Estate + Inheritance Tax Planning
Writing a Will is an essential part of your lifetime planning. However, making sure that your Will is tax efficient is equally as important when considering what you want to happen to your estate after you are gone.
As experienced Will and trust solicitors, we specialise in finding practical, intelligent solutions to help you plan, mitigate or avoid future liabilities of Inheritance Tax (IHT), capital gains tax and income tax. This can help to ensure your loved ones receive the maximum benefit from your estate when you pass away.
On your death, Inheritance Tax of 40% will be liable on the value of your estate over the Inheritance Tax threshold. If you think your combined assets will be worth more than the IHT threshold when you die (currently £325,000), you can maximise Inheritance Tax reliefs and exceptions with forward planning.
Our specialist estate planning solicitors can advise you on the various ways in which you can minimise Inheritance Tax liabilities. This includes the best use of gifts and exemptions, such as lifetime gifts, annual gifts and gifts to charity.
You can also use trusts to pass assets to others, such as your children, and invest in regulated financial and pension products.
Depending on the complexity of your financial affairs, you may also require financial advice. If so, we maintain a network of trusted professionals and can refer you to an independent financial planner who can advise you on a range of regulated products.
Get in touch with our estate and Inheritance Tax planning solicitors in Bristol
Our estate tax planning and Inheritance Tax planning services
We offer a comprehensive estate and Inheritance Tax planning service for people all over the UK from our offices in Bristol and South Gloucestershire. Our specialist lawyers can advise you on all of the available options for minimising your estate’s liability for Inheritance Tax and help you take the necessary steps to get the required provisions in place.
Using inheritance exemptions
If your estate is worth less than £325,000, it will be exempt from Inheritance Tax. For estates worth more than £325,000, only the portion of your estate above this threshold will be liable for Inheritance Tax.
However, there are various options that can allow you to increase the Inheritance Tax threshold for your estate. For example, if you leave your entire estate to your spouse or civil partner, there will usually be no Inheritance Tax to pay, while if you leave your home to your children, the threshold will raise to £450,000. Spouses and civil partners can also pool their personal exemptions, meaning a couple who leave their home to their children can potentially have a combined threshold of up to £900,000.
Our solicitors can advise you on which Inheritance Tax exceptions apply to your circumstances and make sure your Will is written in the right way to let you take advantage of all of the available provisions.
There are various types of gifts you can make that will not be considered part of your estate for Inheritance Tax purposes. This includes annual gifts up to a total of £3,000, small gifts of up to £250 and wedding gifts ranging from £1,000-£5,000, depending on who the recipient is.
You can also make larger one off gifts, whether of cash, property, shares or other assets. As long as these gifts are made more than seven years before you pass away (and certain other conditions are met), they should not be included in the value of your estate for Inheritance Tax.
Any gifts you make to charity will also normally not be included as part of your estate for Inheritance Tax. This allows you to ensure the maximum benefit for the causes you care about.
We can advise you on the use of gifts, ensuring you are able to help the people who love while helping to effectively minimise your estate’s liability for Inheritance Tax.
Using trusts to protect assets
There are various types of trusts you can use to protect assets from Inheritance Tax and ensure that your loved ones continue to receive the support they need long-term.
Wills trusts allow you to establish in your Will that certain assets will be placed into a trust upon your death. They are commonly used where two people share a house but each own distinct shares as ‘tenants in common’ or where there is a need to provide for the on-going care of a vulnerable dependant when you are no longer around.
Lifetime trusts allow you to set up a trust while you are still alive. There are various rules around using lifetime trusts, especially with respect to any assessment of your estate to determine your liability for care costs.
We can advise you on the use of all types of trusts, so you are able to use them efficiently while ensuring you comply with all of the relevant rules, allowing you to achieve your goals.
Tax-efficient planning during estate administration
If you are administering the estate of a loved one who has passed away, there can sometimes be steps you can take to reduce the estates liability for Inheritance Tax. This may be necessary if the person died without leaving a Will, where someone has refused a bequest or if the deceased failed to make their estate tax-efficient.
We can advise you on the use of options such as varying a Will, use of discretionary trusts and redemption of a life interest in a property for a surviving spouse, civil partner or dependant of the deceased.
