When someone dies, people have a lot of things to contend with, many of them unpleasant and stressful and the last thing they want to think about is inheritance tax rules.
It would be fair to say that the inheritance tax people have to pay is an unpopular tax but it is one that many estates have to pay when someone passes away. The threshold for inheritance tax in the United Kingdom is £325,000 (in 2013/14) and anyone that passes away with an estate that is less than this figure is not eligible for inheritance tax.
However, for those that are eligible for this tax, the tax is payable at a level of 40% for the amount owed above the level or 36% if the estate is eligible for a reduced rate thanks to a charitable donation.
Inheritance Tax Rules Changes
There was a change to inheritance tax rules in 2007, where couples who are married or are officially registered civil partners have the opportunity to increase the threshold of their estate when their second partner passes away.
In 2013/14, this level stood at £650,000. The executors of the estate are required to transfer the unused threshold for inheritance tax of the first partner who passed away to the level of the second partner to pass away.
There is no one person that is responsible for paying inheritance tax and in certain circumstances; it may be paid by different people. Usually, the executor or the representative for the deceased will pay the tax from the estate’s funds. If there are trustees, they are normally responsible for paying the tax on assets which are held in or have been transferred over to a trust.
Evaluating of Inheritance Tax Rules
In many cases, there may be a need to have property evaluated to see if there is any inheritance tax owed on the property. If this is the case, it is best to get professional legal advice to ensure that reasonable valuations can be placed on the property and belongings.
The total value of an estate will include a property but will also include money, possessions and even investments.
However, it is important to ensure that any debts, bills and expenses (including funeral expenses) have been removed from the total value of the estate. This may make all the difference in determining if the property is above or below the threshold limit. An estate will also take consideration of any jointly held assets and of any assets that are held in trust.
There are some reliefs and exemptions available which will ensure that an estate can come under the threshold limit. It is possible to pass on some assets without being forced into paying inheritance tax.
One example of this comes with the civil partner or spouse exemption. This is where an estate will not owe any inheritance tax on anything which is provided to a spouse or partner who permanently reside in the UK, even if this amount goes over the threshold limit.
Inheritance Tax – Exemptions
There are also exemptions available for charitable donations. It is possible to provide gifts, in a will or during a person’s lifetime, that will be exempt from inheritance tax. It may be that making a donation to a stated charity in your will is enough to reduce the level of tax that has to be paid.
It is also possible to give away £3,000 every year, as a single or multiple gifts. It is also possible to provide gifts of up to £250 to as many people as you would like without incurring any tax and it is also possible to provide a gift to people getting married or entering into a civil partnership without having to pay for the tax.
The deadline for paying the inheritance tax usually falls within six months of the end of the end of the month in which the person died in. Following this time scale, interest will be charged on any amount that is outstanding. If the estates value is closely linked to the property, it is possible to pay the inheritance tax over a ten year period in yearly payments.
Make A Will – Ensure Your Wishes are Fulfilled
Many people in Britain do not have a Will. Why is that? Quite simply, it is due to the fact that few of us like to think about our own mortality. We are going to die,…eventually. Some of us sooner than later. As a result, when we die, our wishes may not be carried out.
This can cause untold distress and upset for your family at a time when they are already grieving the loss of a loved one. All this could easily have been avoided by writing your will
If you were to die without having left a Will, your Estate is administered in accordance with the current Rules of Intestacy. The rules apply a rigid formula and govern how your Estate will be divided amongst your family. This can even result in your spouse not being entitled to all the assets in your estate.
Protect Family Your by Making a Will
If you die without making a will or you have not left specific instructions in it regarding gifts to specific family members or friends, but your spouse can show that he or she is entitled to all the assets in your Estate, then those assets of particular sentimental value to you may not go to who you wanted. This is of particular importance if you are in a second marriage or relationship and where one or both of you have children from your first marriages or relationships. We all want to make sure proper provisions are in place for our children.
Important Points To Consider When Making A Will
- Making a Will is the only way to ensure your property and possessions will go where you want after your death.
- If you die without making a Will, then contrary to common belief, your belongings will not necessarily go to your wife or husband. The Law, not you or anyone else decides how much should go to each of your relatives. Your friends will get nothing.
- A Will is essential to provide properly for young children in the event of both parents dying.
- You and your partner should each have your own separate Will but the contents can “mirror” each other’s if required. There is no such thing as a “joint” Will.
- If you have married, separated, divorced or remarried since you made your original Will, it is essential to make a new Will as the provisions in your old will may have been automatically revoked.
- Times change. Once you have made your Will, look at it every year to make sure it still fits your wishes and circumstances. Simple amendments can be done by adding a Codicil to your existing will.
- Always seek professional advice when you make or change your Will. Home made Wills may be incorrectly drawn up and executed and so may not stand up in Law.
You can reduce the tax your Estate will suffer by careful drafting of the terms of the Will.
A Solicitor can assist with the preparation of your Will. The costs of a simple Will for an individual starts at £100.00 plus VAT and for a couple £150.00 plus VAT.
N.B. Specialised taxation, trust advice or complicated Wills will require a Wills & Probate specialist who will be able to give you the help you need.
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This article was written by a member of the Expert Answers legal advice team. Expert Answers provides online legal advice on all aspects of UK Law to users in the United Kingdom.