WILLS AND PROBATE
TAX PLANNING
Tax Planning Wills enable married couples to save inheritance tax (IHT) on their Estates. Unfortunately, this is not available for single people. There are limited measures that individuals can take to minimise IHT and if you would like advice then please contact our private client team to make an appointment to discuss this.
When an individual passes away, they can leave up to a certain amount of property on death, including gifts made within the previous seven years, completely free of Inheritance Tax. This is known as the Nil Rate Band allowance and this current tax year the Nil Rate Band allowance is £312,000. If the estate exceeds £312,000 then the excess on that will be chargeable to inheritance tax at a flat rate of 40%. Married couples can transfer this allowance to their spouse on the first death.
If the estate exceeds £312,000 then the excess on that will be chargeable to Inheritance Tax at a flat rate of 40%. This means that the larger your estate then the higher the percentage goes in tax.
Even though tax is borne out of your estate, in reality it is your beneficiaries that will be losing out as the percentage of your estate chargeable to Inheritance Tax will have to be paid to the government rather than passing directly to your beneificiaries.
If you have standard Wills that give everything to your partner on the first death and then on to your children on the second death, the first nil rate band will be lost on the first unmarried partner's death.
The following example is an illustration:
Mr X & Miss Y have an Estate worth £570,000. They own this in equal shares.
Miss Y passes away and leaves her share of the Estate to Mr X. There is no Inheritance Tax to pay at this time as her share is worth £285,000, which is less than the current nil rate band.
Mr X passes away and leaves an Estate worth £570,000 to his children.
The Estate is taxable as the value is over £312,000
We are able to deduct Mr X's Nil Rate Band (£312,000) which leaves a taxable Estate of £258,000
£258,000 x 40% = £103,200 Inheritance Tax due
It is possible to arrange your affairs, via your Will, in order to mitigate inheritance tax liability and to "save" the Nil Rate Band of the first partner. This would mean that the £103,200 inheritance tax in the example could be saved and it could be passed to the beneficiaries instead. The tax bill on the second death could be reduced to £0.
On the first death, up to the value of the nil rate band passes into a discretionary trust with the remainder of your estate passing to the surviving partner but this will be subject to Inheritance Tax.
A discretionary trust is a very flexible trust. You state in your will who you wish the Trust to benefit, for example the surviving partner and your children and grandchildren.
The Trustees (who must be people that you both trust to act in accordance with your wishes) can then tailor who benefits from the Trust in accordance with the circumstances at the time, for example, they may say that during the lifetime of the surviving partner they wish them to be the primary beneficiary and on their death the money to pass to the children or grandchildren.
The Trust can therefore adjust, depending on whether the surviving partner wishes to remain in the family home, move house or has to go into a nursing home. The discretionary trust safeguards a portion of your estate for your family.
Blaser Mills would be happy to advise you about the various provisions you could include in your will in order to mitigate your Inheritance Tax liability, and the advice will be tailored to fit your individual requirements and circumstances. Your beneficiaries will benefit greatly from your advanced planning.
For more information please contact the Wills and Probate department on 01494-782291 or email the Team.
