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For some people, it is hard to think about what will happen to their assets after they die. Others want to ensure that their legacy is passed on in the most efficient way so their heirs can benefit from what they have worked hard to accumulate during their lifetimes. Whichever camp you fall into, pertinent, up-to-date advice from an inheritance tax solicitor can be invaluable. Everyone needs to consider making a will to ensure their estate is dealt with smoothly and in accordance with their wishes after their demise. But if your estate looks set to be valued at over £325,000, you will especially benefit from guidance from inheritance solicitors.
Inheritance tax (commonly abbreviated to IHT) is the tax that’s payable after the death of an individual on the money, property, and possessions they leave behind – their estate. It’s based on the value of the estate at the time of death but can also include gifts given by the individual in the seven years preceding their demise. The value of the estate is calculated after any outstanding debts and funeral expenses have been deducted.
At present, the IHT threshold is £325,000, though changes to the whole framework are imminent. Currently, there’s no tax payable on the first £325,000 – this is known as the nil-rate band or NRB. If you have a spouse or civil partner, then you can pass the entirety of your estate to them tax-free, and they then benefit from an increased IHT allowance of up to double (i.e., £650,000) on their own death.
But otherwise, any value of the estate over £325,000 is taxed at a rate of 40%. This is usually settled by the executor of your will if you have one, or the administrator of the estate if there’s no will in place.
Other considerations are many but include the Transferable Main Residence Allowance (TMRA), which came into force in April 2017. This allows the deceased to pass on a property in which they have been living to descendants, raising the tax-free allowance to £500,000 in total (£1 million for those who are married or have civil partners).
Of course, no one likes paying more tax than they have to, and this is often where consulting inheritance tax specialists in the UK can be beneficial. It’s important that you do this at an early stage if you think your estate will be liable for IHT.
The above description of IHT and associated matters is the briefest of summaries and only scratches the surface of the complex framework surrounding inheritance tax. The landscape is likely to change in the near future too, so it’s vital that you seek legal advice from qualified and experienced experts before taking any action yourself. HMRC imposes severe penalties on breaches of tax legislation and you or your heirs could end up in trouble if you inadvertently break the rules.
Inheritance tax planning solicitors will first gain an overview and more detailed information about your specific circumstances. They will then detail options for ways in which you can manage your affairs now and at the time of your death to limit tax liabilities and benefit your heirs as much as possible.
Among these will be the consideration of making a will; giving tax-free gifts; making charitable donations; establishing a family trust; making specialist investments; taking out insurance to cover the costs of IHT; gifting property to children or a loved one, and more, all of which can be tailored to your own unique circumstances.
As noted above, IHT can be a minefield and the costs of getting your affairs wrong can be huge in financial terms, not to mention costly in terms of the emotional distress on your heirs that can result from dealing with HMRC at an already difficult time.
However, the cost of an investment in sound legal advice at an early stage can be more than offset by the savings you’ll make in tax liabilities in the future.
Liabilities and debts incurred prior to the deceased’s demise, such as mortgages, credit cards, and household bills, can be deducted from the chargeable estate, as can funeral expenses. However, other costs that have been incurred after death, like probate and fees for solicitors or death tax lawyer services cannot reduce the value of the estate for Inheritance Tax (IHT) purposes.
When sourcing a lawyer to act as executor of an estate, ask how they will charge for carrying out the service. Some charge an hourly rate, while others will base their fee on a percentage of the value of the estate, usually between 1% and 5%, plus VAT.
The threshold for IHT is £325,000. If your estate is worth less, it’s classed as being in the Nil Rate Band (NRB). You’ll typically pay 40% tax on any amount above £325,000 unless the entirety is left to a spouse or civil partner, or an exempt beneficiary like a registered charity. Inheritance tax solicitors can advise further.
At present, the inheritance tax (IHT) threshold is £325,000 per individual. Currently, if you have a spouse or civil partner, any unused NRB on the death of the first person can be transferred to the survivor, increasing the amount of NRB available to up to £650,000.
Your children pay inheritance tax at 40% on any amount you have left them above the £325,000 personal inheritance tax-free allowance. You can establish a trust before death to reduce the percentage paid to 20%, but if you die within seven years, an additional 20% is charged. The law is complex, so seek advice from a family tax planning attorney.
Inheritance tax is a highly complex area. Broadly speaking, only a small percentage of estates are large enough to attract IHT – those with a value of over £325,000. Assets that count towards this sum include money in a bank, property and land, jewellery, cars, shares, pay-outs from insurance policies, and jointly owned assets. If your estate falls below the £325,000 threshold; you leave everything above the threshold to your spouse or civil partner, or you leave everything above the threshold to a charity or other exempt beneficiary, then there is normally no tax to be paid.
The recently-introduced Residence Nil Rate Band, aka home allowance, may also apply. If your main home or a share of it is passed to children or grandchildren, that can increase the amount that can be passed down tax-free. Planning ahead with the help of inheritance tax solicitors in London can mitigate tax paid.
The deceased’s estate usually pays 40% inheritance tax on any amount held over £325,000. If you’re a beneficiary, you don’t generally have to pay tax on an inheritance unless the estate hasn’t or can’t do so. If you inherit assets, you may have to pay income tax in future years – on dividends from shares or on rental income from an inherited property, for instance.
If you later sell inherited assets like shares or property, you may have to pay Capital Gains Tax. Assets. And if the deceased gifted you money, property, or possessions within seven years of their death, you may have to pay IHT on that.
An IHT attorney can help ensure:
Inheritance Tax is a highly complicated area and is constantly changing. It’s easy to fall foul of the complexities of the law and that can mean your heirs and dependants receive less than they might otherwise have done. Make an appointment with our team at BBS Law for help, advice and assistance in planning what will happen to your assets after your death.
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