Estate tax planning and Inheritance Tax planning FAQs
To make a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (commonly called an ‘Inheritance Act claim’) you will need to have been a dependant of the deceased and be able to show that the Will did not make reasonable provision for you.
People who might be able to make an Inheritance Act claim include:
- The deceased’s spouse or civil partner
- Someone cohabiting with the deceased
- A child of the deceased who is still in full-time education
Trusts are commonly used as a way not only of protecting assets, but of structuring an estate more tax efficiently.
Our trusts and estate solicitors will work with you to determine how your assets will be managed and how to mitigate or avoid inheritance tax, income tax and capital gains tax.
There are many types of trusts, including family trusts and discretionary trusts. We’ll talk to you about your options and the potential tax (and other) implications of each type of trust, helping you to make a fully informed decision about which option is right for you.
There are various options to mitigate Inheritance Tax on a property, but two of the most common are to gift the property to a relative or to place the property into a trust.
In both cases, it is important to show that you are no longer deriving any benefit from the property, otherwise the house could still be considered to be part of your estate upon your death.
For example, if you gift your home to one of your children and wish to continue living there, you would need to pay your child a reasonable rate of rent for this to be considered a genuine gift for Inheritance Tax purposes.
If you own a property as joint tenants i.e. you jointly own the whole property, you will normally not need to pay Inheritance Tax. However, if you owned the property as tenants in common i.e. you each owned distinct shares of the property, then whoever inherits the deceased’s share may have to pay Inheritance Tax on it.
Inherited property may be liable for Capital Gains Tax (CGT) depending on the circumstances. This will usually only be if the property is not your main residence and you make a profit on the property i.e. it was valued at £200,000 when you inherited it and you later sell it for £250,000.
Any CGT you are liable for would be calculated on the profit you made, although you can deduct reasonable costs, such as any money you spent on improving the property, legal fees etc.
This depends on the type of gift. You can give up to £3,000 in annual gifts and can also make as many small gifts of up to £250 as you like.
You can make a wedding gift of up to £1,000, while parents can give a wedding gift to their child of up to £5,000 and grandparents up to £2,500.
You can also make larger gifts, as long as they are made 7 years or more before your death and you do not continue to derive any benefit from the gift after it has been made.
As part of the probate process, you will need to have all of the assets included in the estate valued. This will give you the estate’s ‘gross value’. You then deduct any debts, such as the mortgage, to give you the estate’s ‘net value’.
You will then also need to deduct the value of any assets that are exempt from inheritance tax, such as those left to a spouse, civil partner or charity, and take into account any other exemptions and applicable tax reliefs. This will then give you the estate’s ‘taxable value’.
You will need to report all of this to HM Revenue and Customs (HMRC) and pay any Inheritance Tax due on the estate within 6 months of the deceased’s date of death.
The Inheritance Tax Nil Rate Band is the amount each person is able to leave tax-free to their beneficiaries upon their death. The standard Nil Rate Band is £325,000, meaning Inheritance Tax must only be paid on the value of the estate above this threshold.
Married couples and civil partners can share their Nil Rate Band, meaning that when one spouse/partner dies, any unused portion of their tax exemption passes to other. The surviving spouse can therefore have an effective Nil Rate Band of £650,000.
If you leave your home to your children, your Nil Rate Band increases to £450,000. This means married couples and civil partners leaving their home to their children can have a combined Nil Rate Band of up to £900,000.
Our estate planning and Inheritance Tax planning expertise
Our Wills, probate and estate planning solicitors have decades of experience advising clients in all matters related to estate and inheritance tax planning. While we are based in Bristol, we work with clients throughout the South West and the rest of the UK.
We offer a convenient, modern service with a personal touch. We are happy to speak to you face-to-face, over the phone, via email or using video conferencing. To make handling your affairs as convenient as possible, we can visit you in your home, nursing home or hospital.
Many of our team are members of the Society of Trust and Estate Practitioners (STEP) and several hold the STEP Advanced Certificate in advising vulnerable clients. We are also Law Society accredited practitioners for Mental Capacity (Welfare).
We are committed to providing an exceptional personal client service, resulting in a very high client retention rate. Over 70% of our business comes via referrals from existing clients.
Barcan+Kirby is Lexcel accredited by the Law Society for the high standards of our client care and practice management.