Giving gifts of cash or valuables before your death means that you can see your loved ones benefit from your generosity. But make sure you understand the Inheritance Tax situation before you give.
Inheritance Tax rules are complex, particularly when it comes to working out what might be due on gifts given before death. Research by Brewin Dolphin found that only 12% of those questioned knew what the annual tax-free gift threshold is.
If money or a valuable item (a lifetime gift) is given within the seven years before someone dies, then there is a possibility that Inheritance Tax will be due if the donor has given away more than the tax threshold amount of £325,000. In that event it would be the recipient of the gift who would be asked to pay the tax.
How much can you give tax-free?
An individual is permitted to give £3,000 per year, with no tax implications. This allowance can be carried over to the following year if it isn’t used, but it cannot be carried over for more than one year.
Amounts above £3,000 are added to the value of the estate if they were given within seven years of the donor’s death. If the total value of the estate exceeds £325,000, Inheritance Tax may be payable.
What is a lifetime gift?
As well as cash, any valuable item constitutes a gift and the value is added to the estate total for the purposes of calculating Inheritance Tax. This includes selling a property at below market value, for example to your children. In that event, the amount of the reduction is added to the value of the estate.
As well as the tax-free £3,000 per year, there are a number of other exemptions allowing you to gift money without needing to consider Inheritance Tax:
- Any money given to a spouse or civil partner;
- Single gifts of up to £250;
- Donations made to registered charities or political parties;
- £1,000 given as a wedding gift, rising to £2,500 for a grandchild or £5,000 for a child;
- Money given to an elderly or infirm relative or a child who is under 18 to support them;
- Gifts from surplus income, for example for birthdays or Christmas, providing it does not affect your standard of living.
The rules can be complicated and it is always worth seeking professional advice before distributing money.
To speak to someone about gifting, call one of our specialist team at legalmatters, on 01243 216900 or email us at email@example.com.
If you’ve been left money or a share in someone’s estate, you may be wondering what liabilities you have. Do you need to pay tax on the money, and who is responsible for clearing any debts the deceased may have left?
After someone dies, their personal representative is responsible for winding up the estate. It is their job to collect in all the assets, sell any property and pay debts, including tax liabilities. Once this has been done, they will then distribute the funds in accordance with the Will or, if no Will was made, under the rules of intestacy.
Who is responsible for making payments from an estate?
If a Will was made, this will usually name a personal representative, known as an executor. If there was no Will, the Probate Registry will appoint an administrator.
This is the person who will be responsible for gathering in the money and settling any bills.
Debts are payable in a set order.
- Secured debts such as a mortgage
- Reasonable funeral costs
- Estate administration expenses
- Payments due to employees
- Unsecured debts
Estate administration expenses
These are usually the main expenses to be dealt with when winding up an estate and include the costs incurred by the personal representative, such as probate fees, estate agency and valuation fees, Income Tax and Inheritance Tax.
Making payments to beneficiaries
Once all of the debts have been paid, then the estate can be distributed to the beneficiaries. Personal possessions will be passed in accordance with the terms of any Will.
Cash payments are made in a strict order of priority.
Firstly, specified gifts of money are made to named beneficiaries.
After these have been paid, the residue is divided in accordance with the terms of the Will. A residual beneficiary can request a copy of the estate accounts, which will set out all income and expenses.
The amount of any taxes and other debts will therefore reduce the money paid to the residuary beneficiaries, as they are the last in the queue, after any specific cash legacies.
For help with administering an estate, call the probate experts at legalmatters on 01243 216900 or email us at firstname.lastname@example.org.
Data published by the Office for National Statistics shows that the wealth gap between generations in the UK continues to widen. The findings also show that inheritances are becoming increasingly important to younger people.
Over recent decades, rising levels of household affluence mean that the older generation has higher levels of wealth that can be left to younger family and friends. This wealth is passed on through inheritances, gifts and loans.
The latest Government report looks at how the transferal of assets impacts wealth inequality, social mobility and the intergenerational transference of advantages in the UK.
