Inheritance tax planning FAQs
I'm married, inheritance tax won't apply if I leave everything to my spouse will it?
Assets passing on death to a surviving spouse or civil partner are exempt from inheritance tax. If you left all your estate to your spouse you could be wasting your personal inheritance tax "allowance" though. A properly drafted Will can use a particular type of trust to prevent the surviving spouse from ending up with all the assets on the death of the first spouse. The trust can save inheritance tax on the second death while still benefiting the surviving spouse during his or her lifetime. This means more can be passed on to family members and other beneficiaries when both spouses have died.
Can I give my assets away during my lifetime to reduce my estate?
You can but to take the value of the gifts out of your estate for inheritance tax purposes you basically have to outlive the gift by seven years. You should not continue to benefit from the asset given away. Sometimes people give their homes to their children thinking that this takes that asset out of their estate for inheritance tax purposes. However, if they carry on living in the house until their death then the value of the home may still be added to their estate when calculating inheritance tax. The rules relating to lifetime gifts and inheritance tax can be complicated. You should always take legal advice on the inheritance tax implications.
How is inheritance tax actually paid?
Inheritance tax is due for payment six months after the end of the month of death. After this time interest starts to run on any unpaid inheritance tax. The grant can't generally be obtained until the inheritance tax has been paid. It may be that there are enough cash-type assets belonging to the person who has died (funds in banks for instance) to pay the inheritance tax before the grant is obtained to collect in the rest of the estate. Sometimes the personal representatives have to get a loan to pay the inheritance tax. Sometimes it can be paid by instalments on land and buildings although interest will be paid on these as well
Will everything I own be liable to inheritance tax?
Some assets such as certain business interests and property and agricultural property can get a reduction in inheritance tax. This depends on the type of assets and how long they have been owned by the person who has died. This type of reduction can be 100% or 50% depending on the type of asset. This inheritance tax "relief" can be very useful for inheritance tax planning.
What can I do to avoid inheritance tax?
There could be many options available to you. It depends largely on what you're worth, what type of assets you have, who you want to benefit from your estate and what you yourself will need during your lifetime. You may want to plan through lifetime giving or through your Will or a through combination of both. We can help you plan your estate to reduce the overall impact of inheritance tax on death.