The Wills, Trusts and Probate Solicitors at Scott Bailey are encouraging individuals to take proactive steps in planning their estates to help reduce the impact of inheritance tax (IHT) after recent statistics from HMRC show a 7.2% increase in inheritance tax receipts compared to the previous year.
With careful planning and the strategic use of available tax reliefs, families can significantly reduce the tax burden on their estates, ensuring that their loved ones benefit more from what is left behind.
What is inheritance tax?
Inheritance tax (IHT) is a tax on a person’s estate (their property, money, and possessions) that becomes due in the event of their death. In the UK, when an estate’s value exceeds £325,000, known as the nil rate band, inheritance tax is applicable. The tax is designed to redistribute a portion of wealth upon death.
How much is inheritance tax in the UK?
The nil rate band allowance in the UK is currently set at £325,000. If an estate exceeds this, inheritance tax at 40% is applied. However, there are rules in place that state that if 10% or more of the estate is left to charity, the tax rate reduces to 36%
When do you pay inheritance tax?
Inheritance tax must be paid within six full months of a person’s death. For example, if the person died in January, the tax must be paid by the end of July. The appointed executors are responsible for ensuring inheritance tax is paid, usually using funds from the estate itself. If tax isn’t paid on time, HMRC may charge interest on the outstanding amount.
Can inheritance tax be paid in instalments?
Some people opt to pay the tax in instalments if the estate includes property or assets that might take time to sell. Payments can be taken annually over a ten year period in equal amounts.
Can inheritance tax be avoided?
While inheritance tax cannot be entirely avoided for all estates, careful planning can significantly reduce the amount payable. For instance, if an estate’s value is below the current nil rate band limit, then no inheritance tax will be due, provided the allowance hasn’t been reduced by relevant lifetime gifts. Further reliefs, such as those for business or agricultural properties, may apply. Additionally, gifting assets during one’s lifetime, setting up trusts, or leaving a portion of the estate to charity can all help to reduce the tax burden. Finding the right wills, trusts and estate solicitor is the first step towards managing inheritance tax effectively. Scott Bailey’s expert team have been helping families better manage their inheritance tax for years – reach out to us today if we can help you and your family.
Can inheritance tax allowance be transferred?
Yes, the inheritance tax allowance can be transferred. For married couples or civil partners who leave their entire estate to each other, the nil rate band can be fully transferred to the surviving partner. This effectively doubles the allowance to £650,000. Even if only part of the estate is transferred, any unused portion of the nil rate band can be carried over to the second partner upon their passing. This can help further reduce the inheritance tax liability on the estate.
Rebecca Hatton and Danielle Harvey, two of our expert wills, trusts and estate solicitors, are members of The Association of Lifetime Lawyers – a community of the most qualified legal professionals in the UK, specialising in providing expert advice and support to vulnerable and older individuals. Members of this association are well-equipped to guide clients through the complexities of estate planning, ensuring that their assets are protected and their intentions honoured.
By taking certain precautionary steps, individuals can better plan for the distribution of their estates to their family members. For example, reliefs may apply if the estate includes a business or certain agricultural properties, such as land used for farming. These assets may qualify for relief at rates of either 50% or 100%, allowing them to pass free of inheritance tax, provided specific criteria are met.
Given the potential for changes in government policy, it is advisable to stay informed and seek advice from trusted legal experts. Reach out to our highly skilled wills, trusts and probate solicitors for professional guidance to minimise tax liabilities and to secure the best possible outcome for your estate.
Have you got a will in place?
Creating a will is a critical step in ensuring that assets are distributed according to an individual’s wishes. Without a valid will, an estate will be divided according to intestacy rules, which may not align with the deceased’s intentions. Research from The Association of Lifetime Lawyers indicates that nearly half of UK adults (49%) do not have a will in place, highlighting the importance of consulting with a legal professional to draft this essential document.
Read our blog, “Do you need a solicitor to make a will?” to find out why it’s important to have your will prepared by a regulated, insured, and professionally trained expert. Our expert solicitors will guide you through the entire process, from drafting and registering your will, to ensuring your wishes are respected.
