Capital Allowances on Buildings

For owners of commercial property that pay tax in the UK, a thorough review of all capital expenditure can yield surprising results in the form of capital allowances on buildings that can minimise your tax liability.

There are many situations that give rise to eligible capital expenditure. Generally speaking, a business’ expenditure on plant and machinery will qualify for capital allowances. This tends to be well-known by accountants and business owners.

However, expenditure on property-related items can also lead to valuable claims for capital allowances on buildings.

As the only form of tax relief against property capital expenditure, capital allowances on buildings applies to all properties across the commercial sector.

Capital allowances on buildings may be available where expenditure is incurred on commercial property or construction projects across the commercial sector.

Certain items are treated as part of the ‘fabric of the building’ and do not qualify for allowances. These would include windows, doors, fixed partitions and tiling.

For many other items deemed as ‘fixtures’, you are entitled to claim capital allowances on the cost, the rate of allowance depending on the specific item.

Who can claim capital allowances on buildings?

Capital allowances are available to all UK taxpayers – individuals, companies, partnerships and overseas investors (non resident landlords).

You can own the property either privately or as a limited company and it doesn’t always matter when you bought the building, we can find the allowances and you can use them against your profits immediately.

Capital allowances apply whether you own the property as an investment or it is used in your trading business.

How do I know which type of capital allowances I can claim?

For many other items deemed as ‘fixtures’, you are entitled to claim capital allowances on the cost, the rate of allowance depending on the specific item:

  • Plant and machinery, Writing Down Allowance rate 18% e.g.
    • fitted kitchens
    • sanitary ware
    • alarm systems
    • data cabling
  • Integral features, Writing Down Allowance rate 8% g.
    • hot and cold water systems
    • lighting
    • electrical systems
    • air conditioning, air cooling or air purification
    • insulation
    • lifts, escalators, moving walkways
    • external solar shading
  • Business premises renovation allowances: 100% up to April 2017 (withdrawn)

Renovation or conversion expenditure on vacant (at least one year) commercial property in ‘assisted areas’ until April 2017. Expenses only where they have been incurred prior to the 31 March 2017 deadline. Retrospective claims can be made for expenditure incurred in previous years if certain conditions are met.

  • Land remediation relief: 150%

Available for limited company developers on qualifying expenditure incurred in the cleaning up of contaminated and derelict land. Costs include:

  • Staffing costs such as site assessments, which are based on a percentage salary cost
  • Materials used that are over and above standard issued items because of the contamination present
  • Sub-contractor costs and professional fees e.g. additional site surveys to establish levels of contamination or increased sub-contractor costs who are working whilst site remains contaminated.
  • Appointing contractors to clear asbestos
  • Higher security perimeter fencing to stop people from entering the site
  • Additional waste costs if contaminated matter can’t go to landfill as well as additional desk studies over and above the original site searches studies. Costs can also be claimed for clearing any land adjoining the site or controlled waters.
  • Enhanced capital allowances: 100% First Year Allowance or 8% Writing Down Allowance

A green tax incentive available on plant and machinery, unused and not second hand, bought after 1 April 2001 that is a listed product or meets the energy-saving or water conservation criteria, for example:

  • Boilers, including Biomass
  • Combined Heat and Power*
  • Pipework insulation
  • Radiant & Warm Air Heaters
  • Refrigeration Equipment
  • Solar thermal systems
  • Uninterruptible Power Supplies

Given the extensive range of eligible items, it becomes a matter of ensuring you claim for all items that you are entitled to.

When could a claim for capital allowances on buildings arise?

Certain trigger events should cause you to investigate your capital allowances entitlement and maximise your claim, for example:

  • Purchasing ‘second-hand’ property
  • Purchasing ‘brand new’ property from a developer
  • Extensions, alterations or refurbishments of existing buildings
  • Fit outs of property including leasehold improvements
  • Other construction projects

Note there is no time limit on claiming capital allowances, save that the items in question are still in use for the purpose of the trade. In which case, it may be possible to claim tax relief for expenditure dating back to when the property was first purchased.

Capital allowances when buying or selling commercial property

It is important to remember that when you buy or sell a property, plant is also included. As part of the transaction negotiations, parties will need to enter into a joint election to agree how much of the purchase price is plant.

The vendor needs to have allocated the expenditure to a relevant capital allowance pool, with both parties agreeing the value attributable to pass on sale. Without this, the ability to claim capital allowances on these fixtures will be lost to the purchaser and any future owners.

If the capital allowance position is not resolved within two years of the transaction date then the ability to claim allowances will be lost.

If the previous owners of a building were unable to make a claim capital allowances then an opportunity may exist for you to claim based on the unrestricted market value of plant and machinery.

Mandatory ‘pooling’ requirement means a buyer can only claim capital allowances if the vendor has first included the qualifying expenditure in their tax computation. It is therefore important that any qualifying expenditure is identified, as vendors are likely to be forced to do so on sale.

