Tagged: IHT

Planning your finances

Posted on September 6, 2010 by - Financial News

Make sure your estate is shared out exactly as you want it to be
Planning your finances in advance should help you to 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 don’t make a will, there are rules for sharing out your estate called the Law of Intestacy, which could mean your money going to family members who may not need it, or your unmarried partner or a partner with whom you are not in a civil partnership receiving nothing at all.

If you leave everything to your spouse or civil partner there’ll be no Inheritance Tax to pay because they are classed as an exempt beneficiary. Or you may decide to use your tax-free allowance to give some of your estate to someone else or to a family trust.

Good reasons to make a will
A will sets out who is to benefit from your property and possessions (your estate) after your death. There are many good reasons to make a will:

– you can decide how your assets are shared – if you don’t have a will, the law says who gets what

– if you’re an unmarried couple (whether or not it’s a same-sex relationship), you can make sure your partner is provided for

– if you’re divorced, you can decide whether to leave anything to your former partner

– you can make sure you don’t pay more Inheritance Tax than necessary

Before you write your will, it’s a good idea to think about what you want included in it. You should consider:

– how much money and what property and possessions you have

– who you want to benefit from your will

– who should look after any children under 18 years of age

– who is going to sort out your estate and carry out your wishes after your death, your executor

Passing on your estate
An executor is the person responsible for passing on your estate. You can appoint an executor by naming them in your will. The courts can also appoint other people to be responsible for doing this job.

Once you’ve made your will, it is important to keep it in a safe place and tell your executor, close friend or relative where it is.

It is advisable to review your will every five years and after any major change in your life, such as getting separated, married or divorced, having a child or moving house. Any change must be by ‘codicil’ (an addition, amendment or supplement to a will) or by making a new will.

Scottish law on inheritance differs from English law.

Valuing a deceased person’s estate

Posted on September 6, 2010 by - Financial News

Reflecting what those assets would reasonably receive in the open market

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. Valuing the deceased person’s estate is one of the first things you need to do as the personal representative. You won’t normally be able to take over management of their estate (called ‘applying for probate’ or sometimes ‘applying for a grant of representation/confirmation’) until all or some of any Inheritance Tax that is due has been paid.

But bear in mind that Inheritance Tax is only payable on values above £325,000 (2010/11).

The valuation process
This initially involves taking the value of all the assets owned by the deceased person, together with the value of:

– their share of any assets that they own jointly with someone else

– any assets that are held in a trust, from which they had the right to benefit

– any assets which they had given away, but in which they kept an interest – for instance, if they gave a house to their children but still lived in it rent-free

– certain assets that they gave away within the last
seven years

Next, from the total value above, deduct everything that the deceased person owed, for example:

– any outstanding mortgages or other loans
– unpaid bills
– funeral expenses

(If the debts exceed the value of the assets owned by the person who has died, the difference cannot be set against the value of trust property included in the estate.)

The value of all the assets, less the deductible debts, gives you the estate value. The threshold above which the value of estates is taxed at 40 per cent is £325,000 (2010/11).

Use the information available
If you don’t know the exact amount or value of any item, such as an Income Tax refund or household bill, you can use an estimated figure. But rather than guessing at a value, try to work out an estimate based on the information available to you.

The forms on which you’ll need to record the valuation will differ, depending on the expected valuation amount. You complete a form IHT205 for estates where you don’t expect to have to pay Inheritance Tax (called ‘excepted estates’) and a form IHT400 where you do expect to have to pay. The forms vary for excepted estates in Scotland.

You should be able to value some of the estate assets quite easily, for example, money in bank accounts or stocks and shares. In other instances, you may need the help of a professional valuer (or chartered surveyor for valuing a property). If you do decide to employ a valuer, make sure you ask them to give you the ‘open market value’ of the asset. This represents the realistic selling price of an asset, not an insurance value or replacement value.

If the affairs of the estate are complicated, you may want to work with a solicitor to help you value the estate and pay any tax due. If you’re not using a solicitor you can ask HM Revenue & Customs to use form IHT400 to work out any Inheritance Tax due.

