Category Archives: Inheritance tax

Don’t make inheritance tax taxing…

Whenever Brits are polled on their most hated tax, without fail, one tax in particular always finishes top – inheritance tax. As a nation, we want to leave as much as we can after death to our loved ones and the thought of the taxman taking a slice evidently gets our goat.

Here are some simple and efficient ways to reduce your inheritance tax liability and to ensure you leave as little as possible to the taxman.

Making a Will

Did you know that failing to write a Will generally means you will end up paying more inheritance tax? Without a Will in place, your estate will be doled out according to the rules of intestacy, and chances are the taxman will help himself to a healthy chunk of it.

Did you also know that one simple way to reduce your inheritance tax via your Will is to leave some to charity, as these gifts are free of tax?

Understand the thresholds

Inheritance tax is charged on estates once they pass £325,000 in value, at a rate of 40% on everything above that value. However, couples are able to pass their allowance over in full to their partner – in other words, couples have a £650,000 allowance overall. If their combined estate ends up being worth less than that, there will be no tax to pay.

There is also a new additional element to bear in mind here. The ‘main residence’ allowance allows you to pass on your family home to a direct descendent, with an additional tax-free allowance included. For this year it stands at £100,000 and will increase each year until 2020/21 when it hits £175,000. As this allowance applies per person, it will mean a total tax-free allowance of £1 million for couples.


Even if you give something away, the taxman will still class it as being part of your estate if you die within seven years of making the gift. It’s a way of preventing people from handing over their home on their deathbed and avoiding the duty. Live longer than seven years and there’s no tax to pay.

However, there are certain gift allowances anyway which are free of tax. Everyone has a £3,000 limit each year, and what’s more this limit carries over to the following year if you don’t use it, to a maximum of £6,000.

On top of that you can give away £250 to each of any number of people every year, while further allowances are in place for wedding gifts to family members, friends and even political parties.

Write your life insurance policy in Trust

Lastly, it’s a good idea to write your life insurance policy in Trust, as this essentially separates it from the rest of your estate.

Usually your life insurance payout will be added to the value of your estate before it is paid out to your loved ones, meaning they have to wait a while in order to receive anything and then may have to pay tax on that payout too.

But writing it in Trust means it is viewed as being outside of your estate, ensuring that your loved ones get every penny and likely get the money quicker to boot.

If you need some help in making the most of your allowances, writing a Will, setting up Lasting Powers of Attorney or Trusts, then speak to a member of the team at legalmatters on 01243 216900 or email us at to find out more.

Business Property Relief; none of your business

Tax. Famously one of life’s inevitabilities, it is a necessary evil that can’t be avoided (just ask Al Capone).

Rightly or wrongly, inheritance tax is often named as one of the UK’s most hated taxes. Thankfully, with the introduction of the Residential Nil Rate Band earlier this year, we are in a much more fortunate position than we have been previously. Theoretically, a married couple can now leave up to £1 million pounds to their descendants without paying a penny to HMRC, but is there anything else you can do to avoid your estate going to the tax man? If you have a business interest or run your own company then indeed there is. So sit down at the back and pay attention.

If you have owned a business for at least two years prior to your death, your executors will be able to claim Business Property Relief (BPR) on certain business assets. Good news, huh? It gets better. Qualifying assets can obtain relief of up to 100%. That means that even if the assets are worth £1 billion, you can give them away without paying a penny in tax.

You can get 100% business relief on a business or interest in a business, or shares in an unlisted company, while 50% relief is available on:

  • shares controlling more than 50% of the voting rights in a listed company;
  • land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled; and
  • land, buildings or machinery used in the business and held in a Trust that it has the right to benefit from.

It’s important to be aware that you can’t claim business relief if the asset is not needed for future use in the business.

What’s more, business assets can actually be given away while the owner is still alive and qualify for business relief. However, certain criteria need to be met – for example, the recipient must keep them as a going concern until the death of the donor.

