Wills, trusts & probate articles

What to do when a loved one dies
25 June 2010

Budget Summary 2010 | How it will affect you
23 June 2010

Contested probate claims
20 May 2010

What to do when a loved one dies | The Probate process
15 April 2010

Budget Summary 2010 | For private individuals
26 March 2010

In sickness and in health
3 March 2010

Inheritance tax: A brief guide

19 May 2009



Last month, Chancellor Alistair Darling outlined plans to change inheritance tax laws, bumping up the personal allowance by £13,000 to £325,000, which is good news if you are leaving a legacy in your will.

Estate planning is important when it comes to leaving a legacy in your will, which can be complex. To find out if you will have to pay the duty, you will need to add up the value of all the assets on your estate, including houses, possessions, money and investments.

From there, the first and most important thing to know is that the tax is payable at 40 per cent over the £325,000 threshold. In most cases, the duty will be payable within six months of the end of the month in which the estate-holder died.

If you are due to owe money to the state, it may be worth seeking inheritance tax advice as there are ways and means of ensuring that you only pay the minimum.

As of October 2007, married couples can raise the value of this upper limit on their estate when their second partner dies to £650,000. In this case, executors or personal representatives must transfer the first spouse's unused personal allowance or 'nil rate band' to the second partner when they die.

There are also various exemptions and reliefs. You can avoid the tax by giving away up to £3,000 each year, either as a single gift or in various sums adding up to that total. Small gifts of £250 are also exempt from the duty and can be given to as many individuals as you like.

Please note that you cannot use your small gifts exemption and your annual exemption to benefit the same person. For instance, you cannot give a gift of £3,250 to one person and claim that you are using both types of exemptions.

Inheritance tax can also be avoided on wedding and civil partnership gifts up to a certain amount. If you survive for seven years after passing a monetary contribution to someone, the gift is usually exempt from the duty, regardless of its value.

Futhermore, there is relief available to people who owned a business, farm, woodland or National Heritage property, while donations to a UK registered charity made during your lifetime, even if the amount is over the threshold, are also exempt. Again, it is worth seeking inheritance tax advice to ensure that you are working within the letter of the law.

When handling the estate of someone who has died, you go through a process known as probate, which gives you the legal right to distribute the deceased person's assets according to their wishes. This is another point on which you may wish to seek inheritance tax advice from our private client solicitors, as there are forms to be filled in even if there is no duty owed on the estate.

Usually, a will includes the names of one or more executors who can apply for the grant of probate. If the deceased died without writing a will, a blood relative can apply for a grant of letters of administration to become the executor, depending on strict next-of-kin rules.

These forms will then need to be sent to the relevant government bodies and from there, the personal representative can arrange for inheritance tax and debts to be paid.

They will also need to attend an interview at the Probate Registry and swear an oath before gaining the grant of probate, allowing them access to the deceased person's assets.

So, if you are going to be leaving a legacy in your will, it may be worth consulting our team of experts to ensure the process is as pain-free as possible for loved ones.

If you would like to speak to one of B P Collins' private client experts, please call 01753 279059, complete the online enquiry form or email privateclient@bpcollins.co.uk.