Note that if a vendor fails or refuses to pool expenditure on fixtures (where it is possible to do so) there is no way for the purchaser to ‘retrieve’ the expenditure for capital allowances purposes – allowances on those fixtures will be lost to all future owners of the property.

A degree of ‘due diligence’ will be required and purchasers may also seek warranties/ indemnities from vendors in this matter.

Keep detailed records of the work done, and the costs that can be allocated to fixtures. It is much easier to document dates and costs contemporaneously than say 20 years later when the property comes to be sold.

Why take legal advice

Advice can help you maximise the tax relief available to your business through a capital allowance claim on a building and on the many other tax incentives that may be available to your business, including capital allowances for buildings including for example, if you have overseas property.

The scope of definitions across all areas is extremely broad, which makes it easy for businesses to overlook certain types of expenditure that are in fact eligible.

It is possible in the majority of situations to claim missed allowances going back several years, often to when a property was originally acquired and for items that were not thought to qualify at the time.

Capital Allowances on Cars

The rules for claiming capital allowances on cars are complex. But with careful tax planning it is possible to reduce your taxable profits and tax bill by claiming the full extent of tax relief available on car purchases.

Capital allowances on cars operate under different rules to capital expenditure on plant and machinery.

Capital allowances enable you to pay less tax when you purchase assets for use in your business. The allowances available to you depend on what you are purchasing – equipment, machinery or business vehicles such as vans, lorries or cars.

Whereas in most cases you can deduct the full cost of these items from your profits before tax using the annual investment allowance (AIA), cars do not qualify for AIA.

For the purposes of capital allowances, a car is a vehicle that is suitable for private use that was not built for transporting goods.

Vehicles which are not classed as cars (lorries, vans and trucks, motorcycles purchased before 6 April 2009), can still qualify for AIA.

While you cannot claim AIA on cars, you can claim capital allowances on new and second-hand cars you buy and use in your business using ‘writing down allowances’.

The Government continues to use capital allowances to incentivise financially the use of ultra low emission and electric vehicles. The Finance Bill No2 2017 proposes to introduce a first-year capital allowance for electric charge points. Keeping pace with these changes and your eligibility can through careful tax planning, result in a reduced tax bill.


Claiming capital allowances on cars – ‘Writing down allowance’

Writing down allowances allow you to deduct a percentage of the value of an item from your profits each year.

They are available where you have exceeded the limit for AIA, or where the item does not qualify for AIA, such as a car.

The amount you can deduct for a car under the writing down allowance will depend on the rate applicable to the vehicle. You should group items into ‘pools’ depending on the relevant qualifying rate.

Capital allowances on cars rates

When purchasing a new or second-hand car, the capital allowances available for tax purposes are very specific. The percentage deductible depends on the year the car was purchased and the CO2 emissions of the vehicle.

The following table summaries the rates for capital allowances on cars:

Type 2017/18 Rate
First Year Allowance for electric cars or if CO2 emissions are 75g/km or lower 100%
First Year Allowance for electric cars or if CO2 emissions are 95g/km or lower 100%
First Year Allowance for electric cars or if CO2 emissions are 110g/km or lower 100%
Writing Down Allowance if CO2 emissions exceed 75g/km but do not exceed 130g/km 18%
Writing Down Allowance if CO2 emissions exceed 95g/km but do not exceed 130g/km 18%
Writing Down Allowance if CO2 emissions exceed 110g/km but do not exceed 160g/km 18%
Writing Down Allowance if CO2 emissions exceed 130g/km 8%
Writing Down Allowance if CO2 emissions exceed 160g/km 8%

Note that emissions thresholds will be reduced to 50g/km and 110g/km for expenditure on or after 1 April 2018.

How do I work out how much I can claim?

Before you can claim for capital allowances on cars, you must first calculate the value of your claim.

Do this by identifying the percentage rate each car qualifies for according to the prescribed rates (see table above), and apply this to the value of the car(s). You then deduct the total figure for your claim from your profits before tax on your tax return.

The value of the car is usually the total price you paid for the item, including VAT.

You cannot recover any VAT paid when you buy a car, even if your business is VAT registered. VAT can only be recovered on vans and motorbikes.

If the car was a gift, or you owned it before you started using it in your business, you should instead use the market value i.e. the amount you could expect it to sell for.

When can I make a claim for capital allowances on cars?

For companies the claim must normally be made within two years of the end of the accounting period.

Can I claim for capital allowance rates on second-hand cars?

100% allowances are only available in relation to the purchase of new and unused cars.

If a vehicle is purchased second-hand, the 18% rate will apply even if the emissions fall within the 100% allowances category.

Can I claim capital allowances if I use the car for private purposes outside business?

You can still claim capital allowances on your car, but only for the proportion of business use of the car (or of any other asset that has private use).

