Inheritance Tax

This is a type of tax that must be paid to HMRC following someone’s death if the value of their estate exceeds the available tax allowances. Any part of your estate that exceeds the available allowances is taxed at a rate of 40%. It is the value of your net estate that is used for inheritance tax purposes so any debts can first be deducted.

Firstly, anything you leave to your spouse or civil partner is exempt from Inheritance Tax, so it is usually only on the death of a surviving spouse that Inheritance Tax may become due. Gifts to charities are also exempt from Inheritance Tax and certain business assets may also qualify for relief.

There are two main tax allowances available today and these are known as the Nil Rate Band and the Residential Nil Rate Band. The Nil Rate Band is currently £325,000 and is available to everyone. The Residential Nil Rate Band is more complicated and certain criteria must be met in order to qualify for it. If your estate does qualify for the Residential Nil Rate Band, then you are entitled to a further tax allowance of £150,000. This allowance will increase to £175,000 on 6 April 2020.

The Residential Nil Rate Band requires certain criteria to be met in order to qualify for it. To qualify for the relief, you must:

  • own a property at the date of your death;
  • have left that property to your children or grandchildren; and
  • Your total estate must worth less than £2m.

Spouses and Civil Partners are entitled to claim any unused tax allowance from their deceased spouse/civil partner, but this is calculated and claimed at the time of the death of the survivor.

HMRC expect Inheritance Tax to be paid within 1 year of death. You will be charged penalties if the Inheritance Tax is not paid in time. However, after just 6 months following someone’s death HMRC will begin charging interest on the Inheritance Tax due until it is paid so it is best to act quickly when dealing with someone’s estate.

It is the duty of the deceased’s Executors (or Personal Representatives if there is no Will) to deal with the payment of Inheritance Tax to HMRC. The Executor could be held personally liable for the Inheritance Tax and penalties if it is not dealt with correctly.

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Trusts

A Trust is simply Person A (known as a Settlor) transferring assets to Person B (known as a Trustee) for the benefit of Person C (known as the Beneficiary).

The Trust could be created during a person’s lifetime or on their death.

A person could potentially have one or more of these roles.

Any person or company can be appointed as a Trustee.

The main types of Trusts are:

A Bare Trust – The Trustee is holding funds for a Beneficiary which the Beneficiary can demand to be handed over to the Beneficiary at any time.

A Life Interest Trust – A beneficiary (known as a Life Tenant) is entitled to the income generated by a Trust Fund for a set period, usually for life. When the period comes to an end, the Trust assets then belong to another specified beneficiary (known as a Remainderman).

A Discretionary Trust – The Trustees hold assets for a number of specified beneficiaries. The beneficiaries are not entitled to anything from the Trust. The Trustees usually have discretion as to which beneficiaries should receive anything from the trust, how much and when.

A Contingent Interest Trust – A beneficiary is entitled to the Trust Fund but only when a set contingency has been achieved for example the beneficiary has reached an age where the beneficiary is now entitled to receive the assets in the Trust.

In most situations this is not an advisable thing to do as you are losing control of the ownership of your own home.

There is no guarantee that it will be effective in protecting your home from care home funding as the “deliberate deprivation” rules could apply.

If you are continuing to live in, or have a benefit from the property, then it is likely to be included as part of your estate for inheritance tax purposes under the “gift with a reservation of benefit” rules.

You will also be placing your home into a special tax system known as the “relevant property regime” which could potentially result in charges on the trust being created (known as “entry charges”), ten year anniversary charges (known as the “periodic charge”) and charges when funds leave the trust (known as “exit charges”) which then also has special reporting requirements to H M Revenue & Customs.

H M Revenue & Customs have created a Trust Registration Service. It is now a requirement of all express trusts (with a few exceptions) to be registered with them. Further details about whether the Trust should be registered with H M Revenue & Customs can be found here.

Trusts that should register, and were created before the 6th October 2020, even though they do not have a tax liability, must register by the 1st September 2022.

Trusts that should register and were created after the 6th October 2020, even though they do not have a tax liability, must register within 90 days of being created (or the date of when the Trust became registerable) or by 1st September 2022 (whichever is the later)

If the Trust is taxable then you should take advice from a suitably qualified tax adviser to ensure that your necessary reporting obligations are being complied with by the necessary specified deadlines to avoid penalties and interest being incurred. If you are not sure whether a Trust is taxable then you should still take advice from a suitably qualifies tax adviser to confirm the position.

There are various rules that a Trustee must comply with which include (but this is not an exhaustive list):

  • Records should be kept for tax purposes. More information can be found here.
  • The trust assets must be kept separate from the Trustee’s own money.
  • A Trustee must always be prepared to produce accounts to show how the funds are being looked after.
  • A Trustee should look after the trust assets with a greater degree of skill and care then they would otherwise look after their own assets.
  • A Trustee is required by the Trustee Act 2000 to take investment advice when looking after Trust Assets.
  • A Trustee should not benefit themselves by virtue of their position as a Trustee.

You should always take advice from a specialist lawyer before creating a trust.

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Probate

Probate is the legal right to deal with someone’s property, money, and possessions (their ‘estate’) when they die. When someone dies owning assets in their sole name, a formal ‘grant’ will need to be obtained from the probate registry to enable the estate to be collected and distributed to the beneficiaries.

There are some situations where it is unlikely a formal grant of probate is needed, where the estate is less than £5,000, for instance, and only includes cash funds held in deposit accounts or where the assets are all held jointly between are spouse or civil partner. Under these circumstances, you would not normally need to obtain a grant of probate to access the money. Where the estate comprises of certain assets such as property, shares, or ISA’s you will always need a formal grant of probate to access the asset.

