When considering estate planning and protecting your and your family’s financial security for the future, understanding tax plays an important part.  We appreciate that this can be confusing, with various tax liabilities that may be due, as well as reliefs that may be available to you.

Our Wills, Probate and Estate Planning department includes expert Tax Advice and Tax Planning advisors who can help you navigate complex tax laws and regulations to minimise Inheritance Tax, Capital Gains Tax, and other potential tax burdens. Our goal is to optimise your estate’s financial efficiency while preserving your wealth for future generations.

Here, we answer several of the questions we are asked on a regular basis to help you understand the requirements and obligations that you may be subject to.  We would always recommend you seek tailored advice as every individual and family will have different circumstances at play.  Contact a member of our team today to discuss your requirements and discover how we can help you.

Inheritance Tax is a tax levied on the value of an individual’s estate upon their death. The Inheritance Tax threshold, also known as the “nil-rate band”, determines the tax-free amount, with any value above this threshold being taxed.  The current threshold for individuals stands at £325,000, therefore any part of the estate below this is not subject to Inheritance Tax. For married couples or those in a civil partnership each can benefit from their own nil rate band to give a total of £650,000 tax free.

The standard rate of Inheritance Tax on the estate value above the nil-rate band is 40%. This means that if your estate’s total value exceeds £325,000 or £650,000 for spouses, 40% of the amount above this will be liable to be taxed, subject to the residence nil rate band below.

In addition to the nil-rate band, there is an additional allowance called the “residence nil-rate band.”  This allowance is currently £175,000 each and applies when you leave your main residence to direct descendants, such as children or grandchildren. The residence nil-rate band can be added to the standard nil-rate band, potentially meaning that your estate won’t face Inheritance Tax until it reaches £500,000 or £1million for married couples or those in civil partnerships, however this will be dependent on certain factors including a partial or total loss of the allowance for larger estates, which we can discuss with you in further detail.

Various exemptions and reliefs exist that can reduce the overall Inheritance Tax liability, with the following applicable through making gifts:

  • Gifts made to your spouse or civil partner, gifts to your chosen charity and those made up to the annual exemption limit, currently £3,000, or where those gifts meet certain criteria and are made from surplus income, are exempt from Inheritance Tax.
  • In addition to the annual exemption, you can make small gifts of up to £250 to as many individuals as you like during your lifetime, completely free of Inheritance Tax. This exemption cannot be used for gifts to the same person who has already received the annual exemption.
  • For any gifts made outside of this remit, these will be exempt from Inheritance Tax as long as the person making the gift does not die within seven years. These are referred to as potentially exempt transfers (PETs) and the amount of tax payable on such gifts reduces with time, following a sliding scale known as “taper relief.”

Placing assets in certain types of Trusts can have Inheritance Tax implications.   With the wide range of Trusts available, it is advisable to consider legal advice so that we can review your particular situation and advise accordingly.

Business Property Relief is a valuable tax relief designed to encourage continuity for your business and the passing on of family businesses. It provides an exemption from Inheritance Tax on qualifying business assets when they are passed on during your lifetime or through your Will.

To qualify for Business Property Relief, the assets must be relevant business property held for at least 2 years, for example:

  • shares in unlisted companies
  • business assets used in a business you control, or
  • certain types of land, buildings, and machinery used for business purposes.

The level of Business Property Relief granted varies depending on the asset and whether it is used, for example, as a business asset or used by a company or partnership connected with you. For qualifying assets, Business Property Relief can provide 100% relief meaning the entire value of the asset is exempt from Inheritance Tax.  As with all tax related matters, this will vary depending on the business involved.

Accurately assessing Business Property Relief can make all the difference when planning for any tax liabilities in the future, which our Tax Advice and Tax Planning advisors can assist with.

Agricultural Property Relief is another tax relief, specifically designed to support agricultural businesses, providing an exemption from Inheritance Tax on certain agricultural property when it is transferred either during your lifetime or through your Will.

To qualify for Agricultural Property Relief, the assets must be agricultural property, including agricultural land or pasture, farm buildings, and farmhouses that are part of the agricultural land.  The property must be occupied for agricultural purposes and meet the “farming test”, which includes certain conditions related to the size and commerciality of the agricultural activities carried out on the property.

The relief can also exempt the farmhouse from Inheritance Tax in certain situations. In relation to both the farmhouse and any agricultural buildings and land, even though 100% Inheritance Tax relief may be available, this relief only applies to the agricultural value and not the full market value of the assets meaning it is often not a full exemption from Inheritance Tax as it may appear.

As with Business Property Relief, the availability of Agricultural Property Relief will depend greatly on your own personal situation and agricultural portfolio.  Our expert Tax Advice and Planning team can assist you with understanding the eligibility and extent of relief available to allow you to efficiently plan for your future.

A Deed of Variation, also known as a Deed of Family Arrangement, is a legal document that allows beneficiaries to alter the distribution of an estate left to them in someone’s Will.  This can lead to a more tax-efficient distribution as it allows them to redirect assets to other family members or even charities.

To be valid for tax planning purposes, a Deed of Variation must be executed within two years from the date of your loved one’s passing. However, it is advisable to begin your enquiries as soon as possible to ensure a smooth and timely implementation.

Capital Gains Tax is applicable to various assets including, but not limited to:

  • property (except for your main residence which is usually tax-free subject to certain conditions)
  • stocks
  • shares
  • second homes.

When these assets are sold or transferred, the difference between the purchase price and the sale price (or market price in the event of a gift) constitutes the capital gain which is subject to tax.  Everyone is entitled to a Capital Gains Tax allowance, often referred to as the “annual exempt amount” which is currently £6,000 (but reducing to £3,000 in the 2024/25 tax year) with any capital gains realised below this threshold being exempt.

Whether Capital Gains Tax is applicable or exempt will depend on various factors including:

  • the value of the assets when you acquired them and if they have increased in value
  • whether your primary residence has been used for business purposes or has a substantial garden or land attached
  • whether you are transferring to your spouse or civil partner
  • whether there are any other relief options available or there is the ability to defer the gain, such as by using Trusts for gifts

As with all matters relating to tax advice and tax planning, it is always prudent to discuss your options with experienced legal professionals to ensure you understand your potential liabilities and exemptions to assist with creating a tax efficient estate.

As demonstrated, there are many considerations related to tax planning and tax advice.  In addition to those topics discussed above, we can also assist with:

  • Preparation of annual tax returns for individuals and Trusts
  • Advice on Income Tax, for individuals and Trusts
  • Tax returns for estates both to the date of death and for the administration period
  • HM Revenue and Customs (HMRC) tax enquiries and investigations, and voluntary disclosures of unpaid tax.
  • Property Scheme disclosures for undeclared rents
  • All aspects of Trust taxation including setting up, annual tax returns and compliance, distributions and termination.

 

Contact our Tax Planning and Tax Advice Solicitors

Should you have any questions relating to tax advice and tax planning, you can contact a member of our experienced Wills, Probate and Estate Administration department from one of our offices in AndoverRomseySalisbury or Witney. Get in touch by using the Contact Form, emailing moc.n1713930406ellub1713930406rekra1713930406p@ofn1713930406i1713930406 or calling your local office:

Get in touch

Close

Your Tax Advice and Tax Planning Solicitors Team

"I can't thank you enough, you made what seemed a complicated and daunting subject understandable - the potential inheritance tax saving was also a bonus!"