According to the findings, on average:
- Individuals with the most income and wealth were likely to receive the most substantial gifts and loans
- Those aged under 45 were the age group most likely to accept cash gifts or loans from friends and family of the value of £500 or more, and also received the highest amounts
- Those aged 55 to 64 were the most likely to receive an inheritance and also received the largest legacies
- The least wealthy and youngest individuals receive smaller estates, but they make up a much more significant proportion of their total net wealth
- Those in the middle of the wealth distribution were the most likely to receive cash gifts or loans from friends and family of the value of £500 or more.
Gifts and loans
Of 25-to-34-year-olds, 11% had received a gift or loan above £500 in the last two years. This is the age most people become first-time buyers and have children, which could suggest that older family members are keen to help support these expensive life stages. The next highest beneficiaries of gifts or loans is 25-44 year-olds (9%). So, the research could also indicate an ongoing dependence of adult children on their parents in the modern world.
When it comes to receiving an inheritance, the average age a person is likely to inherit is between 55 and 64. This is thought to be because people are living longer.
Inheritances are more likely to be received by those who already have relatively high levels of wealth. However, bequests received by those in the bottom income group were equivalent to 13% of their net wealth, while for those in the top income group inheritances were equivalent to 5% of their net wealth. So, legacies could play some role in reducing inequalities.
Knowing how people save and spend money – and understanding the impact of transfers of wealth between generations – is a crucial step in helping people reach their financial objectives.
To find out how best you can pass on your wealth, speak to one of our expert team by calling 01243 216900 or email us at email@example.com.
Inheritance tax is a tax that, if due, is payable upon a person’s death. Whether it needs to be paid depends on how much the deceased person’s estate is worth, and who is inheriting.
When does inheritance tax need to be paid?
If the total value of an estate is over £325,000 (nil rate band), then inheritance tax will need to be paid. It is charged at 40% on any amount over £325,000.
What is included in a person’s estate?
An estate includes all of the assets which the deceased owned or was entitled to on the day they died. This can include things like property, money, shares, investments, pensions, and possessions.
How can you reduce inheritance tax?
There are exceptions which can help to reduce inheritance tax. For example:
Spouses and civil partners are exempt beneficiaries. So inheritance tax does not need to be paid, regardless of how much an estate is worth.
Where at least 10% of an estate is left to charity, inheritance tax can be paid at a reduced rate of 36%. Where the whole estate is left to a charity, inheritance tax does not need to be paid at all.
Transferable nil rate band
Everyone is entitled to a nil rate band for inheritance tax. Assets that pass from one spouse or civil partner to another are exempt from inheritance tax. So, if someone dies and leaves everything to their spouse or civil partner, they won’t use any part of their allowance. This can be transferred to the second person’s estate leaving a nil rate band of up to £650,000 when they die.
Residence nil rate band
This is available in addition to the inheritance tax nil rate band. It is possible when a home is passed on death to a direct descendant. In 2018-19, if a property is left to children or grandchildren a residence nil rate band of £125,000 can be added to the original nil rate band. So the total threshold will increase to £450,000.
Transferable residence nil rate band
The residence nil rate band can also be transferred between spouses and civil partners. This only applies if the deceased had a spouse or civil partner who died before 6 April 2017, or if they died after this date but did not use all their available residence nil rate band.
Inheritance tax comes out of the estate funds. It is payable by the person who is dealing with the estate (the executor or administrator), and they can be held responsible for any errors in payment.
Find out about our Inheritance Tax Planning service on our website here: https://www.legalmatters.co.uk/inheritance-tax-planning.php. Call us on 01243 216900 or email us at firstname.lastname@example.org.
Holding your properties as tenants in common is a simple change to the way your property or properties are held which can save you thousands of pounds.
But what does this mean? This article aims to explain the legal terminology of tenants in common in plain English and how it could benefit you.
