27 September 2024
Will you be liable for inheritance tax under the current legislation?
Under the current legislation, everyone is entitled to a Nil Rate Band valued at £325,000, where the estate up to this amount is taxed at 0%, with the rest potentially taxed at 40%. Spouses and civil partners are exempt from inheritance tax on gifts to each other, with the ability to utilise a combined Nil Rate Band of £650,000 upon the surviving spouse's death.
Consider that the nil rate band may be reduced by the value of any chargeable lifetime gifts made within seven years of death. For estates above £650,000 passing a residence to lineal descendants (usually children, grandchildren, or stepchildren) additional tax exemptions of up to £350,000 may apply.
In general, married couples and civil partners who leave their residence to their children and have not given substantial gifts during their lifetime can benefit from inheritance tax exemptions amounting to £1,000,000 without needing extensive tax planning, as only 4% of UK estates are liable for inheritance tax.
Should I place my property in a lifetime trust?
Putting a property or a share in a property into a trust in your lifetime is complicated and there are unexpected tax consequences. Many people don’t realise that trusts themselves are liable for inheritance tax! You may even have to pay inheritance tax at 20% because of putting the property into trust. They are also liable for capital gains tax and income tax, so careful tax planning is needed when setting up trusts.
Putting a property into trust and continuing to live in it does not avoid inheritance tax on your own death. HMRC do not consider this to be a genuine transfer and will tax your estate as though you continue to own the property personally. One way to circumvent this issue is by compensating the trustees with market rent; however, this may not be cost-effective.
If you plan to establish a trust, it is advisable to seek professional guidance regarding the management of the trust and the responsibilities of the trustee. Additionally, you might require help from a tax specialist to navigate the submission of tax returns.
Should I place my property in a trust upon my death?
Many people choose to establish a will trust for their property. A will trust only becomes active upon your death. This arrangement can be an effective way to retain control over your assets after you're gone, especially if your beneficiaries are vulnerable, struggle with financial, substance abuse issues, or if you have a blended family and want to ensure fairness between your partner and children. However, it's important to also consider potential tax implications and who will be responsible for managing the trust.
When making your will, you may want to seek the guidance of a lawyer who can assess your personal situation, including the value and composition of your estate, as well as the specific needs of your family. They can provide tailored advice, factoring in the tax ramifications of your estate plan.
If you would like assistance in applying for a Grant of Representation you can contact our friendly and approachable Wills, Trust and Probate lawyers based at our Bournemouth and Highcliffe offices.
Please note, this is not legal advice. It is intended to provide information of general interest about current legal issues.
