Tag Archives: inheritance tax

Estate administration deadlines…

After someone dies, their assets need to be collected in and distributed to their beneficiaries. We look at the deadlines for completing this work.

The person who deals with the administration of an estate is known as the executor or, where there was no Will, the administrator. It is their job to value the estate, apply for probate if needed, work out any tax liability, discharge debts, liquidate assets, prepare estate accounts and arrange for distribution of the money and personal items in accordance with the Will or the rules of intestacy.

The time limit for administration

One year is allowed for completing the administration, with Inheritance Tax due by the end of the sixth month after the person’s death.

If the deceased had assets in many different places, for example different bank accounts, shareholdings and assurance policies, then it can take a considerable amount of time to even work out how much is in the estate.

For this reason, it is advisable to start work on the administration as soon as possible and make sure there are no avoidable delays.

If there is a property, this will need to be sold. Again, this can take a considerable amount of time, so the wheels need to be set in motion early on. This may involve valuing items, selling contents and arranging for clearance as well as the actual property sale itself.

When the work can’t be completed in a year

It is not unusual for administration to take longer than a year, for example if it takes a long time to find a buyer for the house or if there is an issue with a government department such as the Department for Work and Pensions.

Where the executor or administrator can show that they have acted in the best interests of the estate and that the delay is justifiable, then more time is usually permitted.

If the delay continues, interim accounts can be prepared and interim payments made to the beneficiaries. Beneficiaries will be entitled to interest on payments that remain outstanding after the one year period has come to an end.

Deed of variation deadline

If a beneficiary wants to change the share they receive, for example to include another family member or for Inheritance Tax reasons, they can execute a deed of variation to redirect part of their legacy to someone else. The deadline for signing a deed of variation is two years from the date of death.

If you are concerned about the time limits for completing an estate administration, you can engage a professional to deal with the work on your behalf.

If you would like to speak to an experienced probate lawyer, ring us on 01243 216900 or email us at info@legalmatters.co.uk.

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Foreign assets in a Will

How to deal with foreign assets left in a Will…

More people than ever are leaving assets in foreign countries when they die, making administration of their estate more complex. We look at some of the main considerations.

One of the first questions to be answered is which country was the permanent home or country of domicile of the deceased.

If you are domiciled in the UK, Inheritance Tax is payable on your assets wherever they are located. If you are domiciled elsewhere then you may be liable for Inheritance Tax on your UK assets as well as tax payable in other countries.

All of the assets in the estate need to be valued. At this stage, approaches can be made to foreign asset holders to ask what they need from the executor, such as a certified copy of the death certificate or Grant of Probate.

Foreign property ownership

A Will made in the UK may specifically refer to foreign property, or alternatively there may be a Will made in the country where the property is located.

If there isn’t a Will at all, then the property would pass under the rules of succession that apply in the country where the property is.

Other assets held abroad

Other countries may require to see the UK Grant of Probate which would sometimes be resealed in that country. Alternatively, it may be a requirement that probate is also obtained in the country where the asset is held.

Why you need expert advice for foreign assets

Administering an estate which includes foreign assets can be lengthy and complicated. The best way to ensure things go as smoothly as possible is for anyone with foreign holdings to seek legal advice in drawing up the relevant Wills to cover all of their assets.

Some countries may have laws which clash with those of the UK, for example in France and Spain, where property may pass to specific heirs regardless of the terms of any Will.

Finding out the situation well in advance and undertaking estate planning in the light of the different laws can make a huge difference to the executor or administrator of a Will.

When it comes to dealing with the administration of an estate containing foreign assets, it is advisable to take advice from lawyers in the country where the assets are held to ensure that their laws and tax requirements are not breached.

If you would like to speak to one of our expert Will and tax lawyers, call us on 01243 216900 or email us at info@legalmatters.co.uk.

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Big rise in contested estates attributed to DIY wills…

The continuing rise in numbers of contested Wills is being attributed to more and more people attempting to write their own Will.

The number of cases heard by the High Court went up from 227 in 2016 to 282 in 2017 and 368 in 2018.

Drafting a Will

Drawing up a valid Will can be a complicated undertaking. Matters to be considered include whether to leave beneficiaries lump sum gifts or a percentage of the estate, who will inherit first if your estate is smaller than expected, how to ensure first and second families are both provided for, even if you die before your new spouse and how to minimise Inheritance Tax liabilities.

A small error made in drafting a Will can mean that it is invalid. If this happens, then there is a risk that the estate will pass under the rules of intestacy. This details which relatives will receive the estate and in what proportions. Unmarried partners and stepchildren do not inherit anything under the rules.

Why a Will might be challenged

If the wording of a Will is ambiguous or the wrong terminology is used, there may be an opportunity for someone to challenge it in court. Even the incorrect execution of a Will by the signatory and witnesses can mean that a Will is invalid. Mistakes are easy to make in this complicated area, with the risk that will result in a long and expensive court case.

What happens if a Will is challenged

Dealing with a death can be difficult and when family members feel that they have not been left what they felt they were entitled to, problems can arise. When emotions run high, if there is ambiguity or an error in the Will, then they may take the opportunity to bring a legal case. These can take years to resolve and are likely to be expensive. Saving a few pounds now by drafting your own Will can result in the loss of thousands later on if the Will is proved to be invalid or ambiguous.

Why a professionally drafted Will is always recommended

Speaking to an expert Will writer allows you the opportunity to explain exactly what you would like to happen to your estate. If, for example, you have remarried and you would like your spouse to live in your home after your death, but ultimately want it to pass to your children, a professional will be able to explain to you how this can be done and draw up a Will that you can have confidence in.

They will be able to help you avoid pitfalls, such as leaving cash gifts that might reduce your residuary estate far lower than you anticipate and will be able to translate your wishes into a legally binding Will. When a Will has been clearly thought out and well drafted, it significantly reduces the risk that your family will start to wonder if it was exactly what you meant to do.

To speak to one of our expert Wills lawyers, call us on 01243 216900 or email us at info@legalmatters.co.uk.

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Inheritance Tax planning

What is the transferable nil rate band in Inheritance Tax and how can you claim it?

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 info@legalmatters.co.uk.

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Client Testimonial

Client Testimonial…

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.”

UK Inheritance Tax

What Inheritance Tax liability do non-domiciled residents have in the UK?

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 info@legalmatters.co.uk.

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Inheritance Tax rules on lifetime gifts

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.

Exemptions

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 info@legalmatters.co.uk.

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Estate Administration

Making payments from a deceased’s estate…

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.

  1. Secured debts such as a mortgage
  2. Reasonable funeral costs
  3. Estate administration expenses
  4. Payments due to employees
  5. 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 info@legalmatters.co.uk.

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Business in a Will

Why, as a business owner, you need a solicitor to write your Will…

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.

Business assets

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 info@legalmatters.co.uk.

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Cryptocurrency and your Will

How will cryptocurrencies affect inheritances?

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 info@legalmatters.co.uk for further details.

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