Sole traders and partners who use their car outside business are advised to claim using ‘simplified mileage expenses’ (ie flat rate mileage).

Can I claim for a company car purchased for an employee?

Employees are not eligible to claim capital allowances on cars, motorbikes and bicycles used in business.

Where a car is purchased by a business and is available to the employee for their private use, there is no restriction on the allowances available to the company, nor on the running costs paid for by the business. However it becomes a taxable benefit in kind for the individual.

There will also be Class 1A National Insurance payable by the business on the value of the taxable benefit in kind.

We can advise on the costs to your business and the employee that will be generated under both options arrangements: holding a car within a company and suffering the taxable benefit in kind, or holding the car personally and charging the company a mileage charge for business miles.

What happens if I sell the car?

When you sell – or ‘dispose’ of – a car that you have claimed capital allowances on, you should include the value in your calculations for the accounting period you sell it in.

The only exemption is if you give the car away to a charity or ‘community amateur sports club’.

Disposing of the car will include the following:

  • Selling
  • Giving it away as a gift or transferring it to someone else
  • Swapping it for something else
  • Receiving compensation for it – like an insurance pay-out if stolen or written-off
  • Keeping it but no longer using for business
  • Starting to use it outside your business

The value is what you sold the car for. You should use the market value if you disposed of the car as a gift, or sold it for less than market value to a ‘connected person’ (immediate family and business partner and family).

If you originally used writing down allowances, deduct the value from the pool you originally added the item to when purchased.

The amount left is the amount you use to work out your next writing down allowances.

Can I claim capital allowances on a leased car?

This will depend on the type of lease involved.

Payments on an ‘operating lease’ will be treated as revenue expenditure and a business element deducted from taxable income. Payments on a ‘finance lease’ will be eligible for capital allowances.

Operating leases cover those agreements where an individual pays lease payments and either extends the lease, or returns the car at the end of the contract term. The car dealer (lessor) retains ownership of the car throughout, and there must be no option to purchase the car at the end of the lease. For operating leases, the relevant portion of business expenditure can be deducted from the lessee’s taxable income.

A finance lease is effectively a loan, secured on the asset (car). Hire purchases usually fall within this type of lease as legal ownership of the car may transfer to the lessee at the end of the lease, or there may be an option of a final payment to purchase the car.

When considering capital allowances, the lessee is regarded as the owner of the car from the beginning of the agreement. The lessee can treat the car as a capital purchase and claim the allowances on the cost of the car, subject to business use element. Only the capital element of the repayments is eligible for capital allowances. Interest element can be claimed as part of general motor expenses.

If the car is not purchased at the end of the lease, it is disposed of at a pre-determined residual value. This is usually the value of the final “balloon” payment. If this is less than the written down value of the car, then a further balancing allowance may be claimed.

Advice can help

If you are unsure as to your tax position for capital allowances, seek assistance to assess your capital expenditure, including the purchase of plant, machinery and vehicles including cars.


Asset Protection (A Useful Guide!)

Asset protection is essentially about planning now to protect for later.

Without planning, your assets are likely to be at risk of exposure to a number of financial predators. This could be as a result of commercial creditors, bankruptcy, divorce or the tax man.

So while the value of your assets will always be subject to economic fluctuations and commercial influences, you can in most cases take protective steps to shelter your assets from these financial predators.

What does asset protection do in reality? Just as there are many and varied needs for asset protection, so there are a plethora of tools available. Your choice will require careful consideration to ensure you are effectively mitigating risk while at the same time remaining compliant with current tax and other regulatory rules.

For example, you may want to hold assets through a structure to shelter your wealth from inheritance tax.

Businesses often look to hold family shares on a trust to protect them from their children entering into a marriage that doesn’t last.

Property developers might look to use structures that will ensure future ventures are kept discrete from completed developments in respect of which legal claims might potentially arise.

What does asset protection do to minimise financial risk?

Any asset protection strategy should take account of a range of potential risks, from the inevitable and foreseeable through to the unexpected.

Some of the most common threats include:

  • Inheritance tax
  • Capital gains tax
  • Bankruptcy
  • Ex-spouses
  • Professional negligence claims

With these in mind, there are a number of steps to take for an effective approach to asset protection.

Start with a clear vision of your financial and personal objectives. These are the key drivers. Until you are clear what you want to happen, planning is likely to be limited in its effectiveness.

There may be many areas to consider here:

  • What does your asset portfolio look like – both the type of assets and where they are?
  • How easily do you need access to wealth and capital now?
  • What is your current tax liability?
  • What do you want to happen to funds payable – who do you want to benefit and how?

Your options for tax planning should be determined by your goals and longer-term ambitions for the structure. Whether that means use of one or a combination of structures, or making transfers between structures (Capital Gains Tax and IHT implications considered).