Once you’ve completed the relevant tax forms, you also need to complete the relevant probate form.

Mitigating Inheritance Tax

Posted on September 6, 2010 by - Financial News

Transferring assets can seriously improve your wealth

Current rules mean that the survivor of a marriage or civil partnership can benefit from up to double the Inheritance Tax allowance (£650,000 for 2010/11), in addition to the entitlement to the full spouse relief.

Inheritance Tax is only paid if the taxable value of your estate when you die is over £325,000 (2010/11). The first £325,000 of a person’s estate is known as the Inheritance Tax nil rate band because the rate of Inheritance Tax charged on this amount is currently set at zero per cent, so it is free of tax.

Transferring exempt assets
Where assets are transferred between spouses or civil partners, they are exempt from Inheritance Tax. This can mean that if, on the death of the first spouse or civil partner, they leave all their assets to the survivor, the benefit of the nil rate band to pass on assets to other members of the family, normally the children, tax-free is not used.

Where one party to a marriage or civil partnership dies and does not use their nil rate band to make tax-free bequests to other members of the family, the unused amount can be transferred and used by the survivor’s estate on their death. This only applies where the survivor died on or after 9 October 2007.

In effect, spouses and civil partners now have a nil rate band that is worth up to double the amount of the nil rate band that applies on the survivor’s death.

Since October 2007, you can transfer any unused Inheritance Tax threshold from a late spouse or civil partner to the second spouse or civil partner when they die. This can increase the Inheritance Tax threshold of the second partner from £325,000 to as much as £650,000 in 2010/11, depending on the circumstances.

Spouse or civil partner Inheritance Tax exemption

Everyone’s estate is exempt from Inheritance Tax up to the nil rate band: £325,000 in 2010/11.

Married couples and registered civil partners are also allowed to pass assets from one spouse or civil partner to the other during their lifetime or when they die without having to pay Inheritance Tax, no matter how much they pass on, as long as the person receiving the assets has their permanent home in the UK. This is known as spouse or civil partner exemption.

If someone leaves everything they own to their surviving spouse or civil partner in this way, it’s not only exempt from Inheritance Tax but it also means they haven’t used any of their own Inheritance Tax threshold or nil rate band. It is therefore available to increase the Inheritance Tax nil rate band of the second spouse or civil partner when they die, even if the second spouse has re-married. Their estate can be worth up to £650,000 in 2010/11 before they owe Inheritance Tax.

To transfer the unused threshold, the executors or personal representatives of the second spouse or civil partner to die need to send certain forms and supporting documents to HM Revenue & Customs (HMRC). HMRC calls this ‘transferring the nil rate band’ from one partner to another.

Transferring the threshold
The threshold can only be transferred on the second death, which must have occurred on or after 9 October 2007 when the rules changed. It doesn’t matter when the first spouse or civil partner died, although if it was before 1975 the full nil rate band may not be available to transfer, as the amount of spouse exemption was limited then. There are some situations when the threshold can’t be transferred but these are quite rare.

When the second spouse or civil partner dies, the executors or personal representatives of the estate should take the following steps.

Calculating the threshold you can transfer
The size of the first estate doesn’t matter. If it was all left to the surviving spouse or civil partner, 100 per cent of the nil rate band was unused and you can transfer the full percentage when the second spouse or civil partner dies even if they die at the same time.

It isn’t the unused amount of the first spouse or civil partner’s nil rate band that determines what you can transfer to the second spouse or civil partner. It’s the unused percentage of the nil rate band that you transfer.

If the deceased made gifts to people in their lifetime that were not exempt, the value of these gifts must first be deducted from the threshold before you can calculate the percentage available to transfer. You may also need to establish whether any of the assets that the first spouse left could have qualified for Business or Property Relief.

