inheritance tax

Is It Possible To Give Your Inheritance Early?

Sometimes, people may wish to give their children their inheritance before they die, rather than waiting for the inevitable to happen. The Inheritance Act does allow for this in some circumstances. Nobody wants to see the wealth that they have accumulated during their lives going to waste, but assuming that it will go to their children can be a mistake – with inheritance tax and the potential for needing it to be used to pay off creditors, there may be a lot less than you might think, and that can be a big shame.

Which is why it is sometimes a much better idea to give your children’s inheritance to them before you pass away, in the form of a gift. This can work particularly well if your estate would otherwise be worth more than £325,000 (or £650,000 if you take a spouse’s tax free limit) which is the threshold for having to pay inheritance tax. As long as you survive for seven years or more, there will be no tax to pay. If, however, you die within seven years of giving the gift, then it will be counted as part of your estate, and subject to a forty percent inheritance tax rate.

Give Inheritance Early 300x210 Is It Possible To Give Your Inheritance Early?

Giving your saved up wealth away earlier than you might otherwise have done is also better for your children. People are living much longer, with the numbers of those over the age of 90 in the UK having tripled since 1980. This means that people are having to wait much longer to receive their inheritance, and often receive it at a time in their lives where they don’t necessarily need it as mortgages are often already paid off and there is not much debt. If they were to receive it younger, in their 30s, perhaps, rather than in their 50s or 60s, it would be much more helpful, enabling more people to get a foot on the housing ladder, for example.

If the inheritance is not given at an earlier stage, then it can simply be added to savings, and this is then passed to their own children, but again, at a time when it is not going to do much good. Money can pass down through generations without ever being put to good use in this way, which is a waste and a shame.

If you are considering giving money away to your children while you are alive rather than leaving it in a will, then it is wise to speak to a financial planner. You don’t want to leave yourself short by giving away too much or not considering your own needs. Will you still want to go on holiday? Treat yourself to meals out? Make sure you can still enjoy your own life too.

Does The Left Want To Raise Inheritance Tax by 100 Percent?

There is always, it seems, something in the news about the dreaded (in some cases for very good reason, in some cases simply because it is misunderstood) inheritance tax, and recently this has been no different. The most recent discussion – one that has been branded ‘immoral’ by many, comes from the Left, and suggests that inheritance tax rates should be doubled.

John O’Connell, chief executive of the TaxPayers’ Alliance, has called IHT ‘unfair and immoral’ in the past, and this new idea is, he says, a ‘crackpot policy’. He wants everyone to simply ignore it, but due to the outrage it has stirred up this may even be impossible now.

Left Want 100 Percent IHT Rise 300x199 Does The Left Want To Raise Inheritance Tax by 100 Percent?

The reason behind Labour’s suggestion that inheritance tax is increased so dramatically is that it would be used to fund social care, something which, everyone would have to agree, is severely underfunded. This doubling of inheritance tax would mean that almost all social care could be free at the point of access, much like the NHS. However, increasing inheritance tax, which already sits at 40 percent of anything on an estate over £325,000, seems a rather clumsy and unfair way to do it to many people.

What do you think? Should people benefit simply because a relative happened to have a house that was worth a fair amount of money? Or should that wealth be evenly distributed through the social care system to enable everyone access to the care they need when they need it?

Should someone’s will override the need of those who are living? Or should the wishes of the recently deceased always be taken into account? 

Inheritance Tax Nets £5 Billion

Over the last 12 months, HMRC has collected over £5 billion in inheritance tax. Inheritance tax has never reached this record level in one year before, and the level for this most recent period is 19 percent higher than in the previous year.

Why is this? Why is so much more money being paid in inheritance tax?

The first reason is that although the IHT allowance has been frozen at £325,000 for a number of years now, house prices have continued to rise. This means that more estates than ever are worth more than the allowance. However, this should be combated thanks to the new nil-rate tax band (essentially allowing the estate an extra £100,000 grace if it is being left to a descendent) which came in in April 2017.

Inheritance Tax £5b 300x199 Inheritance Tax Nets £5 Billion

There are a number of other ways to reduce your IHT liability. One is to give away your assets so that they are not part of your estate when you die. You can make one gift per year that is worth £3000. Any more than that and inheritance tax will be due. You can choose to make that gift in one lump sum, or you can split it into bundles of £250 at a time. You cannot choose to give small £250 gifts as well as the £3000 gift to the same person, however.

Special dispensation is given for wedding gifts. You can give as much as £5000 to each of your children. The amount reduces to £2500 for grandchildren, and for anyone else it is £1000. Also, if you use your money to support a child in full time education, there will be no IHT due.

It is possible to make other transfers and gifts, but not everything will automatically be exempt – some will have the caveat that you need to live for at least seven years after the gift is given. If you do not, then IHT may be due when you do die. 

