Legally passing your estate without it being subject to Inheritance Tax

There are some important exemptions that allow you to legally pass your estate on to others, both before and after your death, without its being subject to Inheritance Tax.

Passing assets to beneficiaries using a trust

You may decide to use a trust to pass assets to beneficiaries, particularly those who aren’t immediately able to look after their own affairs. If you do use a trust to give something away this removes it from your estate, provided you don’t use it or get any benefit from it. But, bear in mind that gifts into trust may be liable to Inheritance Tax.

Reducing an Inheritance Tax liability on an estate

Investing in Alternative Investment Market (AIM) shares is one way of reducing an Inheritance Tax liability on an estate. Qualifying AIM shares offer more Inheritance Tax relief than some other assets and qualify as ‘business property investments.’ If property is held as AIM shares in certain trading companies, for a period of at least 2 years, it becomes eligible for Inheritance Tax Business Property Relief at 100 per cent and will fall out of the estate for Inheritance Tax purposes. This relief is a relief by value, the shares are treated as having no value for Inheritance Tax purposes.

Applying for probate

If you are an executor of someone’s will you may need a legal document called a ‘grant of probate’ to enable you to sort out the deceased person’s affairs. If there is no will, a close relative can apply for a ‘grant of letters of administration.’ In Scotland different procedures apply for a death.

Putting it off could mean that your spouse receives less

It’s easy to put off making a will. But if you die without one your assets may be distributed according to the law rather than your wishes. This could mean that your spouse receives less, or that the money goes to family members who may not need it.

Accurately reflecting what those assets would receive in the open market

When valuing a deceased person’s estate you need to include assets (property, possessions and money) they owned at their death and certain assets they gave away during the 7 years before they died. The valuation must accurately reflect what those assets would reasonably receive in the open market at the date of death.

Will your estate be shared out exactly as you want it to be?

Planning your finances in advance should help you to ensure that when you die everything you own goes where you want it to. Making a will is the first step in ensuring that your estate is shared out exactly as you want it to be.

Leaving your assets

If you leave everything to your husband, wife or civil partner, in this instance there usually won’t be any Inheritance Tax to pay because a husband, wife or civil partner counts as an ‘exempt beneficiary.’ But bear in mind that their estate will be worth more when they die, so more Inheritance Tax may have to be paid then.

New rules could mean up to double the Inheritance Tax allowance is available

New rules mean that the survivor of a marriage or civil partnership can benefit from up to double the Inheritance Tax allowance £650,000 for 2009/10 tax year, increasing to £700,000 by 2010/11, in addition to the entitlement to the full spouse relief.

Protecting wealth from a potential liability

Inheritance Tax is the tax that is paid on your ‘estate,’ chargeable at a current rate of 40 per cent. Broadly speaking this is a tax on everything you own at the time of your death, less what you owe. It’s also sometimes payable on assets you may have given away during your lifetime. Assets include property, possessions, money and investments. One thing is certain, careful planning is required to protect your wealth form a potential Inheritance Tax liability.

Providing homebuilders with greater clarity

The Home Builders Federation (HBF) commented recently that the announcement by the government on zero carbon homes is necessary in providing homebuilders with greater clarity on the definition of zero carbon.

Protecting against the unexpected

Once you take out any kind of mortgage, it’s very important that you make all the repayments in full, and on time. If you fail to do so you could lose your home and it could also affect your credit rating.

Prediction for the number of mortgage possessions lowered

Data form the Council of Mortgage Lenders (CML) confirms that lenders are showing forbearance to borrowers who fall into arrears, and that a range of government schemes is also providing help. They have also lowered their prediction for the number of mortgage possessions this year from 75,000 to 65,000.

Lenders welcome the decision to introduce an interim regime

Firms offering sale-and-leaseback have only until the end of July to submit applications for interim authorisation from the FSA. If they fail to do so, they will be unable to offer sale-and-leaseback during the period of interim regulation of the market, lasting until the end of June next year. Firms that want to offer sale-and-leaseback and are already authorised by the FSA for other activities still have to apply for an interim variation of permission.

The Housing Minister John Healey has announced a proposed change to the law to guarantee at least two months’ notice for tenants if they are required to leave their home because a lender has taken possession of the property.

We believe, however, that it is important to distinguish between cases where the tenancy is recognised by the lender (because the landlord has a buy-to-let mortgage) and instances where a tenancy is not recognised and probably not even known to the lender. This can occur if the borrower has a residential mortgage but is letting out the property to a tenant without the consent of the lender and in breach of the terms of the mortgage.