At Taylor Bracewell Solicitors we believe it is essential to inform our clients of all factors which may affect them during the course of a transaction, and the effects of any decisions they make - unfortunately, this sometimes means we have to mention tax!
There are three main areas of tax which arise when considering Wills, Trusts and the Administration of Estates:
Inheritance Tax is usually paid when a deceased's estate is worth more than £325,000 - this figure is known as the Nil Rate Band.
It is usually the responsibility of the Executor/Personal Representative to pay the Inheritance Tax and this is a very important part of dealing with the Administration of Estates.
It is essential to take professional advice on Inheritance Tax as errors can result in significant penalties and interest being charged by HMRC.
Our specialist advisors are here to discuss all aspects of Inheritance Tax with you.
Whether you are dealing with a deceased's estate and need advice on what to do, or whether you wish to put your own affairs in order and reduce your own inheritance tax bill as much as possible our Solicitors are here to assist you.
Inheritance Tax (IHT) is currently charged on estates worth more than £325,000 – this value is called the Nil Rate Band. If an estate is worth more than the Nil Rate Band then, generally, it will be liable for IHT on anything over this amount at 40%.
If you are a couple or a widow then you could possibly benefit from your Spouse/predeceased spouses Nil Rate Band and effectively have an exemption of up to £650,000 – this is known as a Transferrable Nil Rate Band. However, this is a complex area of law and it is essential to take advice as all benefits can be lost if the correct applications are not made.
There are also various Exemptions and Reliefs which can reduce the amount of IHT paid on a deceased's estate and the key to this is early Inheritance Tax planning.
Many people don't realise how much their estates are worth, but after taking into account property, savings, investments, pensions, death in service benefits and life insurance, it isn't long before your estate starts to mount up.
In order to ensure as much of your money as possible goes to your loved ones it is essential you take professional advice to see what can be done to minimise any tax liability.
Exemptions and Reliefs
There are various Exemptions and Reliefs which can apply to transfers made on death, and even during lifetime, which reduce the amount of IHT paid.
Some of these exemptions include:
- Gifts to Spouses
- Annual exemptions
- Normal expenditure out of income
- Small gifts exemptions
- Gifts in consideration of marriage
- Gifts to Charities
- Gifts to Political parties, for national purposes or for the public benefit
- Monies paid out from Life Insurance Policies or Pensions when the payments come via Trust
Some of the Reliefs available include:
- Business Property Relief
- Agricultural Property Relief
Married couples have an exemption for assets passing between them but co-habitees do not. For this reason it is very important to ensure that you take professional advice on the most tax efficient way of writing your Will and the Administration of estates.
Inheritance Tax Planning
There are lots of Exemptions and Reliefs to consider when thinking about Inheritance Tax as the type of assets you have can determine whether a tax is payable or not – for example, if you own a business then it may qualify for Business Property Relief and the amount of tax which would normally be due could be reduced.
Another consideration is that any gifts you make in the seven years prior to your death could be chargeable to Inheritance Tax – even though you no longer owned them when you died!
IHT can be very complicated and it is vitally important to ensure you take advice on this as an incorrect tax return can lead to interest being due and even penalties for incorrect submissions. However careful planning can mean that an Inheritance Tax bill is drastically reduced saving tens, even hundreds of thousands of pounds.
Capital Gains Tax (CGT) is the tax you pay on any profit or gain which you make when you sell or dispose of certain types of asset.
For example, if you bought shares in January 2000 for £50,000 and then in January 2012 sold those same shares for £85,000 then you have made a gain of £35,000. This gain could possibly be taxed.
Not all assets are liable to CGT when you sell or dispose of them and it is important you take advice about any proposed sale or disposal before you make it.
When you make a gift of an asset, depending on who the recipient of that gift is and the asset which is gifted then there may also be CGT payable on that gift, for example, if you own a holiday home and decide to gift that to your children then that gift would trigger a charge for CGT.
If you inherit assets then you will not be liable for any CGT but could be liable for CGT if you later dispose of that asset. In these circumstances, it is important to obtain a valuation of the asset when it is inherited (i.e. at the date of death not the date of receipt of the asset) and then you would be able to work out any gain or loss when it is subsequently sold.
Professional advice in relation to any aspect of tax is always advisable as any errors can lead to interest charges and even penalties being levied by HMRC.
Income tax is the tax which is paid on any income which you receive over a certain level - for example, income from your employment, pension, interest on savings or dividends, rental income etc.
Most people have a personal allowance, which is the amount of income they can receive before being taxed. For 2015-16 the basic Personal Allowance is £10,600 but can be higher for people over a certain age. Generally speaking anything over this level will be taxed.
Income Tax is something which many people often overlook as they have the majority of income tax deducted at source - i.e. it is automatically deducted from their income or from the bank interest.