Inheritance Tax Planning

Inheritance Tax liability arises after death, so your will and the way your final affairs are handled are intrinsic in how much liability arises. A testator (the person who makes the will) has the freedom to leave their money and property to whomever they like. There are also many tax reliefs and exemptions available depending on the circumstances.

For example:

• Anything you leave to your spouse or civil partner (but not your unmarried partner) above the nil rate band (currently £325,000) is tax-free. You also transfer any unused basic tax-free allowance to your spouse/civil partner.
• You can get tax relief if you leave your home to your children or grandchildren. Unused residence nil rate band can also be passed on from you to your spouse or civil partner.
• Anything you leave to charity or a community amateur sports club above the nil rate band is tax-free. If you leave at least 10% of the net value of your estate to charity, Inheritance Tax liability on other aspects of your estate can be reduced to 36%.

These are some of the general rules. It is important to seek our advice about how you could use your will to reduce your Inheritance Tax liability in your particular circumstances. We can provide bespoke advice and draft your will on your behalf, ensuring it is valid and fully reflects your wishes.

Read more about Making a Will here.

Trusts are affected by tax differently and are often not affected by Inheritance Tax if set up correctly. A trust is a legal instrument that allows you to put aside money or property for the benefit of someone else. The trust property is looked after (and legally owned) by chosen trustees who are legally required to hold and manage the property for your chosen beneficiaries.

The classic example is grandparents who set up a trust fund for a grandchild to become entitled to once they turn 18 years old. However, you can have all sorts of trusts for all sorts of reasons. For example, to set aside money for vulnerable family members or to leave money to a group of potential beneficiaries (a discretionary trust).

Depending on the circumstances, a trust may have to pay some Inheritance Tax. Trusts are also affected by different types of tax, such as Income Tax and Capital Gains Tax. So, it is vital to seek legal advice and the advice of a specialist tax professional.

We can handle a full range of trust matters, including:

• Advising on the different types of trusts
• Setting up trusts
• Managing and administering trusts
• Advising trustees and beneficiaries
• Acting as professional trustees

Read more about Trusts here.

Gifts that you give during your lifetime may be exempt from Inheritance Tax, they are referred to as ‘potentially exempt transfers’.

If you die seven years after giving the gift, it is not counted for Inheritance Tax purposes. If you die within seven years of giving the gift, it is affected by tapered bands of Inheritance Tax. For example, gifts given in the last three years of life attract the full 40%, but gifts given between three and four years before death attract 32% tax. The tax rate continues to reduce until seven years.

There are other rules and allowances which affect lifetime gifts. We can talk you through your options and how your estate and beneficiaries may be affected depending on when you pass away. We will help you plan accordingly to provide you and your family with as much certainty as possible.

We have specialist expertise advising business owners about estate planning, including reducing liability for Inheritance Tax. Business property relief is often available for both lifetime transfers and transfers upon death, meaning you could save 50% or 100% on tax depending on the circumstances.

Estate planning is important for everyone, but it is particularly vital for farming families and agricultural business owners.

Agribusinesses are unique in that they are often family-run, in many cases with the farm and its assets being passed from parent to child over many generations. It is vital to plan for the future to ensure that your wishes come into fruition and that everyone is aware of their rights and responsibilities.

We have acted as trusted legal advisors for farming families and businesses for many years. Our agricultural law solicitors can provide guidance on all farming succession planning matters, including making wills and structuring farming estates.

Agricultural property can typically be passed on free from Inheritance Tax. We can provide general advice on agricultural property relief and all other options for making your estate as tax-efficient as possible.

Read more about our Agricultural Law expertise here.

The current threshold for Inheritance Tax in the UK is £325,000. Estates valued above this amount are subject to a 40% tax rate on the excess value. However, if you leave your home to your children or grandchildren, your threshold can increase to £500,000. Married couples and civil partners can combine their thresholds, potentially allowing up to £1 million to be passed on tax-free.

There are several reliefs and exemptions available to reduce Inheritance Tax liability:

• Business Relief: Certain business assets can qualify for 50% or 100% relief from Inheritance Tax.
• Agricultural Relief: Agricultural property may be passed on free from Inheritance Tax under certain conditions.
• Charitable Donations: Leaving at least 10% of your estate to charity can reduce the Inheritance Tax rate on the rest of your estate from 40% to 36%.

Valuing an estate for Inheritance Tax purposes involves calculating the total value of all assets, including property, money, and possessions, and deducting any debts and liabilities. It's important to get an accurate valuation to ensure the correct amount of tax is paid and to avoid any penalties.

Probate is the legal process of administering a deceased person's estate. If the estate is subject to Inheritance Tax, you will need to apply for probate before you can distribute the assets. This involves submitting the required forms to HM Revenue and Customs (HMRC) and paying any Inheritance Tax due. Our solicitors can guide you through the probate process and help ensure all legal requirements are met.

Everyone has a tax-free 'nil-rate band' of £325,000. If you leave your home to your children or grandchildren, an additional 'residence nil-rate band' of up to £175,000 can apply, raising your threshold to £500,000. Married couples and civil partners can combine their allowances, potentially passing on up to £1 million tax-free. Anything above the available threshold is generally taxed at 40%.

There are many legitimate ways to reduce inheritance tax, including leaving assets to a spouse or civil partner (which is exempt), using the residence nil-rate band, making lifetime gifts (which fall outside your estate if you survive seven years), leaving at least 10% of your estate to charity (which cuts the rate on the rest from 40% to 36%), using trusts, and claiming business or agricultural property relief where available. The right approach depends on your circumstances, and we often work alongside your accountant or financial adviser.

Gifts you make during your lifetime are usually free from inheritance tax if you survive for seven years after making them (known as 'potentially exempt transfers'). If you die within seven years, the gift may be taxed, but 'taper relief' can reduce the tax on gifts made more than three years before death. There are also separate annual and small-gift allowances that are immediately exempt.

Yes. Solicitors advise on the legal side of inheritance tax planning , drafting tax-efficient wills, setting up and managing trusts, and structuring your estate. This often works best alongside a financial adviser or accountant who handles investments and financial products, and we are happy to work with your existing advisers or refer you to trusted local professionals.