Inheritance Tax

What is Inheritance Tax?

Inheritance Tax is usually payable on an estate when someone dies.

It's also sometimes payable on trusts or gifts made during a persons lifetime. Many estates don't pay Inheritance Tax because they are valued below the threshold of £325,000.

For estates in excess of £325,000, the tax rate payable is 40%.

Since October 2007, married couples and registered civil partnerships, can effectively increase the threshold on their estate when the second partner dies, to as much as £650,000. Their executors or personal representatives must transfer the first spouse or civil partner's unused Inheritance Tax threshold or "nil rate band" to the second spouse or civil partner when they die.

In many cases this doesn't happen and unnecessary tax is still payable.

The importance of a correct Will

Planning ahead for when you die allows you to set out clearly who should benefit from your estate.

A Discretionary Will Trust is a way that assets can be clearly separated. The Trust can fully utilise any Inheritance Tax reliefs and exemptions if your estate is worth more than the "nil rate band". You can effectively pass on up to £650,000 to your beneficiaries using this method.

For up to date Inheritance Tax information visit:
www.inlandrevenue.gov.uk/inheritancetax

Protecting Your Property in the event of needing care

Planning for care is now one of the most important parts of future planning. on average, 1 in 2 women and 1 in 3 men may need care in the future. 

In 1990 the Community Care Act started to take into account peoples properties when evaluating the value of a persons estate for means testing.

If your capital is worth between £14,250 and £23,250, you will be required to contribute from income included in the means test, such as pensions plus an assumed tariff income based on your capital. 

For capital worth over £23,250, you are required to pay full care fees yourself, sometimes referred to as self-funding.

If your capital is below £14,250, you do not pay a tariff income based on your capital, however; you must continue to pay from income included in the means test.

The value of your property can be included in the means test.

The cost of care is on the increase as today on average £655 to £937 per week is typical.

Giving away your assets like your property is seen as a criminal offence, if deliberately done to avoid paying for care, it can be seen as deprivation of assets.

What can you do?

Essential to any Will planning is the way you own your property. Most couples own the property as joint tenants. This means on first death the property becomes the sole ownership of the survivor. If the survivor needs to go into care the property can be sold to pay for care costs, or a charge can be made on the property so when it is eventually sold, the care home/ local authority gets part of the proceeds to pay the care bill.

It is possible to sever joint tenancy, so the property is held as tenants in common. This means on first death the deceased part of the property can pass into a Property Trust for his / her eventual beneficiaries.

This has an important advantage to the surviving partner/spouse as they now only own part of the property, so if care is needed, then only one half can be taken into account for care costs.

If in the event of re-marriage after your death the Property Trust will ensure that your intended beneficiaries will always inherit your part of the property.

Property Trusts are not a "legal loop hole", but are straight forward common sense. If your partner requires care after your death, why would you want to leave them your entire estate outright shortly before he or she is about to be means tested?

The terms of the trust are flexible so you do not give up your rights to move home if you wish. The trust also protects you from your children as they cannot force you out of your home, as the trust only allows them to inherit on second death.

Your Personal Guide to Protecting your Estate. - A warm welcome from all the team at Future Estate Planning Services Ltd - Can you answer Yes to the 5 questions? - What you need to know about a Last Will & Testament - What you need to know about Lasting Powers of Attorney - Understanding Property Trust - How a Protective Property Trust can protect you from Care Home Fees - All about Funeral Plans - Our contact details