Is There An Inheritance Tax Loophole?

There aren’t many people in the UK who like the idea of inheritance tax – it seems that it’s just the politicians who are keen on it. But what can be done about it? Surely it is something that must simply be paid and be done with?

Not necessarily. There is an inheritance tax loophole that more and more people are taking advantage of.

It all relates to the ‘deed of variation’. The dead of variation allows the beneficiaries of a will to redirect the assets left to them to other people. But how does this help?

Inheritance Tax Loophole 300x198 Is There An Inheritance Tax Loophole?

Firstly, it means that the inheritance can be given straight to those who might have a more immediate need for it such as grandchildren rather than children. Secondly – and perhaps more importantly in many respects – it can reduce the overall inheritance tax liability for the family. It effectively diverts wealth away from an estate that is already close to the inheritance tax liability threshold, and it means that the estate won’t be taxed twice.

There are certain criteria that need to be met for this to happen, however. The changes must be made within two years of the death. All the beneficiaries within the will must agree to any changes made, otherwise it cannot happen. They must all sign the variation. The variation deed must be very clear about who is to inherit, and everything must be set out in writing. It should also contain a stamp duty exemption certificate if any stocks or shares have been changed. If the changes are being made with regards to inheritance tax or capital gains tax, there must be a signed note to that effect along with the deed of variation. 

Are Executors Legally Responsible?

An executor is always expected to act reasonably when it comes to dealing with someone’s will and estate. They must act in the best interests of the estate, and the beneficiaries named in the will. This involves a number of things including getting the best possible price for any property or assets that are sold. It also means that they should ensure that the death is registered correctly. If this is not done, there could be serious implications that affect many people, and their inheritances.

The estate must be calculated correctly as well. This is to make sure that, if any inheritance tax is due, it is paid on time, and at the correct figure. This needs to be done before any of the money and assets are distributed.

Executors Legally Responsible 300x159 Are Executors Legally Responsible?

The death should also be ‘advertised’, for example it could be announced in a national newspaper. This is so that anyone who is not mentioned in the will but who is owed money by the estate can contact the executor to arrange for payment. These debts must be paid off before any beneficiaries can inherit. If this is not done, and someone makes a claim after the money has been distributed, the executor may be liable for the debt.

If someone disputes the will (ie, if they question whether the will is valid, or if they have evidence that there is a newer will, for example) then there could be further claims. Being executor is an important job with huge responsibility, and it is always worth getting independent legal advice if you take the job on, to prepare you. 

Common Mistakes When Applying For Probate

Applying for probate can be a complicated process, particularly if you have never had to do it before. If you don’t seek expert advice, there are some common mistakes that are often made. These mistakes can cause probate to take much longer than it needs to, making it more costly, and more stressful.

The first mistake that often occurs is that people apply for probate in the wrong country. The only place to apply for probate is in the country where the person was living before they died. Many people applying for probate apply in the country where the person was when they died, rather than their country of residence. This is not always the same place, and if you are unsure it is best to check.

Common Mistakes When Applying For Probate 300x225 Common Mistakes When Applying For Probate

The forms required can also be confusing and lead to mistakes. The forms can be found online, but although they are easy to find, they are not always that easy to fill in. Every part of the form needs to be completed, and that might require some research because all the names of the person need to be entered. Those names much match the ones on the will. This might relate to middle names, or perhaps maiden names. All the information much be correct and the same on all the forms.

Estate fees are the last area where big errors can be made. There is a special formula that needs to be used to calculate the fees and taxes due. Mistakes here can mean big problems further on, which is why hiring an expert to help at this point can save you a lot of trouble in the long term. 

Inheritances Are Growing

The richer are going to become richer, and the poorer poorer, and it’s not just to do with income. A lot of it is linked to inheritance. It is said that half of the country are set to inherit large amounts, whereas the other half will inherit nothing, or very little.

The study comes from the Institute for Fiscal Studies (IFS) who has said that the reason inheritances are, in some cases, growing hugely, is down to house prices. When property prices rise, and those properties are left to relatives who go on to sell them or even keep them for the price to rise even further, they can make a rather healthy profit.

Inheritances Are Growing 300x126 Inheritances Are Growing

The IFS has said that around half of Britain’s young people will inherit about 90 percent of the country’s wealth in a few short years. At the moment, 72 percent of people say that they expect to inherit something from their parents. Just a decade ago, that number was at 60 percent.

These figures mean that the inequality between the ‘haves’ and ‘have nots’ will only widen over time, making the country potentially unstable because so much of its wealth will be wrapped up in a relatively small number of people.

Another worry is that the big cuts to inheritance tax that David Cameron unveiled are continuing under Theresa May. This is even though it will actually only benefit a small number of people, but it will affect the country by not bringing in as much money as it once did. The very richest people will effectively be receiving a tax break whilst our essential services are cut. 