How tenants in common works
Most couples own their homes as joint tenants, meaning they both own the whole home. Holding the property as tenants in common means that each owns a share of the property, either a percentage or half each. This protects the agreed share for couples who have put unequal deposits into a property. If parents are gifting deposits to their children, it is also a way of easing fears in case of a break-up or death.
In the case of tenants in common, one partner can leave their share of the property on death whilst allowing the other partner to continue living there, passing the remaining share on death. It can also prevent your home being sold in the event you need to go into long term care.
There is no Inheritance Tax (IHT) for assets left in a Will to their spouse – in other words the surviving partner doesn’t have to pay IHT. After the remaining partner dies, the beneficiaries of their estate, usually the children, do have to pay IHT.
The rising cost of houses means that one property alone can put the estate over the IHT threshold. If the house is owned as joint tenants, both own the whole property. If one partner dies, the other automatically becomes the sole owner of the home. In the case of tenants in common each person owns a share of the house, usually split half and half.
Joint owners can split their home in two, therefore benefiting from tenants in common. By doing so, the half belonging to the person who passes away first, would be inherited by the beneficiaries immediately.
Provided the half is worth less than £325,000 – the current IHT threshold, no tax will be due. When the remaining partner dies, their half, inherited by the same children, could be under the threshold which again would mean no IHT is due.
Making it happen
You’ll need to inform Land Registry of the split and also write to each other to specify your intentions of the split.
As providers of Wills, Lasting Powers of Attorney and Trusts we can take care of all of this on your behalf. For further information or to arrange an appointment please call one of our expert team at legalmatters on 01243 216900 or email us at email@example.com.
Cryptocurrency is, in the most basic terms, an alternative digital currency to traditional government-issued currency. A recent survey by Dalia revealed that 5% of the UK are planning to buy cryptocurrency in the next six months, with 9% already owning cryptocurrency. Experts even predict that 33% of millennials will own some form of cryptocurrency by the end of this year.
The question is – with more people investing in cryptocurrency, how will it affect inheritance when these people die?
Firstly, it’s important to learn which types of cryptocurrencies are currently the most popular. Here are some of the most common forms of cryptocurrency and their codes:
- Bitcoin (BTC)
- Litecoin (LTC)
- Ripple (XRP)
- Ethereum (ETH)
- Zcash (EC)
- Monero (XMR)
Make sure you provide wallet keys in your Will
It’s essential to tell you future beneficiaries you have invested in cryptocurrency and to list the details of your cryptocurrency wallet in your Will. This is because it’s purchased under a pseudonym and can be very hard to trace if your beneficiaries don’t have the wallet details. By providing your public and private keys in your Will, you’re making it much easier for your beneficiaries to access the wallet. Some cryptocurrency providers have policies in place to transfer any cryptocurrency to beneficiaries or next of kin, though at the moment they are hesitant to have these crucial conversations for fear of fraudster activity.
Cryptocurrency is an intangible asset and eligible for Inheritance Tax
HMRC now treats cryptocurrencies as any other currency – so it’s not exempt from Inheritance Tax and should be listed on your Will. Cryptocurrency is one of the fastest growing currencies in value, so it’s important to keep track of how much your cryptocurrency fluctuates over time. The current standard exemption threshold for Inheritance Tax is £325,000. For example, if you have £100,000 in Bitcoin in 2018, it may grow to £400,000 by the time you die. If this is the case, your beneficiaries will need to pay a 40% Inheritance Tax rate on the £75,000 that exceeds the threshold.
For help with this, or on any aspect of Will writing, please give us a call at legalmatters on 01243 216900 or email us at firstname.lastname@example.org for further details.
Civil partnerships were reserved for same sex couples only. However, in recent years, opposite sex couples have been campaigning for civil partnerships for heterosexual couples. The Supreme Court of England and Wales ruled in favour of civil partnerships for all, as the Civil Partnership Act 2004 was seen as an infringement of the European Convention of Human Rights. The legislation will be changed, though this is thought to take some time.
So how does a civil partnership affect estate planning? Firstly, it’s important to determine what ‘estate planning’ actually is. Your estate covers everything you own including property, finances, material possessions and even your social media accounts. An estate plan is how you wish to distribute your assets and possessions among your loved ones.