Despite the booming buy-to-let industry, it should also be clarified that rental property does not qualify for the relief, as it does not meet the criteria of ‘trading’. A business which only generates investment income will not attract BPR, so this excludes:

  • A residential or commercial property letting business
  • A property dealing businesses
  • A serviced office business.

Some business activities are borderline: whether they will qualify for relief depends on the nature of services provided, typically these include holiday businesses, property management and caravan parks – where there is letting, holidays and caravan sales.

Business property relief can make a huge difference to the eventual inheritance tax bill of your loved ones and can also help with succession planning. But it requires careful planning in order to ensure it is available when you need it. Dictating exactly what happens to your assets after you die is incredibly important, whether you own a business or not, and a Will is the best way to do that. It is a terrific way to reduce the uncertainty and upset your loved ones face after you pass away.

If you own a business, or are interested in becoming a business owner, and would like advice on how to include this within your Will, talk to legalmatters. Check your eligibility and ensure that what HMRC is entitled to, is none of your business.

How Pensions Have Changed

It’s just over two years since the pension reforms were introduced to give people more choice in accessing their pensions. One of the benefits it’s brought is that it is encouraging people to think more about their pensions when they’re younger.

According to research by Aegon, 15% of people have realised they need to plan more for their retirement. The number of people talking to an advisor has almost doubled in the last 12 months.

What is particularly good to hear is that since the reforms, 14% of working age people are saving more in their pension pot. As a result, there has been a big jump up since April 2015 in the average amount that people have saved, from £29,000 to £50,000.

Just as it’s important for people to seek advice on how to grow their pensions, the new freedoms mean that people should equally take advice to manage when and how much they take out at retirement.

There may be a temptation to withdraw a large sum and leave yourself with too little to enjoy in a long retirement. Before splashing out on a long, exotic holiday, it pays to take a moment to think about some of the costs you may need to prepare for now.

When planning for your future, you may need to consider funeral and possible future care costs, as well as any outstanding debts. If you have built up a large pot and plan to invest it, you will need solid financial advice to ensure you get the best return.

Figures from HMRC show that many people are taking advantage of the freedom to withdraw money from their pension pot after the age of 55. During the last year, an average of 164,000 people withdrew money each quarter. The average withdrawal per individual was nearly £9,900.

The beauty of the pension reforms is that people have more choice to decide what to do with their pension pot. There are 6 options once you get to age 55:

1. Leave the pot until a later date
2. Buy an annuity
3. Invest the pot to produce an income
4. Withdraw cash in chunks
5. Withdraw the whole pot in one go
6. A mix of the above

Many people are still following the traditional route of buying an annuity, but as the figures go to show, many are also enjoying their new-found freedom. But the choices you make at retirement may have a big implication on the inheritance tax your dependents will need to pay.

It is worth discussing this with both your financial advisor and your Will writer. It’s a complex area and in some situations, it may be advisable to set up a Trust.

For advice on planning your Will please contact legalmatters today on 01243 216900 or email us at

The Forsyth Saga

Last Friday, news broke of the sad death of Sir Bruce Forsyth. The former Strictly Come Dancing host and all round National Treasure passed away at the age of 89, following a lengthy battle with illness. 

Reports in various national papers have since detailed the star’s alleged estate planning which, according to ‘a friend’, was done in an effort to “avoid it being gobbled up by the taxman”. By all accounts, Sir Bruce has left all of his £17million estate (didn’t he do well?) to his wife outright where it has then been widely reported that his widow Wilnelia will then “be able to transfer up to £650,000 to each relative tax free to avoid inheritance tax”.

Whilst is it true that legacies to spouses are free from inheritance tax by virtue of the spousal exemption, legalmatters shakes its head at the level of misinformation reported. Quite frankly it doesn’t even know where to start with dissecting what a flawed and short-sighted piece of alleged tax planning this represents, but here goes.

So what is the actual position (if indeed these were his wishes) and why might it be regarded as a potentially reckless and ineffective idea?

