Trusts may incur an Inheritance Tax charge when assets are transferred into or out of them or when they reach a ten-year anniversary. The person who puts assets into a trust is known as a settlor. A transfer of assets into a trust can include property, land or cash in the form of:
A gift with reservation is a gift that is not fully given away. Where gifts with reservation were made on or after 18 March 1986, you can include the assets as part of your estate but there is no seven year limit as there is for outright gifts. A gift may begin as a gift with reservation but some time later the reservation may cease.
If you leave everything to your husband, wife or civil partner, in this instance there usually won’t be any Inheritance Tax to pay because a husband, wife or civil partner counts as an exempt beneficiary. But bear in mind that their estate will be worth more when they die, so more Inheritance Tax may have to be paid then.
However, if you are domiciled (have your permanent home) in the UK when you die but your spouse or civil partner isn’t, you can currently only leave them £55,000 tax-free.
A look at the steps to take in England and Wales (the process differs in Scotland and Northern Ireland).
Probate (or confirmation in Scotland) is the system you go through if you’re handling the estate of someone who’s died. It gives you the legal right to distribute the estate according to the deceased’s wishes. Inheritance Tax forms are part of the process even if the estate doesn’t owe Inheritance Tax.
It’s easy to put off making a will. But if you die without one, your assets may be distributed according to the law rather than your wishes. This could mean that your spouse receives less, or that the money goes to family members who may not need it.
Planning your finances in advance should help you ensure that when you die everything you own goes where you want it to. Making a will is the first step in ensuring that your estate is shared out exactly as you want it to be.
If you inherit a property from your spouse or civil partner, you’re an exempt beneficiary and you normally won’t owe Inheritance Tax as long as you’re domiciled in the UK.
To arrive at the amount payable when valuing a deceased person’s estate, you need to include assets (property, possessions and money) they owned at their death and certain assets they gave away during the seven years before they died. The valuation must accurately reflect what those assets would reasonably receive in the open market at the date of death.
Current rules mean that the survivor of a marriage or civil partnership can benefit from up to double the Inheritance Tax threshold – 650,000 in the current tax year, in addition to the entitlement to the full spouse relief.