Inheritance Tax Planning Solicitors

The first £325,000 of your estate is passed on tax-free. This allowance is called the Nil Rate Band (NRB). So, if your estate is worth less than this, it pays no IHT at all. This will change if you make any substantial lifetime gifts within seven years before your death or reserved a benefit in the asset gifted.

Reserving a benefit is when you gift someone property ‘on paper,’ but don’t let them take full possession of it or use of it straight away. For example, if you gift someone your house but continue living in it yourself.

If your estate is worth more, it only pays IHT on the excess, at a rate of 40%. So, if your estate is worth £500,000, you will pay 40% of £175,000.

When you die, your estate will be managed by someone called the executor or administrator. This person (or persons) is responsible for paying your estate’s inheritance tax.

They must pay inheritance tax before passing on any of your assets to the people chosen in your will.

In some cases, your estate might need to sell some assets in order to pay its IHT. However, the share of tax due on certain assets, like property, can be paid in instalments instead. This can help your successors keep a family home if your estate can’t afford to pay the tax as a lump sum. In some cases, it may be possible to arrange for funds or assets held in the estate to be used to pay all or some of the IHT bill.

IHT is also sometimes payable on certain trusts (known as relevant property trusts) at 10-yearly intervals or whenever capital is taken out of the trust.

Yes, your spouse or partner’s estate can use any portion of your NRB allowance that your own estate doesn’t use.

You pay no IHT on assets left to spouses or partners, so none of your tax-free allowance is used if you leave everything to them. This means that you can transfer your entire NRB allowance, and your spouse or partner’s estate will have a total tax-free allowance of £650,000.

Alternatively, you might leave £100,000 to your children and the rest to your spouse. The NRB allowance applies to your children’s £100,000, and the remaining £225,000 of your allowance is unused. You could transfer the remaining allowance to your spouse so their estate has a tax-free total of £550,000.

The Residential Nil Rate Band (RNRB) allowance can also be transferred in certain specific situations. This could potentially mean a total tax-free allowance of £900,000 for the surviving spouse, increasing to £1,000,000 in 2020/21.

Using trusts in Wills for spouses can also be helpful for inheritance tax planning. Trusts can make use of tax allowances while keeping your spouse’s future secure.

If your estate includes a business or business assets, it may qualify for Business Property Relief (BPR).

With BPR, your estate pays no IHT on businesses, interests in businesses, or shares in unlisted companies. It also reduces IHT to 50% on certain other business assets.

If you are a farmer or agricultural landowner, you can also pass on some agricultural land and buildings free of IHT through Agricultural Property Relief (APR). In many cases, you can also benefit from BPR on other aspects of your business.

There are many complicated rules and exceptions involved with applying inheritance tax to businesses particularly when both BPR and APR are involved, including the potential use of trusts. You can get expert legal advice from us to make sure that your estate is planned correctly to take advantage of the reliefs available.

UK tax rules are based on your ‘domicile’ (where the tax authorities consider your permanent home to be) rather than your nationality.

This means that your estate may have to pay UK inheritance tax if you have lived in the UK for several years, even if you are officially still a foreign citizen.

The rules surrounding tax residence can be complicated, but specialist advice from our solicitors can help you avoid getting caught out.

If your permanent home or ‘domicile’ is in England or Wales, your estate must pay inheritance tax based on the value of all your worldwide assets, including any assets you own abroad.

Foreign assets are only excluded from IHT calculations if your domicile is abroad, for example, if you are ‘non-dom.’ If you have been living in the UK for a number of years, you may be treated as ‘deemed domiciled’ for IHT.

There are a number of rules and allowances affecting gifts and inheritance tax, including:

• Your gift allowance: You can give away cash or assets worth £3,000 every tax year without incurring inheritance tax.
• Potentially Exempt Transfers (PET): IHT doesn’t apply to gifts worth over £3,000 if you live for another seven years after making the gift. If a gift is made into a trust, this might constitute a different form of gift and some IHT might be payable on it.
• Small gifts: Anything up to £250 per person, per tax year is exempt from IHT.
• Gifts to financial dependants: These are also exempt from IHT.
• Wedding gifts: If they meet certain criteria, wedding gifts are IHT-free.
• Regular gifts from income: Regular gifts that don’t affect your standard of living can be IHT-free, provided you comply with some detailed rules in practice.

Gifts aren’t usually tax-efficient if you continue to benefit from them, for example, by still receiving income or using the asset after you have gifted it. This is called reservation of benefit, and the rules can be complex. Our solicitors can help you understand them.

If you think that HMRC has charged you too much IHT, our solicitors can help you appeal its decision. It may be that it failed to properly apply a tax-free allowance or tax relief, or because it misinterpreted certain IHT laws.

We often settle IHT disputes directly with HMRC, but we are also experienced with taking appeals to the Tax Tribunal or even all the way to the Supreme Court if needed.

The best way to avoid an issue with HMRC is by seeking legal help as early as possible. We can help make sure that HMRC gets its IHT calculations right from the outset, saving you the stress of making an appeal.