Inheritance Tax

Inheritance Tax (and Probate) can be complex and requires a good understanding of the regulations and even of the (sometimes) convoluted terminology. We can assist throughout the process of obtaining Probate and dealing with Inheritance Tax.

Inheritance Tax is only payable if your estate (including any assets held in trust and gifts made within seven years of death) is valued over the current Inheritance Tax threshold (£325,000 in 2012-13).

Inheritance Tax is paid on an estate when somebody dies and sometimes on gifts made one's lifetime. No Inheritance Tax is payable on estates valued at less than the threshold (£325,000 in 2012-13). Tax is payable at 40% on the amount over the threshold (36% per cent if the estate qualifies for a reduced rate as a result of a charitable donation).

Married couples and civil partners can effectively double up by careful use and transfer of their respective thresholds on their estates on the second death.

As sometimes people who have received gifts, or who inherit from the deceased, have to pay Inheritance Tax, you are recommended to seek our advice.

To determine any Inheritance Tax payable, if any, the estate first needs to be valued. This involves values of assets of the estate (such as real estate, possessions, money and investments) and deducting the value of debts, liabilities and funeral expenses. The estate also includes the deceased's share of any jointly owned assets and the value of any assets held in trust.

There are a number of exemptions and reliefs to be considered, so that even if the estate is in excess of the tax-free threshold, assets may be able to be passed without paying Inheritance Tax.

The main exemptions include:

  • Spouse or civil partner exemption. Inheritance Tax is not usually payable on assets bequeathed to a spouse or civil partner who has their permanent home in the UK.
  • Charity exemption. Any gift to a ‘qualifying’ charity is exempt from Inheritance Tax. A donation to charity in the Will may reduce the rate of Inheritance Tax.
  • Potentially exempt transfers. If you survive for seven years after making a gift the gift is generally exempt from Inheritance Tax.
  • Annual exemption. You can give up to £3,000 away each year, your unused allowance from the previous year (after using the current year's allowance first).
  • Small gift exemption. You can make small gifts of up to £250 to as many individuals as you like tax-free.
  • Wedding and civil partnership gifts. Gifts to someone getting married or registering a civil partnership are exempt up to specified amounts.
  • Business, Woodland, Heritage and Farm Relief. Some relief from Inheritance Tax may be available.

Documentation and probate forms

The Probate process requires careful preparation and completion of a number of forms, both for obtaining Probate and for submission to HM Customs & Excise even if no tax is due.

Most importantly, if there is Inheritance tax payable you must pay some or all of it   before you can get a grant of probate. With our banking contacts we may be able to help bridge this gap at advantageous rates.

HMRC link


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