Speak to a specialist inheritance and estate planning solicitor at our law firm in North Yorkshire.
Our inheritance solicitors can help with your estate planning needs.
When you die, your estate – the combined value of your assets such as property, investments and cash holdings minus any liabilities such as debts – may be subject to Inheritance Tax (IHT).
If you have considerable assets and haven’t planned your estate carefully, this 40% inheritance tax can amount to a lot to have to be paid out by those who stand to inherit. But with careful planning, you can ensure your beneficiaries receive the maximum amount possible from your endowments.
Crombie Wilkinson Solicitors has expert Will and estate planning solicitors who can help create an inheritance strategy that works for you. We’ll calculate your predicted Inheritance Tax levels based on the value of your estate, and assist you in potentially reducing this bill with tactical estate planning and use of official Inheritance Tax Relief systems.
Contact us for Inheritance Tax legal advice
What is Inheritance Tax (IHT) and how does it work?
Inheritance Tax is a tax that may have to be paid on your estate by your heirs when you die. It affects the final amount your heirs will receive from your Will and can be a sizeable sum if not planned for correctly.
Inheritance Tax is paid at 40% over the ‘nil rate band’ (NRB). NRB is effectively an IHT “personal allowance” and is currently frozen at £325,000 until 2028. It only becomes liable if the total value of the estate exceeds that amount.
A new ‘residence nil rate band’ (RNRB) was introduced in April 2017, which reduces IHT when the deceased’s main residence is left to their direct descendants (children or grandchildren). The current RNRB is frozen at £175,000, and is added to your NRB of £325,000 – so your estate could be worth up to £500,000 before any Inheritance Tax is due.
Also, inheritance tax isn’t usually due on inheritances between civil partners and married couples. This means that if a person dies and leaves their total estate to their spouse or civil partner, the inheritance will be entirely tax free.
In addition, as the NRB is transferable between partners, and as none of the deceased partner’s NRB will have been used, this amount can be added to that of the surviving spouse or civil partner – effectively doubling their IHT threshold and ensuring their own beneficiaries pay less tax.
IHT is imposed on all assets owned by ‘UK domiciled individuals’ (people who permanently reside in the UK), as well as the UK-based assets of people who live abroad, regardless of nationality.
As you can see, calculating inheritance tax is a complex business so you should always consult a legal professional to help plan your estate.
Read our Inheritance tax FAQs for more information, or contact our team here.
What is Estate Planning?
Estate planning is the act of looking at your current estate – the various assets and debts in your name – and looking at the most financial efficient way of transferring ownership of these to your next of kin.
By planning your inheritance in advance you can help reduce the amount of tax due on it. You can make an estate plan as part of your Will, which will specify how your assets are managed and divided when you pass away. The plan also includes the values of your assets.
Estate planning can also show how you can transfer ownership of certain assets before you pass away to help reduce the IHT burden for your loved ones, through gifts, charity donations or by using trusts.
Inheritance tax on gifts – the 7 Year Rule
One of the most common strategies for reducing your inheritance tax bill ahead of time, is to give away money and other assets before your death. When it comes to gifting your wealth, however, there are a number of rules you should be aware of.
Some gifts are entirely exempt from IHT. These include:
- An annual exemption of £3000 – you can give away a total of £3000 worth of IHT-free gifts each tax year, split between one or multiple people.
- Wedding and civil partnership gifts – up to £5000 for a child, £2500 for a grandchild or great-grandchild, £1000 to any other person.
- Small gifts – exemptions of up to £250 per person, per tax year.
- Regular payments from your monthly income – such as paying rent for your children or supporting an elderly relative.
- Gifts to charities.
Other gifts, known as potentially exempt transfers (PET), are subject to conditions. There will be no inheritance tax to pay when you make the gift, but if you die within seven years then the gift value is reabsorbed into your estate, and IHT may be payable. This is called the ‘seven year rule’.
As long as you live for seven years after giving the gift, then no inheritance tax will be due on the gift. Gifts made less than three years before your death will be subject to the full 40% charge, while gifts made three to seven years before you die are taxed on a sliding scale.
Inheritance Tax for farming businesses
With careful estate planning, farmers and their families can benefit from using Agricultural Property Relief (APR) to greatly reduce their inheritance tax bill.
APR is offered at two rates – 100% and 50% – depending on the ownership and management of the farm at the time.
In fact, one of the best things you can do to preserve the 100% inheritance tax relief on your farm is to never officially retire from the business. For this reason, it is a good idea to begin having these conversations with your potential successors while you’re still working, to ensure everyone is on the same page and your roles are clear.
If you’re a farmer, Crombie Wilkinson has agricultural law experts who can help you make sense of the rules surrounding farm inheritance tax. We’ll work with you to manage your estate planning so that your beneficiaries receive the highest possible value from your estate.
Inheritance tax for business owners
Without proper estate planning, the chaos caused by the unexpected death of a business owner can decimate even the most successful of businesses. For this reason, it is crucial that business owners have a carefully outlined and legally clear succession plan in place, in addition to a plan for their personal assets.
At Crombie Wilkinson Solicitors, our business law solicitors work with business owners to plan their estate in a way that benefits their heirs as well as the company itself.
Business owners, partners and shareholders may be entitled to Business Property Relief (BPR), which allows their beneficiaries to claim tax relief – either 50% or 100% – on any business assets included in their estate.
It’s also worth noting that investing in a BPR-qualifying business can be an effective and clever way to quickly reduce your estate’s inheritance tax bill. BPR-qualifying assets become exempt from inheritance tax after just two years – unlike gifts and trusts which only become IHT-exempt after seven years.
High net worth individuals, especially, may consider business investment a strong estate planning strategy. It ensures you retain ownership and a degree of control over your money, in addition to offering a chance to potentially increase its value.
As always, investment can carry a risk. Contact us today to arrange an appointment and we’ll discuss your estate planning options to help reduce your inheritance tax bill.