Here are six ways a civil partnership changes estate planning for all couples:
- If you die without making a will your partner will still inherit your assets
If you’re in a civil partnership and you die intestate (without making a Will) then your partner will automatically inherit a portion, or all, of your property. For example. if you and your partner own and live in a house together, they will stand to automatically inherit it after you die – unless there are special circumstances.
- If you die having made a valid will your wishes will be carried out
If you or your partner dies after making a valid Will, then all wishes will be carried out as they would be for a Will from a marriage. For example, if you want to pass down your home to your partner and your holiday home to your children then the wishes will be carried out as specified.
- Civil partners are exempt from Inheritance Tax
Neither you nor your partner will pay Inheritance Tax if the value of your entire estate is below £325,000. You will also be exempt from Inheritance Tax if you leave all your estate to your civil partner, community sports club or a charity.
- The Inheritance Tax increases to £450,000 if children are the heirs
If you want to leave your property to your birth children, the Inheritance Tax exemption threshold increases to £450,000. This also extends to foster, adopted and stepchildren.
- You can add surplus Inheritance Tax threshold to your partner’s threshold
If your estate is under the threshold, the ‘unused’ threshold can be added to your partner’s threshold when they pass away. This pushes the maximum Inheritance Tax threshold to £900,000.
- You can pay a reduced Inheritance Tax rate in some circumstances
The standard rate for Inheritance Tax is 40% but you can reduce it to 36% if at least 10% of your net assets are left to charity in the Will. If you and your partner owned farmland or woodland you may be eligible for Agricultural Relief on your Inheritance Tax bill.
Estate planning can look complicated. If you’d like some help in writing your Will, contact one of the team at legalmatters on 01243 216900 or email us at email@example.com.
According to the latest research, the majority of over-50s don’t understand essential Inheritance Tax terminology. Furthermore, this lack of financial education could result in them passing on less than they expect.
The research, from Alan Boswell Group, found that of the over-50s surveyed:
- Fewer than 30% understood key Inheritance Tax terminology
- Only 27% were able to correctly identify that ‘nil-rate band’ referred to the threshold at which an estate became liable to Inheritance Tax and that this threshold is set at £325,000
- Only 44% were aware that the current rate of Inheritance Tax was 40%.
With the Government announcing record Inheritance Tax receipts of over £5bn in 2017/18 (that’s an increase of over 50% since 2014), there are fears that people could be failing to minimise their tax liability correctly.
Rising property prices are impacting Inheritance Tax liability
An increase in property prices across the UK has meant that more and more people are now liable for Inheritance Tax.
Since 2009, the tax has been set at 40% on all assets over the £325,000 threshold; despite the fact that house prices have rocketed over the past ten years. What this means is that Inheritance Tax now hits an increasing number of estates. Before 2009, the threshold was set each year to reflect inflation and rises in overall asset prices.
As such, it’s perhaps no surprise that forecasts from the Office for Budget Responsibility (OBR) show that the number of estates on which Inheritance Tax is paid has more than quadrupled over the last seven years.
It’s also important to note the introduction of the residence nil-rate band (RNRB) last year, providing an additional inheritance tax allowance for individuals who leave their main residence to lineal descendants.
The additional allowance is to be brought in gradually, increasing by £25,000 on an annual basis. The amount began at £100,000 in 2017/18 and eventually grow to £175,000 in 2020/21.
In total, as this is on top of the current threshold, this amounts to an allowance of £1 million for a couple.
The problem facing the over-50s
With Inheritance Tax affecting more people than ever before, it is vital that the over-50s are fully informed about this topic. Worryingly, however, the latest research shows that this is not the case. As a result, it is likely that families will lose out while the Government benefits.
But there are ways to reduce a person’s Inheritance Tax liability (e.g. by using ISAs, a deed of variation, discretionary will trusts, etc.). So, it is vital that careful and professional estate planning is carried out to ensure assets are left to family members rather than the taxman.