Anyone who is responsible for sorting out the affairs of someone who has died. The authority may derive from the Will, by the appointment of executors or where there is no Will the administrator obtains their authority from the actual grant. The administrator in most cases will be the person who is entitled to benefit from the estate under the rules of Intestacy.

The process of obtaining probate or administration can be very complex. Essentially there are three main stages. Firstly, the value of the estate and nature of the assets and liabilities needs to be ascertained.  Valuations may need to be done. Secondly, inheritance tax needs to be calculated, reported, and paid. Finally, the assets will need to be collected, liabilities paid, and the estate distributed to the beneficiaries.

Whoever applies for probate is responsible for correctly collecting in and properly distributing the estate of the deceased after paying all taxes and other debts due. If someone decides to stop after accepting the responsibilities of the executor or administrator before probate is complete, they may still attract some of the liabilities.

The probate process can be complex and time-consuming. Tax returns must be made based on information that is collated from the deceased’s assets and liabilities, including bank accounts, investments, pensions, and all other assets. Where an estate is taxable this must be completed within a certain time otherwise the estate will receive financial penalties. As an executor or administrator, you are personally liable for any errors. The Probate process relies on specialist legal and tax knowledge. We are a professional team of experienced Wills and probate solicitors who have the necessary experience and knowledge to ensure that all areas of probate are dealt with quickly and efficiently.

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Wills

A Will is legal document that sets out your wishes as to what should happen with your assets and who should benefit from your estate following your death.

It is always better to have a Will in place. It does not matter how much your estate is worth. By having a Will, you can ensure that your wishes are reflected when your estate is dealt with.

If you have a Will you can specify who you want to be legally responsible to deal with your estate, so that you can be sure that your estate passes to who you would like it to. In your Will you can also include your funeral wishes, make gifts of personal possessions, make cash lump sum gifts, and ultimately determine how the remainder of your estate should be divided.

If you have young children, then you can set out who you would want to look after your children whilst they are under 18. If you have a family business, you are concerned about how your estate will impact the cost of care for your surviving spouse, or if you’re concerned about your beneficiaries receiving a large inheritance, then you can include terms that cater for each of these scenarios.

If there are people that you do not want to inherit from your estate, or if you want to leave some or all of your estate to charity, then your Will deal with these wishes also.

If you die without leaving a valid Will then you are treated as having died ‘intestate’ and the ‘intestacy rules’ take place.

The intestacy rules are complicated and can result in your estate passing to people that you would not have wished to benefit. For example, your estate may pass to distant relatives who you have never met. Or you may have relatives who you have become estranged from who may also become substantial beneficiaries to your estate. The process of finding these family members can also be costly and take a long time.

Even if you have made a Will, if it has not been drafted correctly or did not account for particular events then your estate can result in a partial intestacy. In these cases, then not only can the above scenarios come into play, but it may also make your estate more complicated and difficult to deal with for your other beneficiaries.

Anyone can write a Will, including yourself at home or a non-legally qualified Will writer. You do not need to instruct a specialist private client solicitor.

However, there are risks in writing a Will at home. Your wishes may not be carried out correctly because you are not aware of the correct law or terms needed to be used. In fact, your homemade Will may actually be defective if it is missing particular terms, or it may be invalid altogether. In these situations, you may then be treated as having died intestate, or created a partial intestate.

To avoid these issues, it is recommended that you instruct a specialist private client solicitor to prepare your Will. By doing so you will have the peace of mind that your wishes are correctly reflected in your Will and that your estate passes to who you want to. You can also be assured that your Will is drafted in a tax efficient way.

If you made a valid Will many years ago then its age will not automatically make it invalid. Even if you have lost the Will as you stored the original at home, or you accidentally destroyed your Will, or you cannot recall where it is your Will remains valid.

However, if you have married or formed a civil partnership since you made your Will then it will no longer be valid. It is best to review your Will every 5 years or when there are significant changes in your life such as buying property, having children or grandchildren, or because of the death of your partner, children, or beneficiaries.

By having an up to date Will you will ensure that your current wishes are reflected.

We offer you a meeting in person with one of our specialist private client solicitors at any of our offices across Essex and London. We are also able to meet you at your home if you are unable to come to our offices for health reasons. At this meeting we will discuss your estate and discuss your wishes with you.

Before your meeting you will be sent a Will questionnaire for you to complete and to bring to your meeting. The questionnaire will help you to be better prepared for your meeting and will assist your solicitor in preparing your Will immediately after your meeting.

During your meeting and on review of your questionnaire, your solicitor will advise you about how your estate is affected by Inheritance Tax and guide you as to whether your wishes are tax efficient.

Following your meeting you will be sent a draft Will for you to review. If you need to make any amendments or include additional terms to the draft Will, your solicitor can take your instructions by telephone or email.

After you have approved the Will, you will meet your solicitor again for the Will to be signed. Once this has been completed, we will arrange for your Will be registered with The National Will Register and to store your Will at our secure storage facility at no additional cost.

You will also be sent a photocopy of your signed Will in the post and a scanned copy by email will be sent if required.

We charge a fixed fee for our Wills service. The cost of your Will service will depend on whether your wishes are simple or complex. Most people will require a simple Will.

For our simple Will service for individuals the fixed fee is £200 plus VAT. If you are preparing simple Wills as a couple, then the fixed fee is £375 plus VAT. Complex Wills are typically those that include terms that offer protection of your assets from care fees, or Wills that cater for protecting beneficiaries who are vulnerable or who have disabilities. Your solicitor will provide you with a fixed fee quote at your initial meeting for this service.

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For help and advice, talk to a member of our team. They can advise on the best options in your matter.

Call: 01708 229 444 Email us

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