You will need all of the following documents from the first death to support a claim:

– a copy of the first will, if there was one

– a copy of the grant of probate (or confirmation in Scotland), or the death certificate if no grant was taken out

– a copy of any ‘deed of variation’ if one was used to vary (or change) the will

If you need help finding these documents from the first death, contact the relevant court service or general register office for the country you live in. The court service may be able to provide copies of wills or grants; the general register offices may be able to provide copies of death certificates

The relevant forms
You’ll need to complete form IHT402 to claim the unused threshold and return this together with form IHT400 and the forms you need for probate (or confirmation in Scotland).

You must make the claim within 24 months from the end of the month in which the second spouse or civil partner dies.

In the following two cases, the rules for transferring a threshold are different:

– if the estate of the first spouse or civil partner had qualified for relief on woodlands or heritage property

– If the surviving spouse or civil partner had an unsecured pension as the ‘relevant dependant’ of a person who died with an Alternatively Secured Pension

Inheritance tax planning

Posted on November 13, 2009 by - All News, Financial News, Uncategorized

Your questions answered

You don’t have to be seriously wealthy for your estate to be subject to Inheritance Tax (IHT) after you die. Currently, IHT is levied on everything you leave over £325,000 (2009/10). Inheritance tax planning is a complex subject and it’s important to obtain professional advice if you have any concerns about your particular requirements, as this could save you thousands of pounds of potential lost tax.

Inheritance tax planning

Posted on September 18, 2009 by - All News, Financial News, Uncategorized

Keeping your hard earned assets out of the hands of the taxman

Effective inheritance tax planning could save your beneficiaries thousands of pounds, maybe even hundreds of thousands depending on the size of your estate. At its simplest, inheritance tax (IHT) is the tax payable on your estate when you die if the value of your estate exceeds a certain amount.

Tackling a potential IHT issue

Posted on August 17, 2009 by - All News, Financial News

Now is a great time to discuss your problem with us

The fall in the value of assets such as shares, buy-to-let properties and holiday homes to their lowest levels in years, combined with a historically low capital gains tax rate, may be prompting more and more taxpayers to give away surplus assets to minimise future inheritance tax (IHT) bills. If you are considering tackling a potential IHT issue, now is a great time to discuss this with us.

Inheritance Tax glossary

Posted on August 17, 2009 by - All News, Financial News

Common estate planning terms

Administration
Dealing with the affairs and estate of a person who has died including collecting their assets, paying their debts and paying the residue to the people who are to benefit.

Affidavit
A document giving evidence which is sworn in front of a solicitor or other person who can administer oaths.

Agricultural Property Relief (APR)
Relief from Inheritance Tax for the agricultural value of some farms and farmhouses (the value if the land and buildings could only be used for agricultural purposes and not the open market value). Various conditions apply including a minimum ownership period.

Beneficiary
A person or organisation who will receive assets from the estate of the deceased.

Bequests and Legacies
Bequests and legacies are names for gifts lefts in a will.

Business Property Relief
Relief from Inheritance Tax for businesses, a minimum ownership period applies and the business or interest in the business must fulfil the conditions.

Caveat
A notice entered at the Probate Registry, for example if you have entered a caveat you will be warned before any Grant of Representation is issued.

Chattels
Assets of a person other than land for example jewellery, ornaments, clothes, cars, animals, furniture and so on.

Charity
A charity is an organisation that has as its aim purposes are exclusively “charitable” (as recognised by law); for example the relief of poverty or promoting education. Charities can be structured in a variety of ways, for example as a company with a board of directors or as a trust fund with a board of trustees. Charities must be for the public benefit. Most charities must register with the Charities Commission. Charities are strictly regulated.

Codicil
An addition to a will which may change, modify, delete, extend or add to a will.

Deed of Variation
A document that can vary the division of a person’s estate after they have died either by changing their will retrospectively or altering the persons entitled on an intestacy (where there is no will or the beneficiaries no longer exist). This must be done within 2 years of the person’s death.

Discretionary Trusts
A trust where the trustees can choose which beneficiaries (if any) should receive income and or capital.  They are a flexible way of setting property aside for the benefit of one or more persons.