To meet your objectives and ensure protection across your asset portfolio and full net worth, your tax planning may encompass a number of tools that take advantage of tax reliefs, exemptions and deferred liability.


For protection purposes, trusts can offer certainty and shelter from financial attack.

Trusts are almost always used as a means of making a gift of cash or assets – including shares in the family business – with certain conditions applied that are important to the asset owner. For example, giving someone dividends on shares while retaining ownership of the underlying shares.

In other words – a gift with strings attached.

You can be a trustee of the trust that you have created, and so are able to control the transfer of your asset during your lifetime with protection from threats such as divorce and bankruptcy.

Placing an asset in trust offers IHT protection where you survive for the period of seven years and assuming that you do not derive a benefit from the asset(s).

One must also consider the capital gains tax implications of any asset transferred to the trust. Even where there is no consideration paid by the trust for the asset then this will be an event for CGT purposes.

Where the asset stands at a gain then in some circumstances the gain can often be deferred (or ‘held over’).


A will is arguably the most basic – and obvious – of planning tools. Making a will is the most effective method of protecting your assets upon death.

If you die intestate, you are exposing your estate and beneficiaries to all manner of risks. Your assets will be subject to the intestacy rules, meaning they will be transferred by a mechanical set of rules that are potentially not in line with your actual wishes. This may result in a contentious probate scenario following your death. Not a good result.

Family investment companies

Family investment companies (FICs) offer a number of benefits, but are unlikely to be suitable in all scenarios.

An FIC is a UK limited company where family members are the shareholders. FICs enable shareholders to transfer cash into the company tax-free.

Gifting shares is IHT exempt as a Potentially Exempt Transfer (PET) – provided the donor does not pass away within seven years of making the gift.

FICs can be very effective where the underlying investments are equities as the Company will not pay tax on the receipt of dividend income.

What might be disadvantageous, however, is the potential for double taxation on other asset classes that are not so exempt. In other words, there will be tax at the corporate level and then on any funds taken personally by shareholders / directors.

You will need to consider the specific impact of corporation tax on profits, income tax on distribution to shareholders, and the potential for capital gains tax liability on the disposal (transfer) of non-cash assets.

It should be said that FICs are particularly unsuitable where one is wishing to transfer property assets as there is likely to be a material stamp duty charge on doing this.

Gifts and transfers

Consider making the most of IHT-exempt gifts and transfers. A lifetime gift for example can be put on trust. This would be both tax-efficient for IHT purposes and allows the giftor an element of control over the gift and the release of capital.

Overseas pension schemes – QNUPs and QROPs

QNUPs and QROPs are, even by usual tax standards, complex schemes, and we advocate seeking professional advice to ascertain both suitability to your circumstances and on eventual use of the scheme(s).

Qualifying Recognised Overseas Pension Schemes (QROPS) are not liable to UK IHT. Anyone with a UK pension scheme who now lives overseas as an expatriate, or is planning to leave the UK, can transfer their existing pension provisions into a QROPS. Note in most other circumstances, there will be a 25% tax charge on the transfer.

Qualifying Non-UK Pension Schemes (QNUPS) are a flexible structure for funds not currently in a pension scheme. They can be particularly useful for UK-situate property and benefit from an IHT exemption in appropriate circumstances.

Advice on asset protection

Successive rule changes have rendered trusts unsuitable in many scenarios. As such, alternative structures should be considered.

Once you have an asset protection plan in place, it will be prudent to carry out some form of review, ideally at least every 2 years.

Take professional advice on asset protection to separate and protect your portfolio of assets from external financial threats.

Capital Gains Tax on Second Property (What You Need to Know!)

For owners of multiple properties, it’s important to understand the tax liabilities that arise on the disposal of residential property assets. But the rules for capital gains tax on second property can seem daunting, not least because the capital gains rules for your main home differ from those affecting additional properties.

Where the property is your main or only residence, tax is not usually payable on gains under ‘Principle Private Residence Relief’ (PPR) assuming you have lived there throughout its ownership.

Capital gains tax is however payable on any additional properties you own and dispose of at a gain. This includes let properties, second homes and holiday lets.

So, whether you are a professional ‘portfolio landlord’, a foreign investor with interests in the UK property market or even an ‘accidental’ landlord who has inherited a second property, if you are considering disposing of a property that is not your primary UK residence, here is what you need to know about the capital gains tax on second property.

Capital gains tax on second property: the rules

Capital gains tax is payable when you dispose of an asset – in this instance we will focus on property – at a profit.

The gain is calculated by deducting from the sale price the initial price the property was acquired for, less any permissible costs and less the capital gains tax annual exemption where applicable.

Permissible costs may include:

Stamp duty
Solicitor’s fees
Estate agent’s fees
Costs involved in advertising the property for sale
Costs incurred in increasing the property’s value (improvements, not maintenance or general upkeep costs)

For each tax year each taxpayer is granted capital gains tax annual exemption. For the year 2017-18, the allowance is £11,300. So, you can take the first £11,300 of your annual gains tax-free.

