Wills, Trusts and Estates FAQs

If no inheritance tax advice is taken when making your Will then there is a significant possibility that your estate will end up paying more inheritance tax than necessary.

Lifetime gifts are an important part of IHT planning. They can be an effective way of removing value from an individuals estate which can reduce the amount chargeable to inheritance tax upon death. Gifts can be made either to individuals or to trusts. Gifts to trusts can ensure individuals can retain control over assets and give a certain degree of asset protection, however there may be tax consequences. If you are in good health and expect to survive for 7 years from the date of the gift, it will fall out of your estate and the clock can start to tick again. It is always important to take advice as gifting assets can have other tax consequences.

There are various common mistakes including gifts with reservation of benefit and not leaving your property in such a way in order to qualify for the residence nil-rate band relief available but the most common mistake of all is failure to take the necessary advice to plan effectively.

There are number of exemptions and reliefs available including spousal exemption when the estate is left to a surviving spouse. If any part of the estate is left to a charitable institution, it will be covered by charitable exemption to the extent of the charitable gift and additionally if the gift amounts to 10% of the value of the estate it will result in a reduced tax rate to 36%. Those who run their own businesses can rely on Business Relief.

Yes, as a matter of fact matters relating to tax planning should be reviewed regularly.

Trust can offer a powerful tool in inheritance tax planning. Assets placed into a trust to which you cannot benefit, will fall outside your estate after seven years for inheritance tax purposes. Any growth in value on the assets will immediately be outside your estate.

What is inheritance tax, and who is liable to pay it? Inheritance tax is a tax on the estate of someone who has passed away. This estate could consist of property, businesses, money and personal belongings of value such as a vehicle or jewellery. If the value of the deceased’s estate is above the current threshold of £325,000 known as the nil rate band, the amount above it might be liable for tax at the current standard rate of 40%.

Tax implications for trusts and beneficiaries depends on factors such as the kind of trust it is, the value of the assets in the trust and who the beneficiaries are.

Under a bare trust any income and capital gains are treated as the income and gains of the beneficiary. Minor beneficiaries are still entitled to the personal tax free allowance (£12,570 in tax year 2023/2024). However, if the trust is created by a parent for the benefit of a child and the income received is £100 or more then that income is taxed as if it belongs to the parent. This could mean the income is taxed at a higher rate.

Interest in possession or discretionary trust tax rates depend on the value and source of the income. Tax rates for income could be between 20% and 45% and dividend income could be taxed between 8.75% and 39.35%.

Trusts are subject to capital gains tax on any gains which are over the annual capital gains tax allowance. This allowance is half the value of that of an individual.

Beneficiaries are liable to income tax on any income they receive from a trust, however can offset the tax which has already been paid by the trust. Beneficiaries are not liable for tax on distributions of trust capital.

Seeking professional advice on heritance tax planning is advisable if the value of your estate on your death is likely to be above £325,000 as there could be an inheritance tax liability. Estates above the current threshold of £325,000 might be liable for inheritance tax at the standard rate of 40% on the amount above this threshold. Inheritance tax planning may reduce this tax liability, as certain beneficiaries such as charities, spouses or civil partners are exempt from inheritance tax. Also, leaving your primary residence to children or grandchildren may increase your personal allowance before liable for inheritance tax to £500,000. The inheritance tax rate of 40% could also be reduced to 36% if in your Will you leave at least 10% of your net estate to charity.

Estate planning and Inheritance Tax planning will involve a comprehensive review of your individual circumstances, needs, concerns and those of your family. Understanding where you are coming from and where you want to go is just as essential to the process as technical information and knowledge. The role can involve liasing with other professionals such as accountants and financial planners and can assist with helping to arrange your affairs efficiently; protecting assets for you and your family, preparing wills that suit your family, succession business planning working with commercial advisors to ensure business and personal affairs work together and retirement planning to help plan the future so you can go ahead and enjoy life.

What role does professional advice play in setting up trusts and planning for IHT At Tollers we can devise tailored strategies and tax planning that allow you to minimise your tax liability legally.
These strategies may include the use of Nil-Rate Bands, Residence Nil-Rate Bands, and other available allowances, one of the most common methods to use is lifetime gifting.
By using professional advisers, you can ensure that your wealth is preserved for future generations. It is therefore important that assets are protection and tax minimised. One effective method to achieve this is by establishing trusts, which allow for assets to be passed down according to your wishes while also reducing tax burdens for your family.

The residence nil rate band (RNRB) is available if a person’s estate includes property in which they have lived in at some point during their lifetime and it is left to their children or other direct descendant(s). The maximum amount available is £175,000 however unused amounts are transferrable between spouses on second death. Unfortunately the RNRB is not available for estates which pass entirely into a discretionary trust and the RNRB also starts to be withdrawn where the estate exceeds a value of £2m. With careful planning in your Will it is possible to ensure that your estate benefits from the maximum of the available RNRB in order to minimise the inheritance tax liability.

If the value of your estate on your death is above the current £325,000 threshold known as the nil rate band, the amount above it might be liable for tax at the rate of 40%. Planning is essential to try and reduce this tax liability, as certain beneficiaries such as charities, spouses or civil partners may be exempt. In addition leaving your primary residence to children or grandchildren may increase your personal allowance before liable for inheritance tax to £500,000.

The basic inheritance tax threshold is £325,000. This is called the ‘nil rate band’. There is also an additional threshold called the ‘residence nil rate band’. This threshold is an additional £175,000 provided that you are leaving your residential property to your lineal descendants (subject to certain requirements). Inheritance tax is currently charged at 40%.