Gifts made before someone dies may be liable for inheritance Tax (IHT) unless they are made from income or are in an exempt category.
When an estate is administered, the Executor or Administrator will have to assess gifts that have been given by the deceased during their lifetime and decide whether or not they should be included in IHT calculations.
Gifts given during the last seven years of a person’s life may be liable for IHT. There are some exceptions to this, including the giving of gifts from surplus income.
Inheritance Tax on gifts
A maximum of £3,000 can be gifted each year free of IHT and, if not used, this allowance can be carried over for a single year. Single gifts of £250 do not attract IHT when made to different people.
Money can be given to family or friends who are getting married or entering into a civil partnership, in the sum of £5,000 for children, £2,500 for grandchildren and £1,000 for anyone else.
Payments made to support children under 18 or elderly relatives are usually exempt from IHT.
Gifts given from income may be exempt from IHT where they can be shown to be normal expenditure out of income.
Other gifts given in the seven years before death will be liable for IHT on a sliding scale where the value of the estate exceeds the IHT threshold, which is currently £325,000.
Gifts given out of income
For a gift given out of income to qualify for exemption from IHT, it must be possible to prove the following, to the satisfaction of HM Revenue and Customs:
- The gift is normal expenditure
The giving will need to be a regular or usual event. The estate Executor or Administrator can look for a pattern of giving over several years to try and establish whether it is an habitual occurrence.
- The gift is given from income
An exempt gift would usually be made from cash, or possibly from life insurance or pension income. Gifts from assets are not exempt unless the gift was purchased from income specifically to be given.
- The giver did not need it to live
The gift needs to be given out of income that is deemed surplus to the donor’s requirements. This means that the donor must be able to subsist on their remaining income without resorting to assets.
The rules around the giving of gifts are complicated, so to ensure you make the best decisions for your loved ones and your estate it is advisable to seek expert advice.
If you would like to speak to a Wills and estate planning expert, ring us on 01243 216900 or email us at email@example.com.
Inheritance Tax (IHT) can be a nasty surprise during the administration of a Will. New Year is the ideal time to check that you’ve done all you can to minimise the burden.
Increasing property prices has had the effect of increasing the amount of Inheritance Tax many people are paying. There are ways of reducing the amount due if you plan in advance.
The IHT threshold
IHT is payable at the rate of 40% of the value of an estate above £325,000, for example on a £400,000 estate, IHT is 40% of £75,000, ie. £30,000. The person who is appointed as executor or administrator of a Will is responsible for valuing the deceased’s estate and calculating the amount of IHT due, then making payment within six months of the date of death to HM Revenue & Customs.
IHT is not payable on money left to a spouse or civil partner or to charity. When the remaining spouse or civil partner dies, the unused IHT allowance of £325,000 is added to their allowance. If some of the allowance has been used, then only the remaining balance is passed on.
Leaving property to a family member
If you leave your primary residence to your children or grandchildren, to include step-children, then a ‘main residence nil-rate band’ is applied. This is £150,000 per person for the tax year 2019/20, rising to £175,000 as from April 2020.
This means that where your main home is gifted to your children or step-children, the total IHT allowance rises to £475,000. Any unused portion of this allowance can be passed on to a spouse or civil partner, meaning they could potentially pass on assets valued at £950,000 free of IHT, rising to £1m in April 2020.
Some gifts given during your lifetime may also have the effect of reducing the amount of IHT payable. The sum of £3,000 can be given in any tax year and any unused portion of this can be carried forward to the following tax year, although not beyond a single year.
In addition, gifts of up to £250 can be given to anyone and wedding gifts can be given to children in the sum of £5,000, grandchildren of £2,500 or others of £1,000.
Larger gifts are known as potentially exempt transfers and when someone dies within seven years of making them, IHT is payable on a sliding scale.
Setting up a trust
It is possible to leave assets to your loved ones via a trust to reduce IHT payable. Professional advice should be sought to ensure your beneficiaries receive what you want them to have and that your assets are adequately protected by the trust.
If you would like to talk to one of our expert tax, wills and probate solicitors, ring us on 01243 216900 or email us at firstname.lastname@example.org.
