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My partner died recently and left everything in his will to his wife, from whom he had been separated for many years, but had not divorced. He had not updated his will. We lived together for more than 10 years. Can I challenge his will?
Thomas Klemme, associate at law firm Wedlake Bell, says yes, you will almost certainly be able to make a successful application for reasonable financial provision to challenge the will. In England and Wales the legislation is called the Inheritance (Provision for Family and Dependants) Act 1975 (the “Act”) and in Scotland it is the Succession (Scotland) Act 1964.
One specific category of applicants under the legislation covering England and Wales is a person who has lived with the deceased for two years before death as if they were married or in a civil partnership. In other words, the Act ensures that cohabitees are afforded some protection and not left penniless.
However, any application is limited to “financial maintenance”, which means enough for future reasonable living costs. This is significantly less than what a spouse could claim under the Act and it is for this reason that couples are always advised to review and update their wills so that on death assets are distributed in a way that reflects their true needs and wishes.
Other basic considerations before making an application under the Act should include double-checking that the deceased was domiciled in England and Wales and that any application is made within six months of the grant of probate.
While claims under the Act are likely to offer parties the most general protection in the above scenario, other claims may be available depending on specific circumstances. If, for example, you owned a property with the deceased, then his half share could pass to you if it was owned on a “joint tenant” basis.
Conversely, if only the deceased is named on the legal title then you might want to consider whether a constructive trust has arisen, giving you a share in property to cover contributions that you made to its purchase and maintenance. Finally, you could have a claim — under so-called proprietary estoppel — against the deceased’s estate if he had promised to take care of you financially after his death, and you can show some reliance on that promise; for instance, if you gave up a career.
It is important to seek legal advice as soon as possible and to correspond with personal representatives of the deceased’s estate. This is because, given the options available to parties in the above scenario, claims can be, and often are, settled relatively quickly without recourse to court.
How will my US stock options be taxed?
I have been offered and accepted a role with a US-based firm and part of my package is incentive stock options, but I understand that, because I am based in the UK, I will be taxed very differently to my US colleagues when these shares are sold. How will they be taxed and is there anything I can do now to prepare for this?
Lynsey Lord, private client partner at chartered accountancy firm Mercer & Hole, says congratulations on your appointment. It sounds as though you’ll be working exclusively in the UK with no US workdays. If you do work in the US, I recommend you seek specialist advice to check whether you have any US reporting requirements. Your question focuses on the tax position on the sale of the shares. For clarity, it is worth mentioning that two tax events will take place before the sale.
The legislation is complex, although the basics are as follows. First, an income tax charge will arise on exercise. This will apply to the market value of the shares less the price paid for them. For example, if you paid £25 per share but they were worth £75 at exercise you would be subject to income tax (and possibly national insurance) on £50 per share.
Second, there is often a “sell to cover” transaction, where the broker sells just enough of the shares to cover the income tax cost of exercising them. Usually, the sale takes place on the day of exercise and therefore there are no capital gains tax implications.
When the shares are eventually sold, if they have increased in value there will be a capital gains tax (CGT) charge. The current rate of CGT is 20 per cent — for higher rate taxpayers — and most individuals are entitled to a tax-free capital gains exemption. This is currently £6,000 but will reduce to £3,000 from April 6.
Our next question
At the age of 90, I am about to receive a large compensation payment. I intend to give it all to several charities. How should I go about receiving and making payments to avoid possible inheritance tax and income tax liabilities?
The trickiest part is computing the capital gain and, more specifically, the capital gains base cost. Your base cost is the sum of the price paid for the shares plus the amount subject to income tax (£25+£50 = £75 in the above example). If you have acquired several shares via different share options, you need a good spreadsheet that keeps an ongoing record of your base costs.
For every share exercise you should record the number of shares received and their capital gains base cost in sterling — apply the spot rate at acquisition. Keep a running total of the number of shares received (A) and their base cost (B). To calculate your capital gain convert your sale proceeds (net of commission) into sterling at the spot rate and deduct your base cost.
While a good spreadsheet will not reduce your tax bill it will hopefully avoid any surprise tax bills (which sometimes hurt just as much).
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
Do you have a financial dilemma that you’d like FT Money’s team of professional experts to look into? Email your problem in confidence to money@ft.com
