Inheritance tax planning guide

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When for the future of your wealth and estate, it is important to consider the tax implications of inheritance and how your loved ones will be affected.

If you plan on passing on your estate to loved ones and family members, then it is important that you have a clear understanding of how this will be taxed so that you can prepare. Depending on the type of asset, as well as its size and scale, you will be taxed differently, so being aware of this is very necessary.

At Moore Barlow, we can help you to work out what your assets are and how you will divide them up amongst your loved ones. In addition to this, we can tell you how inheritance tax will influence it, so you can better understand what you will be made accountable for.

We have compiled a guide to help you plan for inheritance tax, which you can read below to find out more. If you or someone you love needs help or support regarding inheritance tax, you can also contact our team at Moore Barlow to find out what services we provide and how we can advise you.

Tim Adams

Tim Adams

Partner | Private wealth

01483 543265

What is inheritance tax?

When your estate is divided up in the event of your death, those who you have named in your will as inheritors will have to pay tax on the assets that they decide to accept. The amount of tax they will have to pay varies on the type of asset they are inheriting, as well as the value that it holds.

How is inheritance tax calculated?

It varies depending on the size of the deceased’s estate, with a set tax rate on any estate worth over £325,000. Once it surpasses that threshold it is 40% of the estate’s value, which is then reduced to 36% in some cases if 10% is donated to a charitable organisation.

If you are named the executor of the estate, then you will need to calculate how much the estate is worth in total and then pay off any outstanding debts, bills, and expenses for funeral arrangements. From this you can work out how much inheritance tax must be paid.

Which assets are exempt from inheritance tax?

Certain assets won’t be included when inheritance tax is calculated, most notably any donations made to charitable organisations on the behalf of the deceased. In some cases, other assets such as wedding gifts are also made exempt, as well as some types of property i.e. farms.

When are gifts not taxed?

As mentioned above, sometimes gifts will be exempt from inheritance tax, but there are very specific circumstances that will allow for this. Firstly, the gift won’t be taxed if you live for 7 or more years after they are given, but if it is less than this, they will be taxed depending on the relationship you have with the person giving the gift. Secondly, the value of the gift is taken into account when it is decided if it will be taxed. If the gift is of a high value then it may be taxed.

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How is property taxed as inheritance?

Property can be taxed differently depending on what it is used for, if it is farm or business asset then it is sometimes considered exempt, however if it is a domestic home then it will be taxed. If a domestic home is being passed onto a husband, wife, or civil partner then it is exempt from inheritance tax.

However, if you are planning on passing the property over to another family member or loved one, then that is when it is included in the total value of the estate being taxed. According to the UK government website, if you are passing it on to children or grandchildren and the property is worth less than £2 million then the tax threshold can be increased to £500,000.

What happens if you live outside of the UK?

If you live permanently outside of the UK, having spent 15 of the last 20 years abroad, then any property that is overseas is not included in inheritance tax. Inheritance tax is only applicable to UK assets and so anything outside of the UK is not included in this.

Excluded assets, that are exempt from inheritance tax according to the UK government, include:

  • Foreign currency accounts
  • Overseas pensions
  • Holdings being kept abroad (authorised unit trusts and open-ended investment companies)

Why choose Moore Barlow?

We can provide you with all the knowledge and expertise you might need when writing your will and deciding how you will divide your estate. Whether you need help understanding what your options are or want to know how types of inheritance will be taxed, our team of solicitors have successfully helped many of clients so that they keep coming back time and time again.

Being a trusted firm working throughout many areas and specialisms of law, we will approach any cases with sensitivity and care, understanding that this can be a delicate and emotional time in your life. If you require our help, simply contact us today and we can see how our team can provide you with assistance you need.

Our expert wills, trusts, and estates solicitors are based in LondonSouthamptonRichmondLymingtonWoking and Guildford. We’re ideally placed to offer specialist advice and support on a local and national level.

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