At Elite Law, our team of experienced inheritance tax planning solicitors regularly assist clients with arranging their financial affairs in the most tax efficient way possible.
Making provision for your loved ones after you have gone is an essential part of managing your estate and assets. With appropriate planning you can ensure that the inheritance tax due from your estate is minimised.
Inheritance tax (IHT) is the tax due from a person’s estate (including property, possessions, and any other financial assets) after they have died. On death, gifts made during a person’s lifetime and Trusts which a person benefits from are taken into account in calculating IHT. Lifetime gifts into Trusts are sometimes also liable for IHT when the gift is made.
Is IHT charged on everything?
Some assets (such as business interests, agricultural property and some types of investments) benefit from reliefs which mean they are not subject to IHT. Our inheritance tax planning solicitors can advise you on these reliefs and how best to maximise using the reliefs for your estate planning.
Some beneficiaries (such a spouses and civil partners) are exempt from IHT when they receive assets outright, or in the case of spouses and civil partners in certain types of trust.
There are ‘nil-rate allowances’ and the estate within those allowances passes free of tax on death.
What are the nil-rate allowances?
Every individual has a ‘nil rate allowance’ which is currently £325,000 which applies to any assets passing to any beneficiary. This allowance is reduced by the chargeable value of gifts made by a person in the 7 years prior to death. Where the chargeable value of gift made in the 7 years prior to death exceeds £325,000 the gifts in excess of the ‘nil rate allowance’ will be subject to tax following death.
If a person who is married or in a civil partnership does not use all of their nil rate allowance (for example because their estate has passed wholly or in part to exempt beneficiaries such as their spouse or civil partner), any unused allowance can be transferred to the estate of their spouse or civil partner on their death. The transfer of the allowance can only be applied for on the death of the surviving spouse or civil partner so it is important for appropriate records to be kept to ensure the unused allowance can be claimed.
In 2017 a ‘main residence allowance’ was introduced. This allowance is currently £175,000 and is available where a person owns a property which passes to direct descendants. The allowance can also be claimed where a person owned a property when the allowance was introduced which has subsequently been sold and their estate holds the proceeds of sale of that property which pass to direct descendants. Direct descendants include a persons children and their descendants and a persons step-children and their descendants with step-children being defined as the children of a person’s spouse or civil partner.
Any unused main residence allowance can be transferred to a person’s surviving spouse or civil partner in the same way that the nil-rate allowance can.
Our inheritance tax planning solicitors can advise you on how to ensure that you are utilising all available nil rate allowances whilst leaving your estate to your chosen beneficiaries.
Who pays the inheritance tax?
Inheritance tax due on death from estate assets must be paid by the Executors from the estate.
Executors must prepare and submit an inheritance tax account and make arrangements for a portion of the tax due to be paid prior to obtaining a Grant of Probate to deal with an estate.
Our lawyers can advise you how much tax will be due from your estate and approximately how much will need to be paid on account before a Grant of Probate can be obtained so you can ensure that your Executors will be able to arrange payment of that tax from your assets.
Inheritance tax due from the recipients of lifetime gifts in excess of the nil-rate allowance will be due from the recipients of those gifts. Our inheritance tax planning solicitors can advise you on this point and, if you prefer that this tax is paid from your estate, can ensure that your Will makes the appropriate provisions.
Can I make gifts during my lifetime without paying IHT?
If you make outright gifts (of money, items, property, land etc) during your lifetime those gifts are not subject to IHT when they are made and are potentially exempt transfers (PETS).
The gifts made in the 7 years prior to your death will be taken into account in calculating the tax due on your death. If the gifts made in the 7 years prior to death exceed the nil-rate allowance the gifts in excess of the allowance will be subject to tax on your death. Taper relief reduces the rate of tax due on those gifts if 3 years have passed since the gift was made.
If you live for 7 years after making an outright gift it is not subject to IHT.