First of all, the tabloid press have been quoting the figure of £650,000 supposedly available for Wilnelia to generously distribute ‘to each relative’ once Sir Bruce’s legacy has been transferred. Each relative!?! If this was the case, then the majority of estate planners would be out of a job and considered, surplus to requirements.

It would appear that the press have confused the level of transferrable nil rate band available to the surviving spouse on death with what an individual is able to give away tax free during their lifetime. Whilst Wilnelia would indeed be able to benefit from her late husband’s inherited nil rate band of £325,000 to combine with her own on her death, her late husband’s nil rate band is not something that she would be free to make use of during her lifetime. The articles also totally disregard the newly established ‘residential nil rate band’ that this tax year alone would have increased the late entertainer’s tax free allowance by an additional £100,000 (but latterly would allow a combined nil rate band of £1,000,000 if left to lineal descendants).

Any legacy left to a spouse is free of tax by virtue of the spousal exemption. Wilnelia is, of course, free to make gifts to whoever she likes during her lifetime. As long as she were to live another 7 years following such gifts (of any monetary value) these would also be inheritance tax ‘free’. Quite honestly, she could gift the full £17 million equally amongst his 6 children (or whoever she so wishes) as soon as she had received the monies from probate, should she be so inclined, but therein lies the issue.

If indeed this is the arrangement, there is NOTHING obliging Wilnelia to carry out the ‘wishes’ of her late husband. Outright gifts by their very nature, leave the recipient free to do whatever they like with the legacy. Despite ‘wishes’ or ‘instructions’ from the deceased, there is nothing legally binding to see that these are fulfilled. The deceased is simply requesting the recipient to make distributions and is hoping that this will be carried out. Whilst this level of trust is admirable, the private client practitioner knows more than most that trusting your relatives to ‘do the right thing’ on your death is a dangerous assumption.

Let us assume that, despite having no legal obligations to do so, the recipient of the legacy has every honourable intention of making these posthumous gifts. They themselves would need to survive another 7 years which is always a risky proposition. What instead, if they were to lose mental capacity and unable to make such transfers? Michael Schumacher’s tragic accident and resultant circumstances have shown that age, wealth and level of fitness have nothing to do with a lack of mental capacity and inability to manage your own affairs. How can we be sure that Wilnelia shall live a long and untroubled life, free of illness and incapacity? Her ability to make gifts from her late husband’s fortune and to therefore share the wealth and to reduce her own liabilities to inheritance tax is dependent on her being mentally fit and well; certainly, any attorneys that she may have appointed won’t be able to undertake such tax planning ventures without court authority (another common misconception).

So what might Sir Bruce have done to make provision for his children and grandchildren (and indeed he could well have done, because we are commenting on the reporting, not on actual events)?

Lifetime gifting would have been the best starting point. If carried out wisely and cautiously, after careful advice and taking all needs of the parties into due consideration, then lifetime gifting is an excellent way of reducing your tax bill.

And what about the use of trusts? Despite trusts having their own particular tax regimes, they are immensely useful structures to protect and preserve assets against unknown circumstances. Tax shouldn’t necessarily always be the driver, particularly where significant wealth is concerned.

Finally, any charitable giving would have the double benefit of not only being exempt from IHT for the legacy itself, but it could also have reduced his IHT rate to 36% if he had left 10% or more of his total estate to charity. A Brucie bonus if you will.

For the papers to glibly report that Sir Bruce has ‘in one fell swoop’ cannily avoided inheritance tax and at the same time ensured that his wealth lands where he would wish is, in our humble opinion, grossly underestimating the risks and potential issues at hand and is in any event based on apparent mis-reporting of the facts.

Make sure that your wishes are adequately enshrined in the correct, binding, legal documents as the road to court is paved with good intentions. Nice to sue you, to sue you, nice. Speak to a member of the team at legalmatters on 01243 216900 or email us at to find out more.

Problems With The RNRB

The new Residence Nil Rate Band (RNRB) that has now come into effect is good news for many. However, not for everyone.

