| Wills, Trusts & Probate > Inheritance Tax |
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Inheritance |
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| As the value of your estate, often because of the increasing value of your house, continues to rise the thought of paying Inheritance Tax may start to become a matter for concern. | ||
If you leave over £325,000 (the Nil Rate Band) then any amount over that will be charged to Inheritance Tax at 40% on your death. There are some exceptions to this that include leaving your estate to your spouse or civil partner or to charity, all of which are exempt from Inheritance Tax. Failing one of these exemptions, your estate may be liable to Inheritance Tax which is deducted, along with your other debts and liabilities, before your estate is distributed to your intended beneficiaries. |
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| Lifetime Gifts | ||
| Lifetime giving is a useful way of assisting your family or friends during your lifetime. There are rules attached to making such gifts. There is a small gifts exemption of £250 per recipient per tax year and each person also has an annual gifting allowing of £3,000. However, if absolute gifts are made over this limit then, as long as you live for seven years, there will be no Inheritance Tax consequences. If you die within seven years however, then the money that you have gifted away becomes chargeable to Inheritance Tax and this will form part of your estate in calculating the liability to Inheritance Tax. Regular gifts out of excess income are also possible with careful planning. | ||
| Planning in your Will | ||
Following the introduction of the 'transferable nil rate' (see below) between spouses and civil partners, planning for Inheritance Tax through Wills is generally limited to those people who have assets which will attract tax relief such as Agricultural Property Relief and Business Property Relief or those who have some specific reason for wishing to deal with their estate in a specific manner. However, there are tax planning opportunities for widow(er)s who have remarried. |
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| Transferable nil rate band | ||
Everyone is entitled to the nil rate band on death as detailed above. Generally speaking, assets that pass from one spouse or civil partner to another are exempt from Inheritance Tax. If, on death for example, a husband leaves everything to his wife then he has not used any of his nil rate band (assuming there are no other transfers to take into account). This unused nil rate band can now be transferred to the surviving spouse or civil partner and utilised on their death. This change in the legislation was introduced by the Chancellor in his pre-budget report on 9 October 2007. For example: husband dies leaving a legacy of £81,250 to his children and the remainder to his wife. The nil rate band on his death is £325,000. As a result of the gift he has used 25% of his nil rate band. Let's say when the wife dies the nil rate band is £400,000. She will have her own nil rate band (£400,000) plus the proportion of the unused nil rate band of her husband, which is 75% of the nil rate band valued as at the date of death of the wife (£400,000 x 75% = £300,000). As a result, the wife's nil rate band is uplifted to £700,000. |
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| Deeds of variation | ||
Under the current law, it is possible to vary where your entitlement under the Will of the deceased person passes by entering into a Deed. This opportunity is often used to help with reducing a future liability to Inheritance Tax. Any such Deed needs to be completed within two years from the date of the death of the person concerned and will also need to meet with other technical formalities. |
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| For more detailed information see the"Wealth Management & Tax Planning" section. | ||
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