If your gain on the sale of a second property exceeds the annual exemption, or if you have utilised the exemption on the disposal of another asset, you will be liable to pay capital gains tax on the outstanding gain at one of the following rates:

18% capital gains tax if you are a basic rate taxpayer
28% capital gains tax if you are a higher rate taxpayer

You should note that although capital gains tax rates were generally reduced to 10% / 20% respectively, this reduction does not apply to UK residential property.

Capital gains tax on second property: available reliefs

Tax reliefs are available for second properties, where relevant criteria are met.

Principle Private Residence Relief (“PPR”)

Under PPR Relief, you won’t pay any tax on selling your property – provided it is or has at some point during your ownership been, or been deemed to be, your primary residence.

If you own multiple properties, you are permitted to nominate one of the properties as your primary residence to benefit from this tax-free relief.

You have two years from the point you purchase a new property to change your main residence.

The property does not have to be the one where you live most of the time. You may wish to consider nominating the property expected to make the largest gain when you come to sell.

You should however expect HMRC to request further information to support your case to change primary residence. There has been a great deal of activity from HMRC in this area in recent times.

Married couples and civil partners should note that they can have only one main residence between them.

Note that you won’t be able to claim tax relief if you bought the property just to sell it on and make a gain.

Lettings relief

If the property qualifies in part for main residence relief and it has also been let during the period of your ownership, you may be able to claim lettings relief to reduce your capital gains tax bill.

The amount of lettings relief available is the lower of:

the amount of the main residence relief due;
the amount of the gain that relates to the period of letting; or

You can claim private residence relief and letting relief on the same property. However – you are not allowed to claim the two forms of relief for the same period of time.

For example, the last 18 months will qualify for private residence relief rather than letting relief. The exact amount of private residence relief and letting relief you can get depends on the specific fact pattern.

Is capital gains tax due on a second property that was inherited?

If you inherit a second property, there may be inheritance tax to pay, but this will usually be dealt with by the estate of the deceased. However, for capital gains tax purposes you will be deemed to have acquired the property at the probate value.

If you subsequently decide to sell the inherited property, there are a number of factors which will dictate if and what capital gains tax you are liable for.

If you sell the inherited property and PPR relief is not available as the property had at no point been your main residence, capital gains tax will be payable at the prevailing rate.

The gains will be calculated as the difference between the value of the property at sale and the value of the property at probate, less any allowable costs of selling.

If you were gifted the property while the previous owner was still alive and still living in the property, then you may also have to pay capital gains tax when you eventually sell the home. The amount will be based on the increase in value between the date they gave you the property (not the date of their death) and the date you sell. Importantly – this is the case even though there may also be inheritance tax to pay on the home at the time of death.

Capital gains tax on second property: non-residents and UK residential property

Prior to 5 April 2015, no capital gains tax was payable by non-UK residents owning UK property.

Since 5 April 2015, non-UK residents have been subject to capital gains tax on the disposal of UK residential property.

Under the current rules, if the property was owned before 6 April 2015, the gain arising is calculated for all intents and purposes as if you acquired the property on 6 April 2015 at its then market value.

Non-UK residents must notify HMRC of the disposal of UK residential property within 30 days of the completion of the sale or within 30 days of any other transaction, e.g. a gift, and you will usually be liable to pay the capital gains tax within the 30-day period.

Furnished Holiday Lets (“FHL”)

Broadly speaking, an FHL is a furnished residential property located in the UK or the European Economic Area (“EEA”), let on short-term periods and available for let for at least 210 days, and actually let for 105 days, in a given tax year.

Where the total of all lettings that exceed 31 consecutive days is more than 155 days during the tax year, the property will fail to qualify as an FHL. The FHL must also be let on commercial terms.

All UK residential properties which are let under the FHL provisions will form a UK FHL business whilst any EEA residential properties will form an overseas FHL business.

FHL properties are treated as business assets for certain capital gains tax rules and benefit from numerous capital gains tax reliefs which would otherwise be unavailable in respect of residential property.

Two of the main capital gains tax reliefs that apply are:

Roll-over relief: Where an FHL is sold and the proceeds reinvested in qualifying business assets, the capital gain may be deferred until the new asset is sold; and
Entrepreneurs Relief (“ER”): Where there is a material disposal of business assets one may benefit from the ER capital gains tax rate of 10% (subject to the ER lifetime limit of £10 million).

Take advice with capital gains tax on second property

Property owners, landlords and investors, both UK and non-resident can benefit from tax planning, identifying all tax liabilities and available reliefs including capital gains tax and property related taxation.

How does a trust protect personal assets?

