The amount of Inheritance Tax payable on someone’s estate after their death can often come as a shock. Inheritance Tax law, tax relief and tax exemptions are complicated and it can also be difficult to calculate exactly how much will be payable.
At Wells Burcombe, our experienced tax and probate team can advise you on ways to legitimately minimise the amount of Inheritance Tax payable and ensure that your estate is structured in the most efficient way possible, while also making the provision that you want for your loved ones.
We offer a bespoke service, taking the time to get to know you and your situation and to understand what is important to you and your family. When we give you our advice, you can be sure that we will have taken into account your unique circumstances and crafted the right solution to provide your loved ones with security for the future.
Our tax and trusts team have in-depth experience in advising clients on the best way to mitigate their tax liabilities, including in complex or high value estates and where business interests are included in an estate.
Our Inheritance Tax planning fees
It is our aim to make outstanding service and good quality legal advice available to everyone, so we make sure that our fees are competitive.
When drafting a Will, we can offer a fixed fee service for straightforward Wills so that you know exactly how much the service will cost. For more complex estates and in-depth Inheritance Tax advice we will discuss the likely costs with you before we start work.
Inheritance Tax planning FAQs
How is Inheritance Tax calculated?
Inheritance Tax is payable on the amount of a net estate that exceeds £325,000. This means that no Inheritance Tax is payable on the first £325,000, known as the nil rate band.
Inheritance Tax is generally payable at the rate of 40% on the amount of the estate over £325,000. If the deceased has left 10% or more to charity, then the Inheritance Tax rate is reduced to 36%.
If you are married and your spouse leaves all of their estate to you, no Inheritance Tax is payable. Their unused nil rate band is also transferred to you, so that when your estate is administered, you will have an allowance of £650,000. If part of their nil rate band is used, the unused part can still be transferred.
When calculating Inheritance Tax, gifts made by the deceased in the previous seven years must also be taken into account when they are over a certain threshold, with Inheritance Tax payable on a sliding scale, depending on how long ago the gift was made.
What is the Inheritance Tax threshold?
The threshold above which Inheritance Tax is payable is £325,000, with Inheritance Tax of 40% payable on the amount of the estate above this, reducing to 36% where 10% or more of the estate is left to charity.
Can you avoid Inheritance Tax on property?
A further relief is available if a residence is left to your direct descendants, i.e. children, grandchildren etc. This is known as the residence nil rate band and is in the sum of £175,000 each.
Again, if your spouse’s relief is unused, it can transfer to you, giving you a total residence nil rate band of £350,000. Combined with the original nil rate band, this gives a potential allowance of £1 million for a couple.
Who pays Inheritance Tax?
Inheritance Tax will need to be paid by the estate’s executor or administrator. This can cause some difficulties if there is insufficient cash available to settle the debt without, for example, selling the deceased’s property.
Sale of the property cannot take place until a Grant of Probate or Letters of Administration is received and this cannot be applied for until HM Revenue & Customs have received satisfaction as to Inheritance Tax.
However, there are a number of ways to deal with this. If the deceased held sufficient money in bank accounts, the bank will generally release funds to cover the Inheritance Tax bill.
If there are insufficient funds, HM Revenue & Customs may accept payment in instalments.
Failing this, most high street banks offer executors’ loans, that will be repayable once a property has been sold.
When is Inheritance Tax paid?
Inheritance Tax should be paid once an estate has been valued and the amount reported to HM Revenue & Customs. This takes place prior to application to the Probate Registry for a Grant of Probate or Letters of Administration.
Can you avoid Inheritance Tax with a trust?
Money in trust that does not form part of your estate will not be subject to Inheritance Tax, however there are other tax liabilities that apply to trusts so it is important to take legal advice to ensure that a trust is the best option for your situation.
What is the seven-year rule in Inheritance Tax?
The seven-year rule applies to gifts that were made by the deceased in the seven years prior to their death.
Gifts of up to £3,000 per year can be given away free of Inheritance Tax, as well as some individual gifts, such as £250 each to different people and £5,000 to children on their wedding. Gifts to charities and political parties are also Inheritance Tax free.
For other substantial gifts, Inheritance Tax is payable on a sliding scale when a gift was made in the seven years before death.
|Years between gift and death||Tax payable|
|less than 3||40%|
|3 to 4||32%|
|4 to 5||24%|
|5 to 6||16%|
|6 to 7||8%|
|7 or more||0%|
Who pays Inheritance Tax on gifts?
It is usually the deceased’s estate that will pay the Inheritance Tax on gifts. However, if the deceased has given away more than £325,000, i.e. over their nil rate band, then the recipient could be asked to pay the Inheritance Tax that is due.
How can I reduce the amount of Inheritance Tax payable on my estate?
A well-planned Will is vital in ensuring both that your assets go to those whom you want to receive them and can help to minimise the amount of Inheritance Tax that will be payable.
For example, by deciding to leave your residence to your children, you can make use of the residence nil rate band.
You can give gifts during your lifetime as specified above. You can also give regular gifts out of your income and they will not be included in any Inheritance Tax calculations.
Pensions can be used to pass on wealth tax-efficiently. Should you die before the age of 75, money in a money purchase pension can be paid as a lump sum or income to a beneficiary with no tax payable. Over the age of 75, tax will be payable at the beneficiary’s income tax rate.
Trusts are also effective ways to manage an estate. As well as tax-efficiency, they can be used to protect funds for future generations. They can be complex however, and it is always advisable to seek expert legal advice before setting up a trust.