When someone dies, the first £325,000 of their estate is exempt from Inheritance Tax (IHT). If they don’t use all of this allowance, it can be transferred to their spouse’s or civil partner’s estate in due course. This is known as the transferable nil rate band.
This increases the exempt amount for the partner’s estate when they die, meaning they could have a potential IHT threshold of up to £650,000.
The relevant dates
The transfer of the nil rate band can be applied for if the remaining spouse or civil partner died on or after 9 October 2007.
In respect of civil partnerships, the transferable nil rate band can be claimed only if the first partner died on or after 5 December 2005, the date that the Civil Partnership Act became law.
How much nil rate band is transferable?
Where the first spouse or partner to die leaves all of their assets to the remaining spouse or civil partner, no IHT is payable, so the entire £325,000 can be passed to the remaining spouse, subject to the deduction of any non-exempt gifts made during the previous seven years.
How to apply to transfer the nil rate band
Two forms need to be sent to HM Revenue & Customs (HMRC). The first is the standard IHT form, while the second is the application to transfer the unused allowance. There are two options for this second form.
Form IHT217 Claim to Transfer Unused Nil Rate Bank for Excepted Estates
This form should be used when the estate of the first person to die is an excepted estate, ie. IHT was not payable, for example where the estate is worth less than £325,000 or where the assets are left to charity.
Form IHT402 Claim to Transfer Unused Nil Rate Band
Where some of the £325,000 IHT allowance was used by the estate of the first spouse to die, then only the remaining balance can be transferred to benefit the second estate. Other financial information will need to be included on the form, for example gifts made within the last seven years and pension details.
Both forms need to be signed by the estate Executor or Administrator and sent to HMRC together with the main IHT form, IHT400.
A probate lawyer will be able to work out the correct figures to be included on the form, which isn’t always straightforward, for example in the case of disposal of cash or assets by the deceased prior to their death or where gifts are made to charities, which could potentially reduce IHT liability.
To speak to one of our probate specialists, call legalmatters on 01243 216900 or email us at firstname.lastname@example.org.
When you lose someone you love it is always a difficult time. Having to deal with the paperwork involved in administering an estate after a death – and when you’re grieving – can be extremely upsetting.
That’s why at legalmatters we will always try to make the process as pain-free as possible for you – and why we’re always delighted to hear from a client when we’ve helped a family or an individual through such a stressful time. So thank you Jane for your kind words.
“Thank you and Megan, and all in the office staff for making my journey – sorting my dad’s estate through yourself and legalmatters – a professional, reassuring and stress free time. It’s been a pleasure and I would highly recommend you to friends.”
When someone is classed as being domiciled outside of the UK, Inheritance Tax will only be payable on their UK assets.
A person’s domicile is usually their home or permanent place of residence.
However some people may claim the place that their father was born as their domicile, or if their parents were unmarried, then the place of their mother’s birth.
Even if someone was born, educated and works in the UK, it is still possible for them to be a so-called ‘non-dom’, ie. not domiciled in the UK. There are rules requiring an annual remittance to be paid to HMRC each year from the seventh year of residency onwards, but by way of benefit non-doms can avoid paying tax on foreign income or gains, provided the money is not brought to the UK.
Inheritance Tax benefits for non-doms
This benefit also extends to UK Inheritance Tax liability. Property outside of the UK can be excluded when calculating Inheritance Tax liability if the deceased was classed as a non-dom at the time of their death. For those classed as domiciled in the UK, Inheritance Tax is payable on all assets, wherever in the world they may be situated.
Property excluded from Inheritance Tax payments
- Property situated overseas
- Property situated overseas and held in trust where the settlor was not domiciled in the UK
- Foreign currency bank accounts
- British government securities, national savings and War savings certificates
How to benefit from non-dom status
If you have non-dom status, then by setting up an excluded property trust such as a discretionary off-shore trust can protect your assets from UK Inheritance Tax.
This can be beneficial for those who may have lived in the UK for more than 15 out of the previous 20 years, as it will mean that they are considered as UK-domiciled.
By setting up an excluded property trust, assets will not attract Inheritance Tax even if the settlor then acquires UK domicile.
To talk to one of our experts about tax planning, call legalmatters on 01243 216900 or email us at email@example.com.
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 firstname.lastname@example.org.
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 email@example.com.
When you own a business, not using a professional lawyer to draw up your Will is almost always a mistake.
Failing to cover all your assets and not considering issues around inheritance tax, executors and trusts are two common mistakes made with a DIY Will. But even the smallest of mistakes could render a Will invalid – such as if it’s witnessed by the wrong people or number of people; if it’s not signed or dated in the right place.
Having a valid Will in place is essential if you want the final say in what happens to your business and other assets after you die.
If you die without a Will, or if it’s invalid, everything you own – including business and non-business assets – will be distributed under the laws of intestacy. Which means that you or your loved ones will have no say as to who inherits. To avoid your assets being dealt with under the rules of intestacy, your Will should detail what will happen to your business shares.
When you die, any shares or interest you own in a business become an asset of your estate. Without a Will, these shares could be sold, the company could be broken up, or it could run into trouble without the correct day-to-day management in place.
For example, you might know who you want to inherit your business after you die, but what happens if there’s a tragedy and these people don’t survive? A professional solicitor will know what questions to ask to make sure that your Will covers all situations.
Take a look at the package “Business Wealth Protection” which we’ve put together specifically for business owners. We will look at all eventualities and the Will we draft for you will include a trust and letter of wishes to ensure that inheritance tax is handled in the most cost-efficient way.
In some cases, you might already have a partnership agreement or company papers in place that set out what will happen to the business after you die. These types of contracts are usually put in place if more than one person owns a business and you want the company to continue after your death. You should also consider whether you need a business lasting power of attorney. We’ll help you decide what legal documents you need to draw up in order to carry out your wishes and best protect your business and your loved ones.
It is always important when drawing up a Will that it is done correctly, and for business owners this is more complex. We can help guide you through the process. Just speak to one of our expert team by calling legalmatters on 01243 216900 or email us at firstname.lastname@example.org.
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 email@example.com for further details.