Pensions are notoriously complex and different rules can apply to different pensions held by different companies.
After someone’s death, the benefit of their pension may be payable to the person they nominated when the scheme was set up.
Workplace and private pensions
Sometimes a workplace or private pension scheme will provide a lump sum and/or income to your beneficiaries after you die. This will be paid to the nominated person, but it is possible for a dependant to make a claim on the funds if they have been excluded.
When you reach retirement age, you may choose to remove a lump sum of 25 percent of the value of the fund from your pension. If this is still in your estate at the time of your death, then Inheritance Tax may be payable on it, depending on the size of your estate.
You can gift this during your lifetime if you choose, but if you were to die within seven years of making a cash gift, then all or part of its value will be taken into account when Inheritance Tax is calculated.
Leaving pension funds to a beneficiary
Where a joint annuity is held, payments, usually to a spouse or partner, can continue after the death of the pension holder.
If the pension guaranteed annuity payments for a certain period of time, then these will continue to be made to a beneficiary for that period of time.
The pension may entitle beneficiaries to receive a lump sum payment. If the deceased left children under the age of 18 or a dependent partner or relative, then the pension trustees may make the decision to award a payment to them.
Payment of Inheritance Tax
Pension funds are paid at the discretion of the pension trustees and do not usually form part of the deceased’s estate, in which case Inheritance Tax is not payable on their value.
However if the pension trustees are not able to make a decision as to who the pension funds should be paid to, they may make the payment into the estate, in which case the money would be included in the Inheritance Tax calculation.
Following someone’s death, you should speak to their pension provider to find out how and to whom any payments will be made.
Because pensions are such a complex area, it is advisable to take independent advice when writing a Will, dealing with pension funds or administering an estate.
If you would like to discuss your Will or a probate matter with one of our expert team, ring us on 01243 216900 or email us at email@example.com.
It is a mistake to think that Inheritance Tax (IHT) can be avoided by giving away assets during your lifetime.
While it may often be the case that it is beneficial to pass on gifts during your life, you need to be aware that there could still be an IHT liability.
The tax rules on lifetime gifts
Gifts of cash or valuable items made in the seven years before death may need to be counted when the estate executor calculates IHT liability.
Up to £3,000 can be given tax-free each tax year, or £6,000 if no gift was made the previous year.
Each parent can give their child £5,000 tax-free towards a wedding, and a grandparent can give £2,500 and other relatives £1,000 towards a wedding.
When a gift is given in the seven years before death, it will need to be included in estate calculations for IHT. It is the job of the executor or administrator to find out what gifts have been made and account to HM Revenue & Customs for any IHT that may be due.
Where gifts exceed the amount allowed to be given free of tax, then they will be deducted from the nil-rate band, ie. the amount an individual can leave tax-free on their death. The figure currently stands at £325,000.
There is a sliding scale for calculating the amount of IHT payable on gifts. Where the sum was given less than three years prior to death, then IHT is payable at 40 percent. In the three to four years before death it is 32 percent and the sliding scale continues for each year at rates of 24 percent (four to five years), 16 percent (five to six years) and 8 percent (six to seven years).
Small gifts of £250 or below can be given free of tax, as can gifts made from income you receive and maintenance payments made to relatives or ex-spouses.
Tax-free giving to spouse or civil partner
As your whole estate can be passed free of IHT to your spouse or civil partner, it follows that lifetime gifts to them are also free of tax. However, if you put money into a trust, this may create a tax liability. It is a complex area of law and it is advisable to speak to an expert tax and trusts lawyer.
An experienced adviser will also be able to help you make the most of IHT allowance and suggest ways of structuring your assets to minimise the amount of tax payable. When done properly, this can make a substantial difference to your liability.
It is also possible to appoint a professional executor who would be responsible for calculating IHT liability and preparing estate accounts.
If you would like to speak to one of our expert tax and trusts professionals, ring us on on 01243 216900 or email us at firstname.lastname@example.org.
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 email@example.com.
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 firstname.lastname@example.org.
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 email@example.com.
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.