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 firstname.lastname@example.org.
When someone who has a mortgage dies, it is important to notify the lender as soon as possible. If the property has been left to you in a Will, you should ask them about the options for taking on some or all of the mortgage if it cannot be repaid.
After a death, notifications need to be sent to all of the organisations where the deceased held an account. This includes any mortgage lender.
What happens next
The monthly payments will still need to be made while the estate is administered. If the mortgage was in the sole name of the deceased, then the mortgage company has the right to ask for the repayment of the amount owed in full.
If the property is passed to someone else and they are able to meet the mortgage payments, then the mortgage company may consent to transferring the mortgage debt to that person.
It is important to speak to the lender early on after the death, so that they can set out the options.
If the property is sold, then the mortgage will be repaid from the proceeds of sale.
Where there is a joint mortgage
When a property is held with someone else as joint tenants, then the property and the mortgage will automatically pass to that other person on the death of the other owner.
This means that they will be responsible for making the mortgage payments. If this is not possible, then the property may have to be sold to repay the debt.
If the property is held as tenants in common, then the situation can be more complicated as the deceased’s share of the property becomes part of their estate and will pass in accordance with the terms of their Will or the rules of intestacy.
If the remaining owner does not inherit the rest of the property, there may be an option for them to purchase it.
To prevent a tenant in common being forced to leave the property, it is possible for property owners to leave each other a life interest in their share of the home. This means that the surviving spouse or partner would be able to continue to live in the property after death of the other. Following the survivor’s death, the share of the property owned by the first to die would still pass in accordance with their Will.
It is particularly important to think about what you would like to happen to your property after your death if you have a mortgage over it. You need to consider whether others would be able to afford to take on the debt and, if not, how you can secure their future, for example, by leaving them a bequest or taking out a life insurance policy.
If you would like to talk to one of our Wills or property experts, ring us on 01243 216900 or email us at email@example.com.
While it is possible for a single executor to administer an estate, it is usually recommended that two are named when a Will is written.
One of the main reasons for naming more than one executor is in case someone is unable or unwilling to act when the time arises. If a single executor is named in a Will, there is a risk that they may die first, or over time may lose mental capacity. In that event, it would leave the estate without a named executor.
Acting as a sole executor
If an estate does have only one executor, the administration will usually be possible in the ordinary way.
If the winding-up is simple, for example with everything left to the remaining spouse, then a single executor will be able to deal with matters fairly easily.
The benefits of a second executor
With a more complicated estate however, it can be beneficial to have more than one executor. The job of administration can be long and complex, involving the collecting in and valuation of assets, arranging for clearance and sale of any property, calculation and payment of Inheritance Tax, preparation of detailed estate accounts and distribution of the estate to beneficiaries.
It can be helpful for executors to share the burden, particularly if the winding-up takes many months and involves a large amount of correspondence. It can also be good to involve more than one family member to help avoid disagreements and distrust arising at what will be a difficult time.
If the Will creates a trust, then a sole executor is advised to take legal advice in respect of the appointment of trustees. It is always recommended that a second executor be appointed in the case of a more complicated estate.
A joint executor acting alone
If the Will appoints executors to act together, then they are known as joint executors. It will not then be possible for a joint executor to act alone in the estate administration unless the other executor(s) give their agreement.
If the other executor(s) are happy for one person to act solely, then they can either be served with a Notice of Power Reserved, meaning they can take up the position later on, should they choose to, or they can renounce their powers completely. It is advisable for executors to take legal advice before stepping aside.
Choosing your executors
When having your Will drawn up, you should ideally select two executors who you believe will be able to do a good job in estate administration. If you are unable to find suitable candidates, it is possible to appoint a professional executor to act.
If you would like to talk to one of our Wills experts, call us 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.
When the owner of a business dies, probate can be lengthy and complicated as their business assets have to be valued and transferred.
Whether business assets are sold or transferred depends on the way in which the business was owned and operated as well as the wishes of the deceased.
The estate’s executor or administrator will need to obtain a Grant of Probate or Letters of Administration enabling them to deal with the business.
Sole trading and probate
If the deceased was a sole trader, then their finances and assets are simply treated as part of the estate.
Business partnerships and probate
Where the deceased was in a partnership, there would normally be a partnership agreement giving details of each partner’s contributions and liabilities. It should also set out what is to happen in the event of the death of a partner.
The deceased’s estate will be liable for any debts or a share of partnership profits. Separating the estate from the partnership may well be complex and an executor or administrator should take independent legal advice on behalf of the estate.
Companies and probate
Where the deceased owned shares in a company, the company’s Articles of Association will govern how shares can be sold and/or transferred, for example if first refusal must be given to company directors.
The executor or administrator will need to contact the company secretary and arrange for valuation of the deceased’s shareholding.
It may be that the business will need to be sold or shut down. If there are redundancies, there may be liability to make payments.
If it is advantageous to keep the business running while a buyer is sought, then someone needs to be appointed to do that. If there are other owners or partners, then liaising with them will be essential.
As well as dealing with probate, the executor or administrator may also find themselves having to deal with questions of employment law, company law, property law and insolvency.
For this reason, it is highly recommended that when the deceased owned a business, professional legal help is sought.
If errors are made during the administration of an estate, executors or administrators may be held personally liable.
If you would like expert help in dealing with a probate matter, call us on 01243 216900 or email us at email@example.com.
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.”
The administration of the estate of a loved one can be a difficult job.
