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Everyone’s heard of inheritance tax, but how does it affect you? This month, Richard Barlow covers the basics…
I have assets worth around £400,000. Would my estate incur inheritance tax?There would be a potential tax liability, yes, but it would depend on who inherited your assets and what allowances and exemptions are available at the time. The current inheritance tax threshold is £325,000 per individual. Any value in your estate above that amount would be taxed at 40%, although there are other allowances that can be applied. It is worth noting that assets or sums of money passing to your spouse or to a charity are, at the moment, exempt from inheritance tax.
My wife died three years ago and left her estate to me. Will our children have a large inheritance tax bill to pay when I die?If the value of your estate does not exceed £325,000, there will be no inheritance tax to pay. Under current rules, there would still be no tax to pay, provided your estate does not exceed £650,000. By leaving everything to you, your wife’s estate was exempt from tax because she was your spouse. Provided legislation stays the same, her £325,000 can, therefore, be claimed by your executors when you die and added to your allowance. Even if part of your wife’s exemption was used, the remainder can still be applied to your estate.
I’ve heard there are additional tax allowances relating to my home. Is this correct?Yes, since April last year, if you leave all or part of your main residence to direct descendants (children, step children or grandchildren), then an additional allowance can be claimed. Currently, the residence nil rate band amounts to £125,000. It will increase to £150,000 in April next year and £175,000 12 months later. If your spouse dies before you and his or her exemption is not used, for example, all assets pass to you, then the executors of your will may add his or her residence nil rate band to your own. The rules and regulations relating to inheritance tax are complex and subject to change, which is why it is so important to seek professional advice. My colleagues and I can talk to you about your specific circumstances and discuss the options available to minimise the tax payable on your death. When the time comes, we can also help make the appropriate applications for allowances on behalf of your estate.
To find out more about administering an estate, why not book a free 30-minute consultation with one of our probate specialists? Telephone (0114) 218 4000, email: firstname.lastname@example.org or complete this form.