A tax for the wealthy! Sadly, this very common misconception is not the case. Huge property price increases in recent years have led to many “ordinary” families having been landed with a large tax liability and therefore a substantial bill to be paid to the Inland Revenue. And this bill has to be paid BEFORE the residue of your estate can be released distributed your loved ones.
When writing your Will it is important you have a basic understanding of inheritance tax. HM Revenue & Customs will look at EVERYTHING in your estate to determine its value from your home and property to bank and building society accounts and savings to art, furniture and jewellery….this is not an exhaustive list! They take into account EVERYTHING you owned. This includes anything you owned jointly, which they will value proportionally and add to your bill. Oh…..they will also take into account any assets you have transferred or given away within the last 7 years.
After your estate has been valued you will be handed a bill for 40% of the value of your estate above the value of £325,000, the Nil Rate Band (£650,000 for couples). Therefore an estate worth £500,000 for a single person will have an inheritance tax liability of £70,000 to pay to HM Revenue & Customs. As you can see this is a significant amount of money. As a result you can see why many families have to take out large mortgages or are even forced to sell the family home.
You have paid tax to the government all of your life; on your income, savings & investments and any pensions you may have had. Now they want to tax you upon your death on the estate you have worked so hard for.
Yet in many cases with the use of a Scottish Will and proper estate planning, having to pay such a tax can be reduced or even avoided in its entirety.
How to avoid giving money to the Government. They take enough from us as it is!
Changes in legislation, which came into effect on the 9th October 2007, allowed for the first time the surviving spouse to inherit the deceased spouse’s inheritance tax exemption, effectively doubling their Nil Rate Band to £650,000. This was only made available to married couples and was extended to civil partnerships so if you did not fall into either of these categories then nothing would have changed, you would still continue to have your own individual inheritance tax allowance of £325,000.
As transfers between husband and wife or civil partners are exempt from any inheritance tax it is best to make use of both these exemptions (the nil rate band of £325,000 each). For married couples or partners the easiest way to reduce any potential inheritance tax liability is to create Nil Rate Band or Discretionary Trust within your Scottish Will. When the first spouse/partner dies, assets up to the nil rate band can be put into the Discretionary Trust and this part of the estate will not be liable for any inheritance tax, when the second spouse/partner dies. This is regardless of how much in value that asset/money has grown to as any asset/money held in trust does not form part of your estate for inheritance tax purposes. Such increases in value of these assets will almost certainly outstrip increases in the Nil Rate Band resulting in even greater savings to your family.
The use of a Discretionary Trust within your Will also safeguards your children form a “sideways dis-inheritance” if the surviving partner remarries and subsequently dies without leaving a Will, meaning the new/second family then inherits your estate with nothing left over from your children from the previous marriage.
For unmarried couples or same sex partners who are not in a civil partnership a similar Trust exists that can reduce or avoid inheritance tax entirely is called an IOU Discretionary Trust and works along similar lines. Included in each partners Will should be special wording for an IOU Discretionary Will Trust thereby allowing the estate (up to the nil rate band) of the first partner to die to go into the Trust. This then works in a similar fashion as above.
In relation to life insurance policies, company death-in-service and pension plans to make your estate planning as effective as it should be, these should also be written in the appropriate Trust for your family as this means the proceeds will bypass your estate. We would advise that you speak with a suitably qualified financial adviser in this matter.
We would also strongly suggest that if you are involved in any aspect of inheritance tax planning in you should do so in conjunction with an experienced financial adviser and a legal specialist with regards the various legalities. We would be happy to recommend a suitably qualified financial adviser or our preferred partner solicitor to assist you in these matters.
Willtrust Ltd realise that a professionally drafted Scottish Will containing the suitable Trusts is vital to help you mitigate any potential Inheritance Tax you may be faced with and more and more people face such a bill for the reasons previously stated.
We can help you dramatically reduce or avoid altogether this unnecessary tax by making use all of the Wills, Trusts and reliefs that are at your disposal that you most certainly were unaware existed.
Our expert consultants will advise and guide you in relation to your Will and Estate Planning in a professional, effective and sympathetic manner thereby making sure that the assets and property you achieved through a lifetime of hard work go to the people to whom you would wish to benefit from it…………………and not to the Chancellors coffers!
Do you know what your potential IHT Liability will be if you do not take any action now? If you do have such a liability and do not address this problem, can you ask you family and estate to please make all cheques payable to “H M Revenue & Customs”…
To see all the allowances and relief available to help mitigate you potential Inheritance Tax Liability please go to our Inheritance Tax Allowances – How to avoid the taxman section
To receive qualified and ethical advice in relation to any aspect of your Scottish Will-Writing and Estate Planning requirements, please visit our contact page.