In summary, the new rates effectively add another allowance in addition to the inheritance tax (IHT) threshold of £325,000 for a single person.  This additional allowance is £100,000 per person, rising to £175,000 in 2020. These rates double for a married couple or civil partnership. There are, however, a few complications that may mean you won’t qualify and it’s important to understand these, as they may affect how you structure your Will.

First of all, the RNRB only applies to a property that the deceased has lived in and a qualifying share of it must be passed on to direct descendants.

If you have no direct descendants i.e. no children or step-children, fostered or adopted children, or children you have become legal guardian for, it doesn’t apply. You can still leave your property to siblings or nephews and nieces, but they won’t benefit from the RNRB and their inheritance tax bill may be greater because of it.

The property needs to form part of your estate when you die or to have given it away but reserved a benefit in it.

If you have more than one property, the RNRB can only apply to one of them. Your descendants can choose which one is to gain the benefit. If you have a couple of low value properties, your estate may benefit from a smaller amount of RNRB than if you had one larger property.

At the other end of the scale, if your estate exceeds £2 million, the RNRB tapers away by £1 for every £2 over this threshold. The threshold this year is £2.2 million. Estates above this level will not benefit from RNRB.

It’s possible to reduce the value of your estate by making certain gifts. As mentioned previously, you need to be careful when doing this as it could have adverse consequences. Alternatively, you could set up trusts to bring down the overall value of the estate. It may be worth considering leaving your property in trust to your partner to avoid the threshold being exceeded upon their death.

However, if you plan to leave any property in trust to your descendants, then aside from some exceptions, the RNRB again will not apply.  It does depend though on the types of trust and so specialist advice is needed.

It sounds quite complicated, but a good solicitor, can talk you through your options to structure your Will to take advantage of the tax benefits available to you.

For advice on preparing a Will and the RNRB please call us on 01243 216900 or email

How Can Trusts Help With Inheritance Tax Burdens?

There are few taxes more unpopular than inheritance tax. A poll by the financial website, loveMONEY last year found that an incredible 90% of Brits believe it is unfair.

However, there are a number of perfectly legitimate ways to reduce the amount of tax your estate will have to pay. One of those is making use of a Trust.

What is a Trust?

A Trust is a legal arrangement where your assets – such as property, cash or investments – are given to trustees, who will oversee them for the benefit of a third person. For example, you might want to put some savings into a Trust which your children can then benefit from at a later date.

When you place items into a Trust, they technically no longer belong to you. As a result, when it comes to working out the inheritance tax due on your estate, they aren’t included.

Instead, the assets belong to the Trust. The trustees are charged with managing those assets in the interest of the beneficiaries you have named, until some time when those beneficiaries can take control.

The many different types of Trust

Trusts come in a variety of different forms, which will suit different circumstances.

The simplest form is a Bare Trust – this basically hands over ownership of the assets to the beneficiary immediately, so long as they are over the age of 18.

Alternatively, there is an Interest in Possession Trust. This gives the beneficiary income from the assets held within the Trust, but they don’t have a right to the assets generating that income. An example of this is that you might put shares in this form of Trust which would pay an income to your partner, but your children would get ownership of the shares themselves once your partner died.

Then there is the Discretionary Trust, which is where the trustees have responsibility for deciding how the assets within the Trust are distributed. You could therefore leave assets in the Trust for your grandchildren, with your children named as the trustees. They could then determine who gets what at a later date.

Dividing your assets

Trusts are a useful way to take control of passing on your assets to your loved ones and can serve as a complement to a comprehensive Will. Without a Will in place, you have no say on who will get your assets and could put your loved ones through further heartache after your passing.

To discuss your Will and estate planning needs today, call us on 01243 216900 or email us at

Should I Be Trusting?

There are many positives to creating a trust. They can help you reduce your tax burden, protect your intended beneficiaries and avoid wills and probate disputes. However, there are many different types of trust; knowing the differences between them will help you establish which is right for your circumstances.