To find out how you can pass on your estate in a tax-efficient way, speak to one of our expert team at legalmatters on 01243 216900 or email us at firstname.lastname@example.org.
Latest figures reveal only 59% of the UK have written a Will. Of those people, 6% have written a DIY Will. While there are some advantages to create-your-own Wills, there are even more pitfalls. Here, we explore some of the reasons why DIY Wills may not be the answer…
Whilst most of us have come across DIY Will kits or online Will creation websites, have you ever asked yourself “are DIY Wills legal?” The short answer is yes, although they must still meet all requirements of a professionally written Will.
A DIY Will kit doesn’t provide sufficient help and guidance for the more complex circumstances in your life. This includes, for example, if you aren’t married to your partner, have children from a previous relationship or hold an inheritance in a trust until a child’s 18th birthday. Using the services of a Will writing professional means you have access to all the assistance you need, greatly reducing the risk of mistakes in your Will.
Although a DIY Will may cut costs initially, it could cost you in the long-term. All Wills must be written using the correct terms and language, as well as ‘witnessed’ by the right people. If this isn’t done properly, then the Will is invalid and could cost your heirs their estate, or money intended for them. Hiring a Will writing professional helps you to avoid this pitfall; a well-written Will is more robust when faced with any potential objections.
Even if your Will is still valid, there’s a bigger chance that distributing assets to your heirs could take a lot longer than usual. This can come with additional fees and, in some cases, unnecessary tax. According to the Co-operative Legal Services (CLS), 38,000 families a year experience prolonged probate ordeals for poorly written DIY Wills.
What’s more, up to 10% of your estate could be subjected to unnecessary fees if your Will is ineffective. The average value of a person’s estate in the UK is currently £160,000 – so this could incur costs of up to £16,000, a cost which could be avoided if a Will writing professional was used.
It’s also worth thinking about what could happen if your circumstances change during your lifetime. For example, if you get married, have children or grandchildren, someone named in your Will passes away or if your financial situation changes then your Will also needs to be altered. Significant changes to your Will means you’ll need a new one, whereas smaller changes call for a codicil (a document that allows you to make minor adjustments to your Will).
It can be daunting to make these changes, especially if you’re already going through a stressful time due to a death in the family, a divorce or financial issues. Calling on the help of a Will writer can greatly reduce stress and the worry of whether or not your Will has been rewritten correctly.
For help and advice on the potential pitfalls of DIY Wills, speak to one of the team at legalmatters today. Call us on 01243 216900 or email us at email@example.com.
What is Critical Event Protection and is it relevant to me?
If you are a member of a Death in Service Scheme, if you have a separate Critical Illness and Life Insurance Policy or even if you have a Pension Plan, you should look at Critical Event Protection.
What are these schemes and policies for?
Death in service schemes are often part of your employers’ group policy scheme which provides a lump sum for family or to cover the death of a shareholder in a business.
Critical illness policies produce an income supplement in the event of a critical illness and on death there is usually a lump sum paid.
Life insurance policies may make provision to cover inheritance tax, provide a lump sum for family or to cover the death of a shareholder in a business.
An occupational or self-invested pension plan may have a lump sum which will be paid on death.
What happens to these assets when I die and why would I need Critical Event Protection?
These valuable assets usually only pass to your next of kin if you’ve nominated them. If you haven’t, they go into your estate and may then become subject to Inheritance Tax at 40%. In this way, sometimes funds are wasted or end up with people you don’t even know yet, for example if your current partner or next of kin starts a new relationship.
How can I protect these assets for my dependents?
Using a trust preserves the use of these funds for your dependents, avoids direct ownership, can avoid the need to incur estate administration costs and may save inheritance tax. A trust protects and ringfences these lump sum proceeds and means a quick claim by the trustees upon your death can make the funds available in a protected trust environment to meet family costs.
At legalmatters, we have put together a simple solution, which will enable you to deal with these valuable assets, called Critical Event Protection.