An optimised approach to asset protection will consider a wide range of tools and structures potentially at your disposal. One item for consideration in this toolkit will be the trust.

Trusts have for centuries been used for asset protection purposes. However, trusts have also been synonymous with tax planning and avoidance. For better or for worse, the latter approach is unlikely to be effective as any tax benefits for UK resident and domiciled individuals have almost been totally eroded.

However, rather than being a dinosaur facing extinction, the use of trusts has continued to evolve. As a device for protecting assets from spendthrift children, poor marriages in the family or commercial creditors, trusts still have a lot to offer.

Today, trusts are often used for the purposes of gifting cash, shares and other assets while applying certain conditions. The donor has probably already decided he wants to bequeath assets to a donor (and as such this gift will trigger tax consequences) but it is the thought of the donee having unfettered access to the underlying capital which makes them use a trust.

For example, by settling an asset – e.g. shares – on to a trust a beneficiary may enjoy the economic benefits of ownership such as the dividends that might be payable on the shares. However, the trustees will prevent the sale of the shares by the beneficiary or potentially protect the asset from a creditor, for example, on bankruptcy. A trust could even protect wealth from the tax.

It should be noted that a trust will not help in a situation where a creditor has already arisen. So one cannot deprive a creditor by transferring assets to a trust. That horse has bolted.

How does a trust protect personal assets: Tax issues on transferring assets on to trust

As mentioned above, the making of an outright gift will usually have tax consequences. Where the asset is a chargeable asset (so not cash and some other exempt assets) and it stands at a gain then this will be a disposal for capital gains tax purposes. This will be the case even where there is no cash.

Certain transfers of business assets might qualify for holdover relief. This means that as long as the recipient is happy to sign a joint election with the donor to take on this historic gain – which will crystallise when the recipient sells the asset – there is no tax to pay.

Where the asset is transferred to a trust then, as long as the trust is UK resident, is not settlor interested and the settlor’s minor children cannot benefit, then usually the gain on any asset can be held over in this way.

So, for instance, where a property is being transferred a trust can help defer a gain. The trustees would take over the gain and they would pay tax if they sell to a third party or, if the asset is appointed to a beneficiary, then the trustee and the beneficiary might enter into a similar election.

For inheritance tax purposes, an outright gift is usually more straightforward. In the absence of any reliefs then the donor will escape IHT if they survive the gift by seven years. If they die within this period, the gift is added back to their estate on death.

However, where the asset is transferred to a trust – but not a bare trust, see below – then the transfer is what is known as a Chargeable Lifetime Transfer (CLT). In the absence of any reliefs, and where the value exceeds the available nil rate band, then the excess is subject to IHT immediately at 20%. If the donor dies within seven years then there will be further tax to pay of 20%.

How does a trust protect personal assets: Different types of trust

There are different types of trust available, each with different characteristics. It is therefore crucial to ensure you understand and consider all options to meet your specific personal circumstances and objectives.

We take a brief look at some of the most commonly used trust types, although many more exist and should be considered in line with your requirements:

Bare trusts

Known as the most straightforward of trusts, and in effect a basic nominee arrangement, a bare trust is structured at the outset with a definitive list of (living) beneficiaries and set distribution of capital and income.

The position at the time the trust is created is then fixed. There is no flexibility to for example include additional beneficiaries.

While trustees are required to meet regularly to discuss the investment of the funds, they have no discretion as to distribution, meaning overall administration of the trust is relatively simple.

Bare trusts generally offer low appeal for asset protection since the beneficiaries own the capital and assets in trust, including gains and income arising. At 18, the beneficiary is entitled to assume control of their asset.

There are however a number of benefits to this structure. For example, gifts made under a bare trust are known as ‘potentially exempt transfers’ (PETs). Provided the settlor lives at least seven years after making a PET, the assets in the trust will no longer count as part of the estate, beyond the reach of IHT.

Discretionary trusts

As the name suggests, discretion is the key characteristic of this type of trust.

At any point, changes can be made to the trust set-up including adding beneficiaries and changing distribution of income arising. The prevailing rule is that any change must be in the beneficiaries’ best interest, making this type of trust attractive in asset protection terms.

Discretionary trusts are typically inefficient in income tax terms, which is to be balanced against the primary driver for asset protection.

A common use of the discretionary trust is in the family business context. A trust is used to hold shares in a family business, with the trustees controlling succession to the next generation, while importantly – providing protection from external financial threats such as creditors or ex-spouses.

As a more flexible type of trust, however, discretionary trusts will demand more proactive management on the trustees’ parts, which, as you might expect, could lead to higher running costs.

How does a trust protect personal assets: Offshore trusts

In the same way that UK trusts have undergone a transformation in their potential tax benefits, so too have offshore trusts.

In tax-efficient terms, significant change has been effected through anti-avoidance rules governing the use of offshore trusts, effectively rendering offshore trusts of little taxable benefit to UK resident and domiciled individuals.

