- Written by Steve Falla
Inheritance Tax Updates
Inheritance Tax calculations in JCS have had a number of improvements recently. Some of these are clearly visible if you have used this functionality before, others are a little bit more subtle.
Residential Nil Rate Band
This is one of the more obvious updates. The Residential Enhancement for Nil Rate Band came into effect April 2017, allowing an individual up to £100,000 of extra Nil Rate Band where a qualifying property is closely inherited. This will rise incremently to £175,000 by 2020/21. The residential enhancement available to an individual will be tapered by £1 for every £2 that an individual's estate exceeds the Taper Threshold of £2 million.
For individuals that have sold their main residence and purchased a smaller property that is valued less than the maximum residential enhancement in that year, their RNRB may be increased by calculation of their downsizing allowance.
The inclusion of the Taper Threshold has required that certain assumptions made in JCS in the past are no longer valid. Previously, a joint IHT calculation in JCS assumed all assets would be inherited by the surviving spouse, and that 100% of Nil Rate Band would be transferred to the surviving spouse. Meaning that the estate is the total of the couple's assets, and the NRB available would be 200%. This was a fairly simple model that worked for most scenarios, including gifts brought into charge on first death.
The joint IHT calculation model in JCS is now slightly different. It requires that an individual IHT calculation is performed for both client and partner, to determine the size of each estate respectively. This will determine any impact on the RNRB available due to the Taper Threshold, and thus any transferred/unused RNRB passed to the surviving spouse. Therefore, the joint calculation is now actually the IHT calculation on the second death, where transferred RNRB is restricted by the estate of the first death, transferred NRB is the remainder of NRB from first death after gifts in the last seven years have been brought into charge, and that 100% of the estate is inherited by the surviving spouse.
This change in how JCS now calculates IHT, allows some new functionality to be exposed to a planner.
Individual IHT Calculations For A Married Couple
Previously, it was only possible to perform an individual IHT calculation if a client had been entered into JCS without a partner. Now, it is possible to perform an individual IHT calculation on either the client or the partner. The estate value for client and partner is based on assets owned by each respectively, where joint assets are deemed to be owned 50/50. Calculation of gifts in the last seven years is based on which of the couple was the donor, joint gifts are deemed to be 50/50.
These scenarios will show the effect of either the client or partner dying on the day of calculation, on the assumption that 0% of the deceased's estate will be transferred to the surviving spouse. In other words eliminating the IHT exempt transfer.
Alternate Joint IHT Calculation Scenarios
Joint calculations were previously based on the assumption of the eldest of the couple dying first. The order of death can affect the outcome of the IHT calculations due to factors such as gifts that come into charge on death, payout of life policies not held in trust, payout of death benefits from a pension scheme etc, and there was no way to customise this without modifying the age of the clients in question.
With the latest release, it is now possible to generate a joint calculation under any of the following scenarios:
- Client 1st death
- Client 2nd death
- Eldest 1st death
The last scenario is obviously a duplicate of one of the first two scenarios, and is the default scenario used within Profile Reports.
Transferred NRB In Joint IHT When Gifts Brought Into Charge On First Death
With the updated model for joint IHT calculations, the final calculation is that of the second death only. This calculation will only bring into charge any gifts from that individual, and so will seem to be ignoring gifts from the individual that died first. This is now factored in through the amount of unused NRB available after first death that can be transferred.
On first death, gifts that are brought into charge will use up the Nil Rate Band (including any unused NRB from a previous spouse), and will affect how much can be transferred to the surviving spouse. If the value of gifts brought into charge exeed the total NRB available, the unused NRB available for transfer will be zero, and there will be IHT due on the first death. This charge will be added as an additional amount to the total tax due in the second death calculation.
Using this model it is possible to simulate the scenario where up to 400% of NRB can be utilised. The example below can be modelled within JCS.
Bill dies in August 2017, leaving an estate of £750,000 to his wife, Sally. Within the last seven years, Bill had made total gifts to his children of £650,000, he is entitled to 100% transferred NRB from his previous wife who died in 2001.
Bill's total NRB percentage is 200%, which in 2017 is £650,000.
Total assets chargeable to IHT are £750,000, plus £650,000 in gifts. However, the estate will be inherited by Sally and so is exempt. The remaining £650,000 fully utilises the NRB, leaving zero transferred NRB for Sally.
Sally dies later in the same year, with an estate of £750,000. Sally made no gifts in the last seven years, but she is entitled to 100% transferred NRB from her previous husband, who died in 2005.
Sally's total NRB percentage is 200%, which in 2017 is £650,000.
Total assets chargeable to IHT are £750,000. £650,000 of this is charged at zero, due to the Nil Rate Band, the remaining £100,000 is charged at 40%.
As a couple, the total amount charged at nil rate is £1,300,000, or 400% of Nil Rate Band.
Annual Exemption Gifts and Other Exempt Gifts
Any discussion about IHT calculations in JCS would not be complete without mentioning exempt gifts and how they are handled in the JCS model, as these are often misunderstood and entered incorrectly.
