Inheritance Tax Planning

Taxation is one of the certainties in life, but there is no need to pay more than is necessary. See how our tax planning solicitors can help you.

At TWM Solicitors, we have decades of experience in Inheritance Tax planning services. Our team of private client solicitors are on hand to support you and your family with taxation and inheritance planning.

How can TWM Solicitors help with your Inheritance Tax planning?

Any tax planning needs to be undertaken carefully and in full knowledge of the particular circumstances of your individual situation. This is especially true in relation to Inheritance Tax planning, where a detailed review of your individual situation is critical.

Any advice you have received previously will have been based on the law at that time. It is important to remember that over time, changes or restrictions may have been introduced and some legislation may have been tested through the courts during that period and the interpretation of rules clarified. This is why it is essential to keep your Inheritance Tax planning methods and objectives under periodic review to ensure they remain effective and relevant.

There are many popular planning techniques currently used successfully by taxpayers who wish to reduce the Inheritance Tax exposure of their estate. H M Revenue and Customs do have wide powers to enable it to examine any Inheritance Tax planning technique, and can overturn planning strategies through retrospective legislation or where the law already permits this. It is therefore important to appreciate that our advice centres on generally accepted planning methods.

We can have an initial meeting with you to assess whether you have an Inheritance Tax issue that you want to plan for. This will in essence be a fact-find, and we may be able to offer some simple steps that you can take if your own circumstances do not require tailored advice.

If we believe tailored advice would be of benefit to you, we can provide you with a report suggesting some options and things to consider. This report would be charged for on a fixed charge basis which would be agreed with you following our initial meeting prior to preparing the report. Once you have considered the report, you can decide which if there are any options, you would like to pursue; where this requires further advice from us, such as drafting of trust documentation or drafting more Inheritance tax efficient Wills that you have currently, we can undertake this, also at a fixed charge that would be agreed at the outset.

Key Contact

Caroline Foulger

Partner and Head of Private Client

“I have found Caroline both very knowledgeable and very helpful. Her advice is also very practical, which is invaluable when dealing with complex estate matters.”

Chambers HNW Guide – 2023

Meet the team

FAQs

Below are some questions that we are frequently asked by clients who require advice on Inheritance Tax Planning Law.

Inheritance Tax is tax charged on the value of your estate on your death. The first £325,000 of your estate is not subject to Inheritance Tax.  Anything in your estate which is over this threshold is subject to Inheritance Tax which is charged at 40%.

It is also paid on some lifetime gifts to some types of trusts, which are called ‘relevant property trusts’. Gifts during your lifetime to those trusts are taxed at 20%. Relevant property trusts are also subject to Inheritance Tax during their existence and on their termination.

Your ‘estate’ means everything you own, for example:

  • Your home (and any other land property or buildings in your sole name or owned jointly);
  • Investments such as shares and securities;
  • Bank and Building Society accounts including ISAs;
  • National Savings products such as saving certificates, premium bonds and pensioner bonds;
  • Cash;
  • Antiques, jewellery, paintings, your car, your furniture; and
  • Anything else that has any monetary value whatsoever.

Other things that may also be brought within your estate for the purposes of calculating the Inheritance Tax due are:

  • Any gifts made in the seven years prior to your death, unless they were made to your spouse or civil partner or a charity; and
  • The value of any asset that you gave away in your lifetime where you still retained some sort of benefit, such as the income from the asset or use or enjoyment of the asset.

Any liabilities, such as your mortgage, overdrafts and bank loans are generally deductible for Inheritance Tax, so it is only the net value which is taxed.

If you own assets in the UK that exceed £325,000 then your estate may well have exposure to UK Inheritance Tax.

This in itself is a simple answer to a complicated question.

You may also have exposure to UK Inheritance Tax if you:

  • Have made any gifts in the last seven years which once added to your estate result in a total value exceeding £325,000;
  • Were born in the UK, are resident in the UK and your assets in the UK and aboard exceed £325,000;
  • Have been a Income Tax resident in the UK during 15 of the last 20 years and your assets in the UK and abroad exceed £325,000.

If you are married or in a civil partnership (or widowed) and have children, however you may not have exposure to Inheritance Tax unless your (joint) estate exceeds £900,000 (2018/19).

As you can see, Inheritance Tax is a matter that is very specific to your personal circumstances. There are a vast number of rules, exemptions and reliefs that may apply in your particular situation.

Once your estate is worth over £325,000, you have a potential exposure to tax at 40% on the excess above that figure.

This simple illustration gives an indication of how the rules currently operate:

David and Barbara are married and have two adult children. They were both born in Surrey and have lived there all their lives. David and Barbara own all their assets jointly, and the total value of these is £1,600,000.

Their house, owned as joint tenants, is worth £1,000,000. They have savings in joint bank accounts totalling £200,000 and they have investments in joint names worth £400,000.

David died in November 2015 and due to the survivorship rules, Barbara inherits his share of their joint assets. There is no Inheritance Tax payable because gifts to spouses are exempt.

Barbara died three years later in July 2018; the composition and value of the estate has not changed, and she is survived by both her children. The inheritance tax calculation for her estate is as follows:

Net Value of Estate

Less Barbara’s nil-rate band

£1,600,000

(£325,000)

Less transferable nil-rate band from David’s estate (none of his nil-rate band was used on his death)

(£325,000)

Less Residence Nil-Rate Band (an interest in Barbara’s home has been left to a child)

(£125,000)

Less transferable Residence Nil-Rate Band from David’s estate (David died before 6 April 2017 so his Residence Nil-Rate band was not used on his death)

(£125,000)

Amount subject to Inheritance Tax

£700,000

Inheritance Tax at 40% on £700,000

£280,000

The answer you will probably expect is ‘it is never too early’, and that is true. The earlier you start, the more effective your planning is likely to be, and the more options you have available to you.

You may not be at a stage in life where you think planning for Inheritance Tax is relevant due to your age, other financial commitments or level of wealth.

However even if you are young, unmarried and have no children, you may wish to think about making sure your nominations for any life insurance, death in service from your employer or lump sums payable on death from your pension are not structured in a way that they incur Inheritance Tax on your death or in the estate of those you have left them to in the event they become payable.

There are many occasions when you need to consider Inheritance Tax planning even if that is limited to reviewing your own Will, and those include:

  • Cohabiting with someone you are not married to or in a civil partnership with;
  • Getting married, or entering a Civil Partnership;
  • Becoming a parent;
  • Your children becoming mature enough to receive significant cash gifts;
  • Marriage or Civil Partnership of your children;
  • Becoming a Grandparent;
  • Divorce;
  • Inheriting from your parents;
  • Death of your spouse or civil partner;
  • Remarriage;
  • Life expectancy of between seven and fifteen years;
  • Life expectancy of less than seven years; and
  • Immediately prior to death.

Much of the Inheritance Tax planning we advise on would require a life expectancy of at least seven years to be fully effective. If you are considering using trusts as a vehicle for this, in light of the benefits they can give, we would advise considering starting to plan a lot sooner.  However, there are situations where those with a life expectancy of less than seven years can still undertake successful Inheritance Tax planning measures.

Contact the team

Here’s how to get in touch if you have any questions at all or would like to speak to us about your enquiry. Please complete the form below and one of our experts will get in touch to discuss how we can help.

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