For non UK domiciled individuals and non UK residents however, the tax position of offshore trusts does continue to present more favourable efficiencies. But the coast is far from clear, and you are advised to tread carefully.

Looking specifically at the question of ‘how does a trust protect personal assets’, however, these changes will be of less concern.

Offshore trusts generally enjoy enhanced protection from creditors, given the added complications of multiple legal regimes in addition to the UK element, before they are able to gain access to trust assets.

The rules in this area are however sensitive, and care must be taken to ensure use of offshore trusts, including how they are structured and how income and gains are distributed, do not satisfy proximity to the UK regime. For example, in the instance of a non resident trustee, where a settlor or a beneficiary is closely connected to the UK, income and /or gains liability will generally be triggered.

If you have an existing structure, or are considering setting up a structure, we would recommend you obtain and continue to obtain proper professional advice.

How does a trust protect personal assets?

Asset protection is a highly complex area of tax planning, particularly where issues of residence and domicile are involved.

In all cases, the use of trusts for asset protection purposes will also need to take into account wider taxation implications – transfers for example potentially triggering capital gains tax liability, which will need to be balanced against the value assigned to the protection of assets.


What is Divorce?

The following guide summarises the current process for filing for divorce in England and Wales.

Divorce defined

Divorce is the formal process by which a marriage is officially brought to an end by the court.

The party to the marriage who files for divorce is known as the petitioner, while the respondent is the individual petitioned against and therefore responding to those proceedings.

By filing a petition to terminate the marriage, the petitioner is asking the court to dissolve the bonds of matrimony, together with all legal duties and responsibilities that marriage entails.

The court, however, must first be satisfied that there are grounds for divorce.

Grounds for divorce

Under section 1(1) of the Matrimonial Causes Act 1973, it is necessary to prove to the court that a marriage has broken down irretrievably and to the point where it cannot be saved.

A petitioner cannot simply state that their marriage has failed, rather they must establish and evidence to the court irretrievable breakdown through one of the five facts:


Pursuant to section 1(2)(a) of the 1973 Act, the court must be satisfied that the respondent has committed adultery and that the petitioner finds it intolerable to live with the respondent.

The law only recognises the act of adultery as sexual intercourse between the respondent and a person of the opposite sex.

Further, a petitioner cannot seek a divorce on the grounds of their own adultery.

In determining whether the petitioner finds it ‘intolerable’ to live with their former partner, the court will disregard any period where the parties continue to live together for

a period of less than 6 months once the adultery has been discovered.

The petitioner cannot, however, rely on an allegation of adultery if the parties live together for more than 6 months, or a combined period exceeding 6 months.

Unreasonable behaviour

Pursuant to section 1(2)(b) of the 1973 Act, the court must be satisfied that the respondent has behaved in such a way that the petitioner cannot reasonably be expected to live with the respondent.

Unreasonable behaviour could include physical violence, verbal abuse such as insults or threats of violence, alcohol or substance abuse, as well as financial irresponsibility such as spending excessively or refusing to contribute to the household finances.

In determining whether the petitioner cannot reasonably be expected to live with the respondent, the court will disregard any period where the parties continue to live together for a period, or combined period, of less than 6 months, following the occurrence of the final incident of unreasonable behaviour relied upon by the petitioner.


Pursuant to section 1(2)(c) of the 1973 Act, the court must be satisfied that the respondent has deserted the petitioner for a continuous period of at least 2 years immediately preceding the presentation of the petition.

Desertion requires the petitioner to prove that his/her spouse has left them with the intent of ending the relationship, without their consent, for a period of at least 2 years.

In determining whether the period for which the respondent has deserted the petitioner has been continuous, the court will disregard any period where the parties resumed living together for a period, or combined period, of less than 6 months.

That said, no period during which the parties lived with each other will count as part of the period of desertion.

2 year separation with consent

Pursuant to section 1(2)(d) of the 1973 Act, the court must be satisfied that the parties to the marriage have lived apart for a continuous period of at least 2 years immediately preceding the presentation of the petition, and the respondent consents to a decree being granted.

In determining whether the period for which the parties to a marriage have lived apart has

been continuous, the court will disregard any period where the parties continue to live together for a period, or combined period, of less than 6 months.

That said, no period during which the parties lived with each other will count as part of the period for which the parties to the marriage lived apart.

For the purposes of section 1(2)(d), a husband and wife shall be treated as living apart unless they are living with each other in the same household. Accordingly, a couple can be separated whilst living under the same roof, so long as they are not living together as man and wife.

5 year separation

Pursuant to section 1(2)(e) of the 1973 Act, the court must be satisfied that the parties to the marriage have lived apart for a continuous period of at least 5 years immediately preceding the presentation of the petition.