Annual Exempt gifts should always be entered into JCS as Potentially Exempt Transfers. JCS will automatically allocate the first £3,000 of gifts per year to be exempt (both client and partner exemptions will be allocated). Even if a gift to the value of £12,000 was entered, the first £3,000 would be marked exempt, and the remaining £9,000 would come into charge upon death. If no gifts were made in the previous year, or the annual exemption was not fully used, this will automatically be carried over for one year to increase the annual exemption for that year. Annual Exemption gifts are always handled in the calculations and are carried throughout the entire calculation. If they are not entered into the list of gifts, as "they are exempt, so I don't need to", then JCS will apply the annual exemption to other gifts that have been entered instead.
Other Exempt gifts, are gifts that are completely exempt from IHT, and so can be left out of the calculation completely. These would include gifts to charity, gifts to spouse, gifts for weddings etc. JCS still allows a user to enter these gifts for record keeping purposes, but they will never form part of the IHT calculation.
- Written by Steve Mahy
Refresh Your Reports
In recent years, we have had comments from several users that, although they might be happy with the content of JCS reports, in terms of look and feel, they left much to be desired.
We had to agree.
With their excessive use of bold and italic text, as well as the decidedly old fashioned looking Times New Roman font, JCS reports were looking dated, and sorely in need of a style makeover.
As there are literally hundreds of reports produced by JCS, updating them all has been a mammoth undertaking, but as of JCS version 26.010.03 (released in January 2017), we are proud to introduce the ability to pick and choose from a number of different contemporary report "themes", in a manner that will probably feel quite familiar to users of the more recent editions of Microsoft Office.
Gone is the antiquated Times New Roman font and ugly decorated text, and in its place you’ll find clean, modern-looking fonts, with a variety of colours to pick from.
If you have not seen or used these new themes, check them out in Preferences, within JCS. You can see live previews of the themes on a mini sample report, before deciding which one to actually use.
Hopefully there is one that works for you, which complements your corporate branding. If not, don't panic! We are adding to the list of themes all the time, and would also be happy to work with you to add a style with your specific corporate colours. We have done this already with a number of early takeup adviser firms during our testing phase.
Want to stick with the old look? Don't worry, it hasn't gone anywhere, it is still available under the suitably titled "JCS Classic" (we thought “Classic” an appropriate name for something which looks like it belongs in the age of floppy disks and punch cards).
We're really happy to get some early positive feeback about the new report themes. Robyn from Harrold Financial Planning had this to say...
"...we were very pleased with the reports and they look so much more professional and contemporary. Our clients were pleased too and we went one step further by getting cardboard covers [of client packs] printed which finished the quality look off."
- Written by Maxine Le Cheminant
0345 Geographic Numbers
We are pleased to confirm that following a recent review by Ofcom of geographic and non-geographic call number charging transparency, JCS has followed their recommendations and has adopted an 0345 number to ensure that our customers do not get hit by hidden call charges.
Our numbers remain the same but now have prefix of 0345. The 0845 number will still work but our recommendation is for you to start using the 0345 number. For most customers an 0345 number is cheaper than using an 0845 number.
- Written by Steve Falla
Keeping Your Provider Connections Secure
The Internet seems to be awash with notifications of security vulnerabilities and leaking of details these days. A lot of these vulnerabilities have been based around the SSL and TLS encryption protocols, which are starting to get a bit long in the tooth now. SSL was first invented in 1994, and TLS in 1999, and as time marches on, the earlier versions of these protocols are slowly but surely being replaced with newer ones.
Product Providers are constantly altering the security requirements on their websites and web services and dropping support for the older protocols, meaning that if your computer does not support the newer protocols and is not configured correctly, you will not be able to use these websites and services, including Contract Enquiry.
Last year, we recommended that users disable the early protocol versions for SSL and TLS, and only use TLS 1.2 as this is really the only secure protocol left in the SSL/TLS family. All others have been compromised. Unfortunately, Product Providers have not been quite so pro-active in either adopting the new versions, or dropping old versions, and this has led to some users being unable to connect to certain Providers.
With this in mind, our latest recommendations are a little bit more pragmatic.
1/ Disable all SSL protocols (SSL 2.0 and SSL 3.0)
SSL is now deemed to be an insecure protocol, and can be easily compromised. Whilst a few platforms and providers still support SSL, they all support newer protocols, so there is no requirement to use these ever again.
2/ Enable all TLS protocols (TLS 1.0, TLS 1.1 and TLS 1.2)
TLS 1.2 is the only remaining secure protocol, however there are a number of providers and plaforms that have still not adopted either TLS 1.1 or TLS 1.2. Therefore, to ensure that you can still connect to all providers and platforms you will need to be able to use all three of these protocols.
By having all three TLS protocols enabled, your computer will always attempt to connect using the latest and greatest, and downgrade only as required based on the remote server.
The above settings can easily be located in Windows 10 by clicking on the Windows "Start" button and typing "Internet Options". Once you open Internet Options, click on the "Advanced" tab and scroll all the way down to the bottom of the settings list. Simply select/de-select the boxes mentioned above and then click the 'Apply' and 'Ok' buttons to save the changes.
If you were experiencing issues with connections before this, you may need to restart JCS and any web browser sessions before trying again.
- Written by Steve Falla