How Do Executors Pay Inheritance Tax?

Something that executors often ask is how do they pay the inheritance tax that is due on a deceased person’s estate when it is due before the estate is sold?

The first step is to hire professional valuers to come in and work out how much the estate is actually worth in terms of property, assets, savings, and anything else that is left over. Using an inheritance tax return (which needs to be submitted within six months of the death), the executor will need to inform HMRC of that valuation.

How Do Executors Pay Inheritance Tax 300x225 How Do Executors Pay Inheritance Tax?

If the estate is worth less than £325,000 then no inheritance tax will be due since the estate falls into the nil rate band. Anything over £325,000 is taxed at 40 percent. So if, for example an estate was worth £800,000, inheritance tax would be due on £675,000, and, at 50 percent, that leaves a bill of £270,000.

That’s a lot of money to pay straight away.

But there are ways to deal with this. Firstly, HMRC allows the tax bills to be paid over 10 annual instalments, meaning that the amount that needs to be paid up front is much smaller than the entire bill. It could still be many thousands of pounds, though. In this case, banks and building societies are often happy to release funds from the estate in advance if they are going to pay inheritance tax. If this is the case, it may be better to pay the entire bill in full at the beginning, and be done with it.

Alternatively, if for any reason the bank won’t release any funds, there is such a thing as an executor’s loan, which can be borrowed against the property and paid back once it sells. It is best to speak to a bank about this. 

An Inheritance Can Sometimes Be Worth More Than You Realise

Some people are pleased to receive an inheritance (despite the fact that it means someone they loved, or who at least loved them, died), and some would prefer not to for various reasons. But no matter what, some inheritances which, from the outside, might not look like much, or might not be overly welcome, could actually be worth a lot more than even the testator realised.

This was the case recently in France when a man inherited a house from a deceased relative and soon found that he had a lot more than he bargained for in terms of what he had been given. Because, hidden in strange places throughout the entire house were gold bars and coins. Not just a few, not just a handful, but around 5,000 coins, two 12kg gold bars, and 37 1kg ingots. They weight over 100kg in total, and they are all worth millions – around £3 million in all.

Gold bars were a surprise inheritance 300x206 An Inheritance Can Sometimes Be Worth More Than You Realise

The treasure trove was apparently extremely well hidden, and it is unclear whether the beneficiary of the house was meant to find it at all. But find it he did when he began to move the old furniture out. The first thing he found was a tin of coins which had been screwed in place under a sofa. Once he discovered this and more, he called a solicitor as he wasn’t sure what he should do with the stash.

After further investigation, it was discovered that there were certificates of authenticity also hidden within the house, and the gold had been bought in the 1950s and 1960s. It has now all been sold.

But what about inheritance tax? The haul could well be liable for a 45 percent inheritance tax, as well as three years’ worth of back taxes if the original owner failed to declare the gold in the first place. And considering how well he had hidden the treasure, it’s unlikely that he did. 

What Should An Executor Know About Selling The Home Of The Deceased?

As an executor, you will have a number of different jobs and duties to perform. One of these could be selling the property of the deceased; what do you need to know before you get started?

Firstly, you will need a grant of probate in order to sell or transfer the property. This can take some time to come through – in a straightforward case it can take around three months, and if there is inheritance tax to pay it can take much longer. In the meantime, the mortgage will still need to be paid.

What should an executor take into account 300x212 What Should An Executor Know About Selling The Home Of The Deceased?

You will also need to get a valuation on the property in order to process the grant of probate. This should be carried out by three separate estate agents, and the average used as the final valuation. Another option is to obtain a surveyor’s valuation.

Next you will need to check the title of the property to ensure it is under the right name. This can be done by downloading a copy of the plan through the Land Registry and checking that the deceased’s name is on it. You will also need to check that the plan shows the full extent of the property. If the property is not registered with the Land Registry, you will need to locate the paper copies of the title deeds.

When the deeds are to hand, any defects and restrictions to the property should also be noted – these may need to be dealt with before the property is legally able to be sold.

It is perfectly possible to put the house on the market as soon as a valuation has been carried out, but you must remember that it cannot actually be sold until the grant of probate has been authorised. Any potential buyers – and the estate agent themselves – must be made aware of this in order for a realistic timeframe to be discussed.

Selling Home Of the Deceased 300x200 What Should An Executor Know About Selling The Home Of The Deceased?

Once the property has sold, capital gains tax will need to be considered. For 2016-2017, executors have a CGT allowance of £11,100. Inheritance tax should already have been paid, but if the property sells for less than the valuation, the executor will be able to claim back what they overpaid.  

Contact us


Call us for a quote, instant help or impartial advice on freephone
0800 612 6105 0800 calls are free - 0333 are local rate - Just click to Call

Or complete the form below