Domicile
Your domicile will affect whether you pay Inheritance Tax or particular assets and can affect how much Inheritance Tax you pay. Domicile is not the same as residence.

Estate
All the property and assets of the person who has died.

Executor
This is the personal representative who has been appointed by the will or codicil.

Guardian
A guardian will have parental responsibility for any child (under 18) of whom they are named guardian. Parental responsibility means legal authority to act in relation to a child on such matters as medical care, where they are to live, their education, what surname they should be known by. Guardians may be appointed by a parent who has parental responsibility, an existing guardian or the Court. If you name a guardian in your will the appointment may not take effect if your child has a surviving parent with parental responsibility.

Inheritance Tax
A tax on the value of a person’s estate on their death and also on the value of certain gifts made by an individual during their lifetime. You may be subject to Inheritance Tax on all your assets everywhere in the world if you are domiciled in England & Wales.  Inheritance Tax also applies to most types of trusts and may be charged when assets are added to or leave the trusts and on the 10 yearly anniversaries of the trust’s creation.

Intestate/Intestacy
The rules that govern where a person’s estate is to pass and who can deal with the estate in the absence of a will.

Joint Tenancy
A way of co-owning land and other property. On the death of one of the co-owners the other takes their share by survivorship. For example if you and your spouse own your home as joint tenants it will automatically pass to the surviving spouse when one of you dies. Your share of your house will not be part of your estate as it passes automatically.

Letters of Administration
A grant of representation on where there is no valid will, or there is a will but no executor appointed.

Life Tenant
This is a person who is entitled to benefit from a trust during their lifetime. They cannot have the capital in the trust fund; they are entitled only to the income or enjoyment of the property for example if the trust fund was a house the beneficiary would be entitled to live there.

Personal Representative
The person who is dealing with the administration of the estate of the person who has died.

Potentially Exempt Transfer (PET)
This is an outright gift lifetime by an individual to another individual or certain types of trusts.  If the giver (donor) survives the gift by 7 years it will become completely exempt from Inheritance Tax, and will be outside the donor’s estate for the purposes of calculating Inheritance Tax.

Power of Attorney
This is a formal document giving legal authority from one person (the donor) to another (the attorney) so that the Attorney may act on behalf of their principal. Power of Attorney may be an ordinary General Power or it may be a Lasting Power of Attorney.

Lasting Power of Attorney
A Lasting Power of Attorney can relate to your property and affairs or your personal welfare i.e. decisions about your medical treatment. In order to make a Lasting Power of Attorney you must have mental capacity to do so which must be certified by a certificate provider.  An ordinary General Power of Attorney will come to an end if you lose your mental capacity but a Lasting Power of Attorney will not.

Probate (Grant of)
The ‘Proving’ of a will by sending it to the Probate Registry.

Residue
The remainder of the estate of the person who has died after all their debts have been paid and any specific gifts they make under their will have also been paid.

Revocation (of will)
This is the process by which someone cancels or takes back a will (or codicil) made previously when they no longer intend that will to take effect. The Testator (person who made a will or codicil) must have mental capacity to revoke the will (or codicil). The effect of revocation is that any earlier will is resurrected and will take effect as if the later cancelled will  does not exist. If there is no previous will then the person revoking their will becomes intestate. Most new wills contain an explicit clause stating that they revoke any previous wills. There are formal requirements for revocation of a will as there are for making a will.

Statutory Legacy
If a person dies intestate with a spouse or civil partner the statutory legacy is the amount of the deceased’s estate that their spouse or civil partner will receive, a common misconception is that the spouse or civil partner will automatically receive all of the estate of the person who has died intestate but this is not necessarily the case if there are surviving children and it is therefore desirable to make a will to ensure that your spouse or civil partner inherits all that you intend them to take.

Testator/Testatrix
The person making a will (male or female).

A Trust
One or more persons hold property for the benefit of others (the beneficiaries). A trustee is the person who is acting in the trust and holds the property for the benefit of someone else

A Will
The formal document known as a testamentary disposition by which somebody confirms their wishes as to the division of their estate on death.