Our Estate Planning Services
Financial Management - Tax
Taxes which could affect you and your estate:
- Inheritance Tax is a tax that must be paid on the estate of someone who’s died minus any money owed. Estate refers to any property, money and possessions that belonged to that person. The amount of Inheritance Tax you will pay is based on the value of your estate.
- The current nil band inheritance tax threshold is £325,000 excluding property. If you own the property you live in and intend to leave it to your children or adopted children you may also be able able to claim the additional Residence Nil Rate Band (RNRB) of £175,000. So your maximum allowances total £500,000.
- IHT is only payable on the excess above this nil rate band. The rate at which Inheritance Tax is charged is 40%.
- Funds are usually taken straight from the estate and paid to HMRC by the Executor of the will.
- Sometimes the person who died has set aside money specifically to pay IHT through a whole-of-life insurance policy.
- Assets left to your spouse/civil partner, provided they live in the UK, are exempt from Inheritance Tax.
- Furthermore, your partner’s Inheritance Tax allowance will increase by the amount that you didn’t use, meaning a married couple or civil partners can leave £1,000,000 without it being taxed.
- Inheritance Tax is a complicated matter. We advise you contact us to find out more about IHT planning.
Tax on Owning a Business
- If you own shares in a UK limited company the value of these shares are not usually subject to Inheritance Tax.
- The company needs to be classed as a trading business. It cannot be a property company or investment company. You need to have held the shares for 2 years to qualify for Business Relief.
- You may wish to seek advice on this matter from your accountant or tax specialist.
- Read the HMRC rules on Business Relief here.
- Specialist tax advice from TFO can be sought here.
- There are lots of companies who offer qualifying Business Relief structures where you can invest money to shelter it from Inheritance Tax . They are very popular but many have low target return and high charges. Tomorrow Loans has no initial charges and no annual management or dealing charges.
Capital Gains Tax on Rented Property
- Many people have additional rented properties they have purchased or inherited. Upon death, in addition to 40% inheritance tax, you could be paying up to a further 28% Capital Gains tax on the disposal or sale of rented property.
- Capital Gains Tax (CGT) is a tax charged on the profit made when you sell or ‘dispose of’ assets. So on a property, you take the purchase price (or value at the time you acquired the property), off the current value and this is your capital gain.
- Disposing of an asset can include giving it away or swapping it for something else. Everybody receives a tax-free allowance of £12,000 for Capital Gains Tax. Any profits below this amount will not be taxed.
- The rate of Capital Gains Tax is either 10% or 20%, depending on whether you pay basic-rate or higher-rate Income Tax. However, these amounts increase to 18% and 28% for capital gains made on residential property.
Limiting Inheritance Tax
- There are various ways to limit paying Inheritance Tax. The obvious one is giving your assets to your beneficiaries or a trust. This has to be done 7 years before you die to be classed as a Potentially Exempt Transfer (PET). Issues to be aware of is not knowing when you will die and gifting assets means you lose control of them, or lose the income.
- Investing in qualifying Business Relief structures is a way to take money out of your estate and they will become Inheritance Tax free after 2 years.
- Assets can be shielded in a Pension Trust structure. A pension is the UK’s most tax efficient structure. No income tax, no capital gains tax and no Inheritance Tax. You cannot put large amounts of money and assets like property and valuables in a UK pension. You can put these types of assets in a QNUPS (Qualifying Non UK Pension Scheme).
- QNUPS are outside of Inheritance Tax from day 1 and capital gains tax can also be avoided.
- An incidental benefit of Business relief assets and investments in QNUPS is they are excluded from the value of means tested assets by local authorities. Should you need to go into care you will not lose these assets to pay care home fees.
- HMRCs guide to QNUPS can be read here.
A Will is a legal document that states what you want to happen to your assets when you pass away. Making a Will is essential if you want to make sure your belongings pass on to those whom you decide.
If you die without having written a Will (intestate) then everything you own, including all investments and savings, will be distributed by means specified by law. This might not be the way you would have chosen.
