Giles Wilson

Inheritance Tax

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Inheritance Tax planning is crucial to securing the legacy you leave behind for your loved ones. Our expert Inheritance solicitors help you prepare for this event so that the wealth you’ve worked so hard to build isn’t noticeably reduced after you’re gone, as well as provide guidance to paying Inheritance Tax after someone has passed away.

We’ve compiled a comprehensive guide of Inheritance Tax advice, with all the information you need to effectively account for it in your will, minimising the impact it has on the inheritance you leave your chosen beneficiaries.

If you’d like to speak to an expert about your specific situation, call Giles Wilson on 01702 477106 and be put through to an Inheritance solicitor. Or, you can pop into one of our offices in Leigh-on-Sea to set up a consultation.

What is Inheritance Tax?

Inheritance Tax is the tax that is paid when you die if you leave assets (including property) that total more than £325,000 (although money given away in the 7 years before you die can be added to this). In many cases the allowance will be more than £325,000 but this will depend upon whether you own your home, have inherited from a spouse, and who your beneficiaries are.

Why do we pay Inheritance Tax?

Inheritance tax is the modern incarnation of ‘death duty’, and was originally introduced in the late 18th century. The aim was to raise revenue for the government and to redistribute wealth among society by preventing the country’s wealth resting permanently among a handful of wealthy families to the exclusion of the poor.

How much is Inheritance Tax?

The rate that Inheritance tax is charged at is 40%. So if £100,000 of your estate is above the exemption allowance threshold then the tax will be £40,000. However, this rate can be reduced if a significate portion of the estate is left to charity.

How do I work out the Inheritance Tax due on an estate?

There are formulas that are applied as not all of the tax is payable at once. The basic calculation is 40% of the part of the estate that is subject to tax, ie the balance above the exemption allowance, see below.

How much can I have before I pay Inheritance Tax? What is the Inheritance Tax threshold?

The basic threshold is £325,000. So if you were to leave a sum of £425,000:

£325,000 would remain untaxed, the remaining
£100,000 would be taxed at 40%, so
£40,000 would be owed in Inheritance Tax

The tax-exempt sum can be less if significant gifts have been made in the 7 years before death, as the sum of any gifts made less than 7 years before you die can be deductable from your £325,000 allowance. The allowance can, however, be greater if the deceased leaves a residential property to the spouse or children, and the percentage rate payable can be reduced if a significant donation is made to charity, see below.

Will the Inheritance Tax threshold change in 2019/2020?

In April 2020, the Inheritance Tax threshold will change under current legislation, and will include the final tier of a Residential Nil Rate Band that means that some estates can have £1million before inheritance tax is payable. However this is only available if the first spouse has already died and left the whole of their estate to the second spouse. Even then there are further other conditions such as the situation with any residential property owned by the couple, and who the spouse’s beneficiaries are. We recommend that anyone that has previously inherited from a spouse seek advice as to how this change may affect their estate.

How do I pay Inheritance Tax?

A portion of Inheritance Tax is payable before the Grant of Probate is issued, and therefore must be raised before there is access to the deceased person’s assets. It will depend upon the circumstances as to how this can be raised. Using a solicitor will make this easier.

What ways can I pay Inheritance Tax?

Inheritance Tax is payable before the Grant of Probate is issued, and so before there is access to the assets of the deceased person. The beneficiaries can loan the estate the money, or it may be that the deceased person’s bank will advance it if there is enough there. It may involve the Executors having to take a loan for the Estate. A solicitor will be able to guide you through processes that will make it easier to gather the funds required to pay Inheritence Tax.

What paperwork is required to pay Inheritance Tax?

There are a series of Inheritance Tax forms produced by HMRC that are required to be completed before an application for a Grant of Probate can be applied for where the estate is over a certain limit, even if the result is that there is no Inheritance Tax to pay. The Executors will need to apply to HMRC for an Inheritance Tax reference number firstly, and then complete all the forms that provide a calculation table. For information regarding Executors and the Grant of Probate process, see our article on Wills. The forms are lengthy and detailed, and it is advised to use a solicitor to complete in a timely and accurate manner.

How long does it take to pay Inheritance Tax?

How long it takes to pay Inheritance Tax will depend entirely upon the circumstances of the assets and situation with eany given Estate. The duration of the process is contingent upon the nature of the assets, how co-operative a bank or financial institution is in advancing the funds, and whether HMRC raise many queries on the Inheritance Forms that are sent to them. It will also depend upon how the Executors choose to deal with the payment.

When is Inheritance Tax due?

Inheritance Tax is due before the Grant of Probate application and in any event within 6 months of the date of death.

Who is responsible for making the inheritance tax payment when I leave money to a loved one?

Your Executors are responsible for paying the Inheritance Tax from the money in the estate. Executors are the persons named in your will who are charged with the responsibility of administering your estate, if you need further details on how to appoint an executor we discuss it in detail on our wills page.

