that this ‘will’ may be the first of many. If a client ever grumbles about this, I remind them that we all pay annual house insurance and to think of the Will like a house insurance policy, you are keeping your house in order to look after ‘future you” and your future family.

• Give them back their autonomy by reminding them that they have the power to plan their future.

4. Recommend that your client has a Property and Financial Affairs Lasting Power of Attorney (LPA) ensuring the inclusion of 2 important clauses:-

• Allow the Attorneys to delegate investment responsibilities to financial advisors on a discretionary basis. In this way investments, such as pensions, can be reinvested if necessary to lessen any tax bombshells.

• Allow the Attorneys to view the will during the donor’s lifetime. Although an Attorney has no legal power to make changes to a will, at least they will be forewarned and if the Attorney does seek to reinvest assets, they will know which assets to avoid if they have been earmarked in the will as gifts.

With these tools in our kit, we are lessening the risk of messy tax problems for our clients. Although we cannot predict what the budget has in store for us, Reeves’ semantics indicate that it will be a punitive year ahead.

www.mayowynnebaxter.co.uk