Wealth and Inheritance Tax

When making a Will, it’s vital to make sure you consider your tax position and plan effectively to reduce the tax burden on your estate. At Ashworth Law, our experts can provide expert guidance to ensure you don’t pay avoidable Inheritance tax.

Inheritance Tax is a significant burden on the estate of wealthy individuals after their death. Where tax is due, the current rate is 40% of the value of the Estate over and above the threshold, and is due within six months of the date of death.

Planning for the end of life is essential for everyone, but it’s especially worthwhile for those with significant assets – in particular above average value homes and significant savings or investments. Our experts can help advise on the best ways to reduce the tax burden – for example gifts between spouse or partners in a civil partnership are exempt from Tax. However, the receiving spouse must live in England or Wales. If they live outside this area, the exemption is limited to £55,000 (2011/12 rates).

At Ashworth Law, we will guide you through every aspect of wealth and inheritance tax planning, making the process of dealing with it as quick, hassle-free and cost-effective as possible. Our aim to ensure you have the right plans in place so you can relax, safe in the knowledge that events after your death are taken care of.

The Inheritance Tax Threshold
The government provide everyone with a tax-free allowance of £325,000 for Inheritance Tax - this is called the "threshold" or "nil-rate band" (NRB). This allows everyone to pass over assets up to this value to anyone in their Will (or next of kin if they do not have a Will). This is of course a significant allowance, but can easily be less than the value of a home, especially in expensive areas such as Harrogate, Knaresborough, Ripon, North Leeds and York, so home owners or those with significant savings or investments do need to watch this threshold carefully, and make plans accordingly.

The threshold normally increases roughly in line with inflation but unfortunately it is unlikely to increase in the next three years, according to the current government.

Transferable Nil-Rate Band (NRB)
In 2007 the Government made a large step forward in creating greater fairness in Inheritance Tax by allowing the surviving spouse or civil partner to claim the unused part of their deceased partner’s Nil Rate Band – a process that smart lawyers had been using for years through the creation of trusts. This essentially means you are able to "transfer" their relief or the proportion of the £325,000 that they did not use into your own estate.

Essentially this means for most married couples or civil partners that they can pass on up to £650,000 when the surviving partner dies (the first £325,000 having been passed tax free from spouse to spouse).
As with all taxes, the correct documentation will need to be provided, and the right forms completed – however our specialist advisors can help you through the process of claiming a transferable NRB.

Lifetime Gifts
For Inheritance tax purposes, the value of certain gifts made up to 7 years before you die can also be included in your estate. Again, our experts can advise on the best ways to account for gifts made, or those you would like to make, to provide the lowest IHT burden.

Tax planning to mitigate IHT
The right forward planning can save individuals, couples and families significant Inheritance Tax, through the use of Wills, Trusts and exemptions.

The main exemptions to IHT currently are:

  • Annual exemption - gifts totalling no more than £3,000 each tax year
  • Small gifts - £250 or less per person (unlimited number of people)
  • Wedding gifts - £5,000 for a child, £2,500 for a grandchild, £1,000 for others
  • Regular gifts from excess income – but note that strict rules apply to this.

As all professional advisors will advise, we strongly recommend you keep accurate financial records, which should be kept for 7 years. These may well be needed to substantiate any claims for IHT relief.