There are many decisions to be made at a time when people may be feeling overwhelmed and fraught. It is not uncommon for executors to fall out during this time, which is the last thing the deceased would have wanted.
People may feel that the other executor(s) are not acting in the most beneficial way, or that they are taking over or not sharing information.
Some of the administration tasks and problems that can arise
One of the main jobs after someone’s death is often to clear their property, dispose of their personal effects and put the house up for sale. Selling a home frequently causes friction, even in ordinary circumstances, and when it closely follows a death then emotions can run high.
There are also choices to be made over payments of expenses, who should be allowed to buy assets such as property or valuables, agreeing on valuations and closing or moving bank accounts. One executor may want to hold on to any property until the market improves, while another may want to sell straight away.
The process itself always takes a long time, which can be a source of frustration.
Maintaining a good relationship between executors
One of the key ways to maintain a good relationship between executors is to communicate as much as possible. If something has caused a delay, make sure everyone knows why and that it is unavoidable. If different valuations have been received, make sure the situation is talked through and try and take everyone’s point of view into account.
Stepping aside as an executor
If an executor does not want to act, it is possible to stand down before administration begins. They can either renounce the role permanently or ask for their power to be reserved, which could allow them to apply to court to become an executor at a later date.
If the relationship between executors breaks down completely, it is possible for one of them to apply to the court to have another removed, which the court might do if it believes this is in the best interests of the estate. There is then the option for a new appointment to be made.
Avoiding conflict in estate administration
It is possible to request a professional executor when drawing up your Will. This means that an expert probate lawyer will act as your executor. The advantage of this is that they are experienced in dealing with probate and will also act impartially. It can minimise delay and reassure everyone involved that the estate’s best interests are being observed.
To talk to one of our probate specialists, call legalmatters on 01243 216900 or email us at firstname.lastname@example.org.
On some occasions it may be possible to deal with someone’s estate without needing to apply for probate.
When someone dies, the person named as executor in their Will is responsible for collecting in, valuing and distributing their assets.
Whether or not that person needs to apply for probate depends on the value of the estate and how any assets were held.
If an estate only has a modest amount of money, it may be classed as a small estate and probate might not be necessary.
There is no exact definition of a small estate, although as a rough guide estates worth less than £5,000 may qualify.
Each bank has its own different threshold under which it will close an account and release funds without requiring a Grant of Probate, ranging from around £5,000 to £50,000.
The same applies to share registrars, life assurance companies and pensions administrators. Where the estate is fairly small, then it is worth enquiring of the asset holders what documentation they will need.
Where the deceased owned a property in their sole name then probate will be needed to deal with the sale or transfer.
Similarly, if the property was owned as tenants in common with others, probate is required.
However, if a property was held by the deceased as a joint tenant, then it will automatically pass to the other owner(s).
Jointly held assets
Similarly, joint bank accounts and other jointly held assets will pass automatically on death to the survivor(s).
It is therefore always worth checking whether probate is necessary. If most of the deceased’s property passes automatically, then it may be possible to avoid the time and expense involved in applying for a Grant of Probate.
What documents will asset holders need?
If probate is not needed, asset holders will need to see a copy of the death certificate and may require the executor to complete a form called a ‘Small Estates Declaration’.
They may also ask to see a copy of the Will and identification, such as birth or marriage certificates.
To speak to one of our probate experts, ring us on 01243 216900 or email us at email@example.com.
When someone dies and their assets are sold at a profit, their executor will need to calculate whether Capital Gains Tax is payable.
When an executor or administrator is dealing with the administration of an estate, part of their job is to account to HM Revenue & Customs for any tax which may be due. This includes Inheritance Tax, Income Tax and Capital Gains Tax.
Capital gains or losses during the tax year leading up to death will be taken into account when making the tax calculation, as well as any capital gains made on assets from the date of death until their sale.
This means that if for example the deceased leaves a property that is subject to Capital Gains Tax, ie a second property and not their main residence, then if the value of that property increases between death and sale, tax will be payable on the increase if the amount exceeds the Capital Gains Tax allowance.
Expenses can be deducted from the gain, for example estate agents’ or solicitors’ fees, or in the case of shares or valuables, stock broking or auction house fees.
Capital Gains Tax allowance 2019
An executor is given a Capital Gains Tax allowance of £12,000 per annum for the three tax years following death.
Once this allowance has been used up, Capital Gains Tax is payable at the rate of 28% in respect of residential property and 20% for other assets.
Beneficiaries’ liability for Capital Gains Tax
Where a beneficiary inherits a valuable asset and then proceeds to sell it, they may become personally liable for Capital Gains Tax.
They can use their Capital Gains Tax allowance and may only be liable to pay the tax at a lower rate if they are a lower rate tax payer. This means they would pay 18% on gains from a property sale rather than 28%, and 10% on gains from other assets rather than 20%.
Where a beneficiary occupied the property as their principal private residence and is entitled to at least 75% of the net proceeds of sale, the executor may use principal private residence relief to avoid the need to pay Capital Gains Tax on any increase in value.
Valuing inherited property
The value of an asset to be passed on to a beneficiary is the full market value as at the date of death.
Where the asset in question is a property, it is preferable for the executor to obtain a proper ‘red book’ valuation from a member of the Royal Institute of Chartered Surveyors, rather than simply an estate agent’s quote.
For advice on Capital Gains Tax and the most effective way of passing on assets, speak to one of our team at legalmatters on 01243 216900 or email us at firstname.lastname@example.org.