Discretionary trust

With a discretionary trust, the trustees have discretion over how to use the capital and income of the trust fund. While beneficiaries will be named in the trust deed, it is up to the trustees to decide which of the beneficiaries is to benefit.

A discretionary trust can be useful if you have a group of people that you know you wish to pass assets onto, but you don’t know which will need financial help in the future or what sort of help is required. For example, this could be your children.

Another bonus is that the assets within a discretionary trust are classed as being outside of the beneficiaries’ estates when it comes to Inheritance Tax. They’re also not counted when calculating means tested benefits.

Discretionary trusts are very flexible; you do lose control over exactly what happens to the assets you have placed within the trust. To counter this, you can appoint yourself as a trustee so you can have some influence over the decisions of the trustees.

Bare trusts

These are also known as simple trusts. Essentially, the beneficiary gains the immediate and absolute right to the assets in the trust and any income they generate. Once the trust has been set up, the beneficiaries cannot be changed.

This type of trust is generally used for transferring assets to a minor – a trustee holds the assets on trust until the beneficiary is 18.

The beneficiary will be responsible for paying Income Tax and Capital Gains Tax on the assets within the trust. However, they are viewed as ‘potentially exempt transfers’ for Inheritance Tax. In other words, so long as the person who put the assets into the trust does not die within seven years of doing so, there will be no Inheritance Tax to pay.

Parental trusts for minors

This is where a ‘relevant child’ of the settlor (the person setting up the trust) can benefit from the assets in the trust.

The child’s income from the trust is classed as being the income of the settlor when it comes to Income Tax, while Capital Gains Tax must also be paid.

Interest in possession trusts

This is where the beneficiary of a trust is entitled to the income from the trust as it arises. The trustee is duty bound to pass on all of the income received to the beneficiary.

There are two types of beneficiary within a trust like this – the income beneficiary is the one who is entitled to the income from the trust for life. However, separate beneficiaries will be detailed in the trust, and they are entitled to the capital of the trust.

An example where you might put your investments into a trust like this – your spouse could be the income beneficiary, while your children are the capital beneficiaries.

Vulnerable beneficiary

Beneficiaries may be vulnerable for two main reasons – either they are mentally or physically disabled, or they are under the age of 18 and one of their parents have died.

These may qualify for special tax treatment.

Unsure whether you would like to set up a trust? At legalmatters we are happy to talk you through things. Feel free to call us today on 01243 216900 or email us at

HMRC Loses Tribunal Over Pension Transfer Rule

Changes might be on the horizon for the rules surrounding inheritance tax (IHT) on pension transfers, after an appeal from HM Revenue & Customs (HMRC) was recently rejected.

The case centred on a Mrs Staveley, a woman who did not want her former husband to benefit from a pension she had originally set up with him. Following a bitter divorce, she transferred a portion of this pension into a new, personal one.

Mrs Staveley sadly died a few weeks after making the transfer.

She had been terminally ill at the time, so the transfer was classed by HMRC as a “chargeable lifetime transfer”. This meant that IHT was applied and can arise where the individual is aware that their life expectancy is impaired and they then die within two years of making the transfer.

After challenging the tax and in another follow-up appeal, HMRC lost the case.

It was held that, if any IHT benefit had been gained from the transfer, it was “not intended to confer gratuitous benefit”.

Commenting on the case is *NAME OF PERSON* from *NAME OF COMPANY*:


In order to properly clarify the situation, more of a substantial overhaul of HMRC guidance may be needed. This is because the specific circumstances of Mrs Staveley’s case do not automatically set a precedent for all other pension cases.

The intention behind her transfer was clearly to prevent her ex-husband from accessing pension money. In other cases, the motivation might actually be to avoid IHT.

Although HMRC might publish guidance on this in the future, it’s important to know where you stand now.

The law around IHT can seem complicated, but talking to an expert can make things much clearer. When it comes to the future of you and your loved ones, it’s essential that you get the best advice.

