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“Most families who are liable for Inheritance Tax are unaware that they will have to pay it until its too late to mitigate”

Inheritance Tax (IHT)

Death duties are reaching record levels with the latest figures detailing that the UK Government alone collected over £5.4 billion/year in IHT in 2018. Most families that are liable to IHT, are unaware that they will have to pay it, but when they learn the facts they take steps to avoid it.

After a death, prior to an estate executor being able to apply for probate, they will need to value the estate and file an inheritance tax return (unless the estate is very low value). If you have not protected your assets, alarmingly HMRC (Her Majesties Revenue and Customs) will tax the same asset multiple times with their Generational IHT powers. However we have the ability to stop them dead in their tracks with our intelligent Trust planning meaning more money for the beneficiaries of a Will and not the tax man.

Whilst ideally, IHT mitigation plans are completed prior to the death of the testator, as part of our Probate Service, National Probate are also able to offer you (often invaluable) independent advice on the Will itself and may, under certain circumstances, recommend that a Deed of Variation be set up in order to vary the Will. This process effectively ensures that the beneficiaries of the Will receive as much of their inheritance as possible, without having to pay out large chunks of it to HMRC in unnecessary taxes. (This process must be executed within two years of death and needs to be with the agreement of all the beneficiaries.)


Mitigation

The former British home secretary, Lord Jenkins once said, “IHT is ‘a voluntary tax, paid by those who distrust their heirs more than they dislike the Inland Revenue’ and steps can be taken to minimise liability by using a number of entirely legitimate processes.”

Whilst this specific statement should be taken with a pinch of salt, the fact remains that with the use of intelligent Legacy Planning combined with the use of trusts steps can be taken to legally mitigate IHT liability. In some countries, domestic trusts are common place and relatively cost effective to establish (particularly when you compare the set up costs to the massive potential IHT savings) and in other jurisdictions effective planning can be more complex however in any event, Trust Planning is a specialist area requiring solutions tailored to your own particular situation and it is of vital importance that you proceed with the assistance of an organisation who have access to a team of International Will Writers, Trust Lawyers and Estate Planners who have over 100 years of experience and are members of the prestigious UK organisation The Society of Trust & Estate Practitioners (STEP)

For further information on how we can help you with our Professional Probate Assistance service, Instruct Us now so we can organise a free no obligation initial consultation.

IHT Formalities and Procedures

In regards to dealing with the HMRC IHT formalities during the administration of an estate, the type of tax return depends on the value of the estate.

  • IHT205 - if there isn’t any tax to pay (e.g. due to a low value estate or the spouse exemption), the executors (or administrators) will usually file an IHT205 account which is a shorter and simpler version of the inheritance accounts.
  • IHT400 - if there is inheritance tax to pay and/or the estate is valuable/complex, the executors or (or administrators) will need to file the more complex IHT400 account.

Inheritance tax returns must be filed within 12 months from the end of the month in which the death took place.

Inheritance tax is payable at 40% on all the assets the deceased owned which are:

  • not exempt assets
  • not exempt gifts over the tax free amount

Significant gifts which the deceased made in the 7 years before their death can also be included in the deceased’s estate when calculating inheritance tax.

Some assets are not subject to inheritance tax. The rules are complex but some examples include:

  • business property (ie. a family owned business)
  • agricultural property (ie. a working farm)
  • non-UK assets owned by a non-UK person who hasn’t lived in the UK for more than 15 years.

Some gifts are free of inheritance tax. These can include:

  • gifts between spouses (although a gift to a foreign spouse may not be included)
  • gifts to charity

Where the tax free amount was not used on the death of the first spouse (e.g. because they left everything to the surviving spouse) the unused amount isn’t lost. Instead, the executors can claim the unused amount on the death of the second spouse.

Everyone in the UK gets a tax free amount which is currently £325,000 per person (the Nil Rate Band); and an additional £125,000 where the deceased leaves property to their descendants (the Residence Nil Rate Band).

The Residence Nil Rate Band will increase to £175,000 per person by 2020/21. This amount reduces where the estate is worth over £2 million. Spouses can usually leave all their assets to each other free of inheritance tax (this does not apply to unmarried partners). An unmarried person can leave a maximum of £450,000 free of inheritance tax to their heirs (providing this includes a property left to children/grandchildren).

A married person with a spouse who died before them and who didn’t use their tax free amount can leave a maximum of £900,000 free of inheritance tax to their heirs (again, providing this includes a property left to children/grandchildren).

You can use our free Inheritance Tax Calculator to establish how much money may be due on an estate, however the calculator does not allow for any intelligent estate planning IHT mitigation techniques. Inheritance tax rules and forms are complex and failing to get proper advice could mean paying too much.

For further information on how we can help you with our Professional Probate Assistance service, Instruct Us now so we can organise a free no obligation initial consultation.

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