If your Will includes a Trust then, once your will has been executed, the Trustees will ‘manage’ or take care of the Trust property for however long the Trust lasts. Trusts are often made when beneficiaries are unable to take care of the property themselves. Therefore, Trustees have a legal duty to the Trust’s beneficiaries and must act in the beneficiaries’ best interests at all times, often requiring the advice of our legal experts.
Using one of our expert solicitors to write your Will is the best way to ensure peace of mind for both you and those you leave behind.
Professional Will Writing services
There are times where it is particularly important that someone with legal expertise assists you when writing a will. These include when:
- You own assets overseas
- You run a business (which may form part of your estate).
- You are likely to pay Inheritance Tax
- Your family circumstances are complicated (several ex spouses, children with different partners, or you care for vulnerable individuals or minors etc).
Why use a professional Will Writing Service?
- You are protected – Solicitors are regulated which means if any unforeseen issues arise you can make a complaint. If the solicitor’s firm doesn’t deal with your complaint in a satisfactory manner, you can go to the Legal Ombudsman.
- Your Will is legally binding – simple but common problems such as using an unsuitable witnesses or signing in the wrong place could invalidate your Will. Using our services will remove the risk of small things having big consequences.
- Complicated tasks are taken care of – Inheritance Tax laws and trusts are complicated and include terminology and regulations which solicitors are familiar with. This takes the responsibility away from you and puts it into the hands of a professional.
- Safekeeping – Your will is stored safely as we are able to safeguard the original for you.
- Transparency of costs – Our services come with a clear break down of costs at an early stage.
Lasting Powers of Attorney
Lasting Powers of Attorney (LPAs) were created under the Mental Capacity Act 2005 replacing the former Enduring Powers of Attorney (EPA) which contained fewer powers. Their purpose is to meet the needs of those who lack the capacity to look after their own personal, financial or business affairs. An LPA allows arrangements for family members or trusted friends to make decisions regarding healthcare and finance on their behalf.
Types of LPA
Property and Financial
This kind of LPA protects the donor’s money and property. The donor is the person making the LPA. Decisions the attorneys can make include:
- Opening, closing and using their bank or building society accounts
- Claiming, receiving and using their benefits, pensions and allowances to benefit the donor.
- Paying household and other bills
- Buying and selling or maintaining their house
- Managing their property and investments
A donor can also make a separate LPA for business affairs should they want different people to deal with them.
Health and Welfare
A health and welfare LPA, which must be made separately to the financial LPA, enables the attorneys to make choices regarding your health and care should you become incapacitated. This decision could be anything from the food you eat to the medications you take.
The donor allows the attorney to make decisions about things such as:
- The giving or refusing of consent to health care and medical treatment
- Help and support from social services
- Where the donor lives – for example, whether they in their own home or move to a care home
- Care home or care providers
- Day-to-day matters such as diet, clothing or routine
A health and welfare attorney might need to spend the donor’s money on things that maintain or improve the donor’s quality of life such as:
- Hairdressing or new clothes
- Decorating the donor’s home
- Adapting the donor’s home
- Extra support so the donor can go out more
In this case, the attorney must communicate with the person in charge of the donor’s funds, if this is a different person.
LPAs can only be used after it’s been registered and if the donor does not have the mental capacity to make decisions at that given moment.
‘Life-sustaining treatment’ refers to medical treatment that must be administered in order to keep a person alive. When making an LPA, the donor must decide whether they wish for their attorney/s to give or refuse consent to life-saving treatment on their behalf.
If they do not give consent, then all such decisions will be made by healthcare professionals unless an Advance Decision to Refuse Treatment (ADNR) is made.
An advance decision is a legally binding statement which lets a person say what medical treatment they do not want to have in certain situations.You may want to refuse treatment in some situations, but not others. (An advance decision isn’t the same as an advance statement).
If an advance decision has been made prior to a health and welfare LPA, the LPA could take priority with regards to life-sustaining treatment.