Whilst consent is no longer needed to divorce after a 5 year separation, the same rules relating to what counts as a ‘continuous period’ and ‘living apart’ set out above (for a 2 year separation period) apply equally here.

The only basis upon which a respondent can object to petition based on a 5 year separation, is that the divorce will cause grave financial or other hardship, and in all the circumstances it would be wrong to dissolve the marriage. However, the hardship must result from the dissolution of the marriage itself and not just from the breakdown.

Filing for divorce

When filing for divorce the petitioner must cite and evidence within the petition one of the five facts set out above to demonstrate irretrievable breakdown of the marriage. Once the petition has been issued and served by the court, the respondent will be required to acknowledge receipt and to confirm whether or not they object.

In the event that no objection is raised, the petitioner can apply for a decree nisi. The decree nisi is confirmation from the court that the petitioner is entitled to a divorce. It will not, in itself, end the marriage.

The petitioner will be required to wait 6 weeks plus one day from the date of the decree nisi before they can apply for the decree absolute.

If the petitioner does not make the application for their decree nisi to be made absolute, the respondent can do so, although s/he will be required to wait another 3 months after the time when the petitioner could have applied.

In the event that the respondent does not agree to the divorce, the petitioner can still apply for a decree nisi, although the parties will be required to attend a hearing for the court to make a determination on the facts.

Before granting a decree of divorce the court is under a duty to inquire, so far as it reasonably can, into the facts alleged by both the petitioner and respondent.

On the grant of the decree absolute the divorce becomes final. Accordingly, the marriage has been legally dissolved and the parties are free to remarry.

Why take legal advice?

While the legal process of officially bringing a marriage to an end can in itself be relatively straightforward, disagreements and disputes between a former couple can become complicated and delay the eventual divorce being finalised. Take legal advice to help guide you through the legal requirements and ensure your rights are enforced during what will be a challenging and highly emotional process.

Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.

What is Intellectual Property?

Intellectual property (IP) is property that includes intangible creations of the human intellect, and primarily encompasses copyrights, patents, and trademarks.

It also includes other types of rights, such as trade secrets, publicity rights, moral rights, and rights against unfair competition. Artistic works like music and literature, as well as some discoveries, inventions, words, phrases, symbols, and designs, can all be protected as intellectual property.

It was not until the 19th century that the term “intellectual property” began to be used, and not until the late 20th century that it became commonplace in the majority of the world.

What is a Patent?

A patent is a Governement granted intellectual property right to protect inventions, as a territorial right for a limited period.

A patent makes it illegal for anyone except the owner or someone with the owner’s permission to make, use, import or sell the invention in the country where the patent was granted.

In the UK a patent has a life of 20 years and provides protection throughout the UK so long as renewal fees are paid every year.

For a patent to be granted the invention must be:

  • Novel
  • Inventive
  • Have industrial applicability

What is Family Law?

Family law is an area of law that relates to family matters and involves a host of authorities, agencies and groups which participate in or influence the outcome of private disputes or social decisions involving family law.

Such a view of family law may be regarded as assisting the understanding of the context in which the law works and to indicate the policy areas where improvements can be made.

The UK is made up of three jurisdictions: Scotland, Northern Ireland, and England and Wales. Each has quite different systems of family law and courts.

Family law encompasses divorce, adoption, wardship, child abduction and parental responsibility. It can either be public law or private law. Family law cases are heard in both county courts and family proceedings courts (magistrates’ court), both of which operate under codes of Family Procedure Rules.

There is also a specialist division of the High Court of Justice, the Family Division which hears family law cases.


There are numerous legislation that covers family law. These are:

Marriage and civil partnership

  • Civil Partnerships Act 2004
  • Marriage (Same Sex Couples) Act 2013

Divorce and dissolution

  • Matrimonial Causes Act 1973
  • Children Act 1989
  • Child Support Act 1990

Domestic violence

  • Family Law Act 1996
  • Protection from Harassment Act 1997
  • Children Act 1989

Nemo Dat Quod Non Habet

Nemo dat quod non habet, literally means “no one gives what he doesn’t have”. This is a legal rule, sometimes called the nemo dat rule, which states that the purchase of a possession from someone who has no ownership right to it also denies the purchaser any ownership title.

It is equivalent to the civil “Nemo plus iuris ad alium transferre potest quam ipse habet” rule, which means “one cannot transfer more rights than he has”.

The rule usually stays valid even if the purchaser does not know that the seller has no right to claim ownership of the object of the transaction; however, in many cases, more than one innocent party is involved, making judgment difficult for courts and leading to numerous exceptions to the general rule that aim to give a degree of protection to bona fide purchasers and original owners.

The possession of the good of title will be with the original owner.

The original owner can obtain protection against the former owner through the doctrine of estoppel (see also, s 21(1) of the Sale of Goods Act 1979 ‘…unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell). Methods of the estoppel can be by words, by conduct, or by negligence.