What is the 7-year rule for Inheritance Tax?

The 7-year rule is that most gifts made within 7 years of death are added back to the estate and that total is then the value of the estate for Inheritance Tax purposes. The tax attributed to those gifts is on a sliding scale depending upon when it was made. There are some gifts that are not added back in, but this depends upon various factors as to how those gifts were made. We strongly advise taking expert legal advice when making arrangements regarding your estate. Any oversights can penalise not only your beneficiaries, but also any loved ones that you gift money to in the last 7 years of your life.

How can I minimise the Inheritance Tax paid by my estate?

There are ways to minimise Inheritance Tax paid by your estate by tax planning before your death. This must be done with careful advice and will vary from person to person dependent upon your circumstances. It will include making significant gifts but without retaining any benefit in those gifts; so, for example you cannot gift your own home and continue to live in it and hope that this will remove that asset from Inheritance tax.

What Gifts are Exempt from Inheritance Tax?

There are certain gifts that are exempt from being drawn back into the estate under the 7 year rule. Each person is currently able to gift £3,000 a year and this will be exempt even with 7 years of their death, in addition to other smaller gifts on birthdays and marriages (known as ‘exempted gifts’). It may also be possible, dependent upon individual circumstances, to make regular gifts out of surplus income. We strongly advise that you take advice on the level and method of gifting to ensure they remain exempt from Inheritance Tax, and that such payments are documented.

What forms of Inheritance Tax Relief Exist?

Other forms of tax relief are also applicable under cerain circumstances. ‘Taper Relief’ might mean the Inheritance Tax charged on taxable gifts is less than 40%. ‘Business Relief’ can exempt or reduce tax on the transfer of business asset upon death. Similarly, ‘Agricultural Relief’ can apply if you leave behind a farm or woodland. It is a good idea to seek advice if you suspect that one or more of these forms of tax relief may apply to your estate to prevent your estate being taxed more than necessary.

I’m married – how does this affect Inheritance Tax?

If you are married, and leave your estate to your spouse, or if you inherit from your spouse then there will not be any inheritance tax. However the monies that you leave to others remains subject to taxation at the normal rate.

Inheritance Tax & Death in Service Life Assurance

Death in Service Benefit and Life Assurance is often outside of the Estate and therefore not liable for Inheritance Tax but this will depend upon the way in which this is arranged before you die. This should be considered at the same time as making a Will, and therefore if you are making a will and you have either Death in Service Benefit or Life Assurance paperwork it is important to bring this to the attention of your solicitor when they are making your Will.

What happens to Inheritance Tax if someone dies outside the UK?

If someone dies outside of the UK it will depend upon where their domicile is as to whether they pay UK Inheritance Tax. Other factors such as where their assets are will also play a part. Every country has its own inheritance laws, and inheritance tax laws and the arrangement that the UK has with each of these countries varies.

What other taxes could beneficiaries in my will have to pay?

During the administration of your estate, your Executors will have to deal with your income tax and capital gains tax up to the date of your death, and in addition any income tax or capital gains that arise during the time that the assets are being dealt with. Executors should take care when selling assets as this can give rise to a taxable capital gain, and this tax has to be passed on to the beneficiaries.

Where can I get help with my Inheritance Tax?

Inheritance Tax Planning should be dealt with at the same time as making a will, and should be done with your spouse or partner. It is strongly advised that this type of advice is sought from a qualified solicitor who will look at the whole picture of your assets as well as your personal circumstances in order to maximise the opportunities to lower the burden of inheritance tax on your estate when you die. No-one has a crystal ball to know when that day will come and so Inheritance Tax planning can be tricky.  It is also crucial that any advice you receive is then updated regularly as your own circumstances change and the tax laws also change.

What are my next steps?

We hope this guide into Inheritance Tax has helped you understand how and why it applied, as well as ways to reduce any burden you leave on your loved ones when you pass away.

What you do today could prevent thousands being taken from your loved ones in the future. Through effective Inheritance Tax planning and succession advice, Giles Wilson specialise in helping you minimise the impact tax will have on the legacy you leave behind.

You’ve worked hard to build a nest egg to support those closest to you when you’re no longer around. Our Inheritance solicitors help you plan for this event and identify the right opportunities for you and your loved ones.

If you’d like to take steps to secure your future, speak to our team today. Call us on 01702 477106 and be put through to an expert in Inheritance Tax law to discuss your situation. Alternatively, pop into one of our offices in Leigh-on-Sea for a face-to-face chat.

Awards & Recognitions

The expertise of our solicitors is regularly recognised by some of the profession’s most distinguished organisations. As well as being a member of a number of Law Society schemes, we have won awards at the Law Society Excellence Awards, the Halsbury Legal Awards and the Modern Law Awards. We have also received recognition in the form of the Lexcel mark of quality, a Legal 500 listing and a place on the shortlist of The Lawyer’s Boutique Firm of the Year.

Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson