Inheritance Tax planning is crucial to securing the legacy you leave behind for your loved ones.
Our expert Inheritance solicitors help you prepare for this event so that the wealth you’ve worked so hard to build isn’t noticeably reduced after you’re gone, as well as provide guidance to paying Inheritance Tax after someone has passed away.
We’ve compiled a comprehensive guide of Inheritance Tax advice, with all the information you need to effectively account for it in your will, minimising the impact it has on the inheritance you leave your chosen beneficiaries.
For over 25 years, our resourceful solicitors have helped hundreds of people minimise the impact of Inheritance Tax on the legacy they leave behind – and we can do the same for you.
Led by Managing Partner Melinda Giles – a leading authority in all aspects of private client law – our STEP-qualified specialists explore every possibility and opportunity to protect the bulk of the wealth you intend to pass onto your dependents.
Working closely to understand your specific situation and objectives, our smart strategies and solutions can help your loved ones save thousands when you're gone, enabling you to make the biggest contribution to their future.
Looking for advice on what steps you can take today to reduce the amount of Inheritance Tax your loved ones must pay tomorrow? Or do you have questions about paying this tax after someone close passed away?
Our solicitors give you absolute clarity through any Inheritance Tax request or concern, so you can take the best steps for you and your family’s future.
We’ve been based in Leigh-on-Sea since we started in 1997. With headquarters on London Road and a second branch on Leigh Broadway, these prime locations allow us to serve the entire Southend and South East Essex area, extending into the rest of Essex and the East End of London.
Our award-winning team of friendly, conscientious and accredited legal professionals make you feel comfortable from the very first consultation. Representing a diverse range of backgrounds and experiences, our combined knowledge and expertise ensures we can handle any and all of your legal requirements.
We can help protect your estate, so your loved ones are supported when you're no longer around.
Inheritance Tax is the tax that is paid when you die if you leave assets (including property) that total more than £325,000 (although money given away in the seven years before you die can be added to this).
In many cases, the allowance will be more than £325,000, but this will depend upon whether you own your home, have inherited from a spouse, and who your beneficiaries are.
Inheritance tax is the modern incarnation of ‘death duty’, and was originally introduced in the late 18th century.
The aim was to raise revenue for the government and to redistribute wealth among society by preventing the country’s most fortunate from keeping riches in the family.
The rate that Inheritance Tax is charged at is 40%. So if £100,000 of your estate is above the exemption allowance threshold, then the tax will be £40,000. However, this rate can be reduced if a significant portion of the estate is left to charity.
There are formulas that are applied as not all of the tax is payable at once. The basic calculation is 40% of the part of the estate that is subject to tax, i.e. the balance above the exemption allowance, see below.
The basic threshold is £325,000. So if you were to leave a sum of £425,000, £325,000 would remain untaxed. With the remaining £100,000 being taxed at 40%, £40,000 would therefore be owed in Inheritance Tax.
The tax-exempt sum can be less if significant gifts have been made in the seven years before death, as the sum of any gifts made less than seven years before you die can be deductible from your £325,000 allowance.
The allowance can, however, be greater if the deceased leaves a residential property to the spouse or children, and the percentage rate payable can be reduced if a significant donation is made to charity, see below.
A portion of Inheritance Tax is payable before the Grant of Probate is issued, and therefore must be raised before there is access to the deceased person’s assets.
It will depend upon the circumstances as to how this can be raised. Using a solicitor will make this easier.
Inheritance Tax is payable before the Grant of Probate is issued, and so before there is access to the assets of the deceased person. The beneficiaries can loan the estate the money, or it may be that the deceased person’s bank will advance it if there is enough there.
It may involve the executors having to take a loan for the estate. A solicitor will be able to guide you through processes that will make it easier to gather the funds required to pay Inheritence Tax.
There are a series of Inheritance Tax forms produced by HMRC that are required to be completed before an application for a Grant of Probate can be applied for where the estate is over a certain limit, even if the result is that there is no Inheritance Tax to pay.
The executors will need to apply to HMRC for an Inheritance Tax reference number firstly, and then complete all the forms that provide a calculation table. For information regarding executors and the Grant of Probate process, see our page on wills.
The forms are lengthy and detailed, and it is advised to use a solicitor to complete in a timely and accurate manner.
How long it takes to pay Inheritance Tax will depend entirely upon the circumstances of the assets and situation with any given estate.
The duration of the process is contingent upon the nature of the assets, how cooperative a bank or financial institution is in advancing the funds, and whether HMRC raises many queries on the inheritance forms that are sent to them. It will also depend upon how the executors choose to deal with the payment.
Inheritance Tax is due before the Grant of Probate application and in any event within six months of the date of death.
Your executors are responsible for paying the Inheritance Tax from the money in the estate. If you need further details on how to appoint an executor we discuss it in detail on our wills page.
What is the 7-year rule for Inheritance Tax?
The 7-year rule is that most gifts made within seven years of death are added back to the estate and that total is then the value of the estate for Inheritance Tax purposes.
The tax attributed to those gifts is on a sliding scale depending upon when it was made. There are some gifts that are not added back in, but this depends upon various factors as to how those gifts were made.
We strongly advise taking expert legal advice when making arrangements regarding your estate. Any oversights can penalise not only your beneficiaries, but also any loved ones that you gift money to in the last seven years of your life.
How can I minimise the Inheritance Tax paid by my estate?
There are ways to minimise Inheritance Tax paid by your estate by tax planning before your death. This must be done with careful advice and will vary from person to person depending upon your circumstances.
It will include making significant gifts but without retaining any benefit in those gifts. So, for example, you cannot gift your own home and continue to live in it to remove it from your Inheritance Tax.
There are certain gifts that are exempt from being drawn back into the estate under the 7-year rule.
Each person is currently able to gift £3,000 a year and this will be exempt even with seven years of their death, in addition to other smaller gifts on birthdays and marriages (known as ‘exempted gifts’).
It may also be possible, dependent upon individual circumstances, to make regular gifts out of surplus income. We strongly advise that you take advice on the level and method of gifting to ensure they remain exempt from Inheritance Tax, and that such payments are documented.
Other forms of tax relief are also applicable under cerain circumstances. ‘Taper Relief’ might mean the Inheritance Tax charged on taxable gifts is less than 40%.
‘Business Relief’ can exempt or reduce tax on the transfer of business asset upon death. Similarly, ‘Agricultural Relief’ can apply if you leave behind a farm or woodland.
It is a good idea to seek advice if you suspect that one or more of these forms of tax relief may apply to your estate to prevent your estate being taxed more than necessary.
If you are married, and leave your estate to your spouse or inherit from your spouse, then there will not be any inheritance tax.
However, the monies that you leave to others remains subject to taxation at the normal rate.
Death in Service Benefit and Life Assurance is often outside of the estate and therefore not liable for Inheritance Tax, but this will depend upon the way in which this is arranged before you die.
This should be considered at the same time as making a will, and therefore if you are making a will and you have either Death in Service Benefit or Life Assurance paperwork, it is important to bring this to the attention of your solicitor when they are making your will.
If someone dies outside of the UK it will depend upon where their domicile is as to whether they pay UK inheritance tax. Other factors, such as where their assets are, will also play a part.
Every country has its own inheritance tax laws, and the arrangement that the UK has with each of these countries varies.
During the administration of your estate, your executors will have to deal with your income tax and capital gains tax up to the date of your death, as well as any income tax or capital gains during the time that the assets are being dealt with.
Executors should take care when selling assets, as this can give rise to a taxable capital gain, and this tax has to be passed on to the beneficiaries.
Where can I get help with my Inheritance Tax?
Inheritance Tax planning should be dealt with at the same time as making a will, and should be done with your spouse or partner. It is strongly advised that this type of advice is sought from a qualified solicitor who will seek to maximise the opportunities to lower the burden of inheritance tax.
No one has a crystal ball to know when that day will come, and so Inheritance Tax planning can be tricky. It is also crucial that any advice you receive is updated regularly, as your own circumstances change and tax laws evolve.
The guidance from HMRC confirms that each person can make as many ‘small gifts’ at Christmas as they like. HMRC defines small gifts as those where the value is £250 or less per person.
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