You must fully part with the gift, if you give away an asset (such as a house) but then continue to use it or benefit from it (i.e. live it in or receive rental income from it), HMRC will deem that you have reserved benefit over it and the asset will still be taken into account in calculating the IHT due on your death even if you no longer own the asset.
Gifts into Trust may be subject to IHT during your lifetime. If gifts into Trusts do not exceed the nil-rate allowance (£325,000) in any 7 year period they will not be taxed during your lifetime but will be brought into account on your death in the same way as outright gifts. If you gift more than the nil-rate allowance into Trusts in any 7 year period there is an IHT charge at 20% on the amount over the nil-rate allowance. If you die within 7 years there is a further 20% IHT charge following your death.
Outright lifetime gifts to exempt beneficiaries (charities, spouses and civil partners) are not subject to IHT.
There are some gift allowances which can be utilised which include the following:
You are allowed to make one IHT-free gift of up to £3000 per tax year. This sum can be given to one person or shared between as many people as you choose. This allowance can be carried forward one tax year so if you do not use the allowance one year you can gift £6,000 the following year.
Small gifts exemption
You can make small gifts of up to £250 per year to as many recipients as you like. These cannot be the people who have received a gift made using your annual exemption. As long as you do not give one person more than £250, you can distribute as much cash as you wish and can continue to do so every year.
Wedding or civil partnership gifts
If a friend or relative is getting married or entering into a civil partnership, you are allowed to give them an IHT-free gift. The specific amount you are allowed to give without incurring IHT changes depending on your relationship to the recipient: if they are your child, you can give up to £5000; your grandchild or great-grandchild, £2500; and anyone else you can gift £1000 IHT-free.
Gifts out of income exemption
If you make gifts regularly (for example monthly or annually) to one person, they can be exempt from IHT if they come from your regular surplus income. This does not have to mean your wage but can also mean your pension, dividends, or interest from investments or savings accounts. As long as the gift does not affect your lifestyle and is made from income and not capital, it can be made free from IHT.
Our lawyers can advise you how to calculate your excess income and what records HMRC will require for this exemption to be claimed.
The importance of having an up-to-date Will
Preparing a Will gives you peace of mind and ensures all your affairs are in order – including matters relating to inheritance. Creating a Will is an excellent start, but you should also take time to keep your Will maintained and up to date. By doing so, you can ensure any recently gained assets, such as property, money, and personal belongings, are included in your Will. A valid and up-to-date Will can also make the probate process more manageable, ensuring all inheritance taxes and other fees are paid on time with no confusion and added stress.
Do I need to instruct inheritance tax planning solicitors?
The rules and processes involved in inheritance tax planning can often be extremely complex. Working with appropriately experienced inheritance tax planning solicitors can ensure everything is on the right track and your finances are prepared far in advance. Our team of legal experts at Elite Law Solicitors have the knowledge and expertise to support you in relation to inheritance tax planning, ensuring you don’t fall into any traps and providing the guidance needed for peace of mind in managing your estate.
To find out exactly how inheritance tax will affect you and how best to make IHT-free gifts to minimise this impact, you should talk to a solicitor with experience in trust laws and tax exemption.
Our inheritance tax planning solicitors have extensive experience helping clients with estates of all sizes structure their assets in as tax-efficient a way as possible. We offer a comprehensive and knowledgeable service, drawing on our firm’s expertise in property law and estates administration.
How much do inheritance tax planning solicitors charge?
The fees charged by inheritance tax planning solicitors will vary depending on the complexity of your estate, the guidance you are looking for, and any other additional services relating to your Will you may require. Our specialist team of inheritance law specialists at Elite Law Solicitors can provide you with a quote for our specific services based on your goals and requirements following a free initial meeting.
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Head of Department &
Chartered Legal Executive
“Meg Wilton has been dealing with my late father’s estate and probate. I recommend her services whole heartedly. She has been sensitive, efficient and impossible to fault. Plus the costs were far far lower than some others quoted. I’m a busy GP and it has made life a lot easier. Highly recommended.”
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