We at legalmatters are experts in helping you make plans for your future. With issues like this, it pays to use a professional. Talk to us today by calling 01243 216900 or emailing us at

New rules to help reduce IHT bills

The new Residence Nil Rate Band (RNRB) which comes into effect this April means that you can now plan to hand down your family home with either a zero bill or a significantly reduced one than the current inheritance tax (IHT) rules permit.

There are various restrictions to how this will work in practice. In simple terms, it means that the current IHT threshold of £325,000 for a single person and £650,00 for a married or civil partnership couple will remain but that there is an additional (and separate) allowance of £100,000 (available per person, provided that certain requirements are met

This additional allowance will increase year-on-year by £25,000 until it reaches £175,000 and then continuing in line with inflation.

It’s important though to understand when and where it can be applied.

There are three key criteria to meet:

  • The property must form part of the deceased’s estate;
  • he or she must have lived in it at some point (there is no minimum period in which they must have lived in it, but this may rule out buy-to-let properties for example);
  • and the property or a share of it must be passed to direct descendants.

For those with children of their own, this quite obviously includes children, grandchildren and great-grandchildren. However, it is not limited to blood relations and so also includes step-children, adopted or fostered children, or any children that the deceased had been appointed guardian of, even if they are now over the age of 18.

Widening the net even further, the spouses and civil partners of any of these descendants are also included, even if the descendant themselves has died.

Siblings, nephews or nieces of the deceased are not included. They may still be included in the will, perhaps receiving a part share of a property, as the RNRB applies to the value of the share that’s inherited by the direct descendants.

The new RNRB is only applicable for deaths on or after 6th April 2017. The rate is, however, transferable between married and civil partners and if one partner has already died prior to this date, their unused RNRB will be available to be carried forward to the estate of the surviving partner.  However, the allowance must be claimed and it isn’t automatically available.

There are many other points to consider with RNRB, although they won’t apply to everyone.  For example, the value of RNRB tapers away where the estate is worth more than £2 million. That’s straightforward but it can become tricky where the deceased sold their property prior to their death to downsize or gave it away and continued to live in it. The key point here is that they must have done this since 7th July 2015 to qualify. It becomes increasingly complex as to whether RNRB will apply where trusts are involved.

For advice on preparing or changing a will to maximise the tax efficiencies that can be made, please call our team at legalmatters on 01243 216900 or email us at

Will You Make the Change?

The start of a new year automatically comes with a need to compare it with the last one. Whether you’re looking back on your family, career or the weather in 2016, amongst these things there is one more likely to be certain than the rest: change.

Life is constantly subject to change, giving away little indication of where it’s going to take you from one day to the next. As difficult as it is to predict the future, one way to help secure yours is to check your will.

If you haven’t already written one, surely the beginning of a new year is the best time to do so?

Wills are there to provide the most accurate reflection of your final wishes. Naturally then, they should be updated each time something changes which could affect those wishes. Neglecting to do this may mean loved ones are neglected in your will.

A recent study indicated that out of those who possessed a will, over half (56%) made their will at least six years ago. Just under a third (31%) had written their will over a decade ago.

Situations change on a day to day basis, so when it comes to a period of ten years, it is almost certain that circumstances have altered in some way. Like anything else in life, wills require maintenance to be fit for purpose.

Every now and then, it’s good to make sure your will says what you want it to, so you can check and update it if necessary. The Government recommend this is done every five years, but if you’ve recently had children or grandchildren, gotten married or gotten divorced, now may be a good time to
reassess your will so it takes these changes into account.

Small changes can be made using a codicil, whereas it may be more efficient for a new will to be written if more significant changes need to be made.

Reviewing your Will also gives you an opportunity to get advice to check that it is as tax efficient as it could be. Important changes are afoot in April 2017 and this can mean that your Will needs changing to make sure all available tax allowances can be claimed.

As well as providing you with peace of mind, a will review need not be difficult, with the help of legalmatters. Call us on 01243 216900 or email us at