A Guide to Estate Preservation 2013

7/28/2019 A Guide to Estate Preservation 2013

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A GUIDE TO

PrOTECTING wEALThFOr GENErATIONs

ESTATEPRESERVATION


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A Guide to Etate Peevation

A guIdE TO ESTATE PRESERVATION

02

welcome to A Guide to Estate Preservation. Caefully planning

the nancial affairs of your estate is essential to ensure that you

can pass on the maximum benet to your beneciaries. Estatepeevation i about elping you to look afte and maintain you

wealth in the most efcient way. Once the domain of the super-

ic, ide cale ome oneip and iing popety value

ave meant tat moe and moe people ae being ubjected to

Ineitance Tax evey yea.

Fe of u like to tink about dying, but equally fe of u could live

it te tougt tat e ave not made adequate poviion fo

family and fiend o uvive u.

Te legilation tat goven paing on you etate to you coen

beneciaries requires you to plan well in advance. Since none of

u kno en e all die, ti mean making te neceay

poviion no.

Te ealie you make te aangement, te geate you cance of

taking full advantage of te tax oppotunitie available and teeby

maximising the amount that goes to your beneciaries. Nothing is

moe demoaliing tan te tougt tat a ubtantial lice of you

ealt tat you ave oked ad to accumulate end up paing

to te taxman.

By gaining a eal undetanding of you equiement, e can

offe you effective olution baed on ou ealt of knoledge and

expeience. To dicu te option available to you, pleae contact

u fo fute infomation.

Content of the articles featured insideA Guide to Etate Peevation is for general information and use only and

is not intended to address an individual or companys particular requirements or be deemed to be, or constitute,

advice. Although endeavours have been made to provide accurate and timely information, there can be no

guarantee that such information is accurate as of the date it is received or that it ill continue to be accurate in

the future. No individual or company should act upon such information ithout receiving appropriate professional

advice after a thorough examination of their particular situation. we cannot accept responsibility for any loss as

a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may

change in subsequent Finance Acts.

WElcOmEOften te miconception i tat IneitanceTax only affects the super-rich


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03A Guide to Etate Peevation

WelcomeTax-efcient strategies to ensure your assets

ae ditibuted accoding to you ie

Protecting your wealthPaing on aet itout aving to pay

Ineitance Tax

Inheritance tax nil rateband and rateswe can elp you evaluate te ize of

you etate

Doubling the InheritanceTax thresholdTanfeing aet can eiouly impove

you ealt

Valuing a deceased persons estatereponibility fo paying Ineitance Tax

Inheriting a propertyCould you be liable to pay Ineitance Tax?

Combining predictability withclever planningMake ue eveyting you on goe ee

you want it to tax-efciently

Financial prudenceItll take longe to ot out you affai if you

dont ave a ill

The probate processGetting tated: at you need to kno

Take it step by stepho to avoid te pobate pitfall

Who gets what?Dont leave you ei emboiled in yea of

legal feuding

Transferring assetsUsing a trust to pass assets to beneciaries

Trust in your futurehelping you contol and potect family aet

The right type of trustEnue you dont moe tax tan i neceay

Giving away wealthTax-efciently passing on parts of your estate

A gift with reservationGetting the full benet of a gift to the total

excluion of te dono

Wealth preservationMaking te mot of diffeent olution

Paying Inheritance TaxReecting an accurate open market value

Estate preservation glossaryhelping you to look afte and maintain you

wealth in the most efcient way

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cONTENTS

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04

A good etate planning and potection tategy

can povide you and you family peace of mind tat

poviion ae et in place fo te dipoal of you

etate upon you deat, ecuing you aet fo

the benet of your heirs. Many people are surprised

at o lage tei etate ould be if tey takeinto account te value of tei ome, life inuance

policie not itten in an appopiate tut and in

some cases death in service benets.

Ineitance Tax i te tax tat i paid on you etate,

cageable at a cuent ate of 40 pe cent. Boadly

peaking, ti i a tax on eveyting you on at

te time of you deat, le at you oe. It alo

ometime payable on aet you may ave given

aay duing you lifetime. Aet include popety,

poeion, money and invetment. One ting i

cetain: caeful planning i equied to potect you

ealt fom a potential Ineitance Tax liability.

Not eveyone pay Ineitance Tax on tei deat.

It only applie if te taxable value of you etate

(including you ae of any jointly oned aet and

aet eld in ome type of tut) en you die i

above te cuent 325,000 (fozen until Apil 2014)

teold o nil ate band. It i only payable on te

exce above ti amount.

Inheritance Tax exemptions and reliefs

sometime, even if you etate i ove te teold,

you can pa on aet itout aving to pay

Ineitance Tax. Example include:

Spouse or registered civil partner exemption:

You etate uually doent oe Ineitance Tax on

anyting you leave to a poue o egiteed civil

partner who has their permanent home in the UK -

nor on gifts you make to them in your lifetime - even

if te amount i ove te teold.

Charity exemption: Any gift you make to a

qualifying charity - during your lifetime or in your

will - will be exempt from Inheritance Tax.

Potentially exempt transfers: If you uvive fo

even yea afte making a gift to omeone, te gift

i geneally exempt fom Ineitance Tax, no matte

at te value.

Annual exemption: You can give up to 3,000 aayeac yea, eite a a ingle gift o a eveal gift

adding up to that amount - you can also use your

unued alloance fom te peviou yea but you ue

the current years allowance rst.

Small gift exemption: You can make mall gift of up

to 250 to as many individuals as you like tax-free.

Wedding and registered civil partnership gifts:

Gift to omeone getting maied o egiteing a

civil patneip ae exempt up to a cetain amount.

Business, Woodland, Heritage and Farm Relief: If

te deceaed oned a buine, fam, oodland

o National heitage popety, ome elief fom

Ineitance Tax may be available.

Tanfe of aet into mot tut and companie

ill become ubject to an immediate Ineitance

Tax cage if tey exceed te Ineitance

Tax teold (taking into account te peviou

even yea cageable gift and tanfe).

In addition, tanfe of money o popety into mot

tut ae alo ubject to an immediate Ineitance

Tax cage on value tat exceed te Ineitance Tax

threshold. Tax is also payable ten-yearly on the value

of tut aet above te teold; oeve, cetain

tut ae exempt fom tee ule.

Gifts and transfers made in the previous seven years

In ode to ok out ete te cuent Ineitance

Tax teold of 325,000 a been exceeded on a

tanfe, you need to take into account all cageable

(non-exempt, including potentially exempt) gifts

and tanfe made in te peviou even yea. If a

tanfe take you ove te nil ate band, IneitanceTax i payable at 20 pe cent on te exce. n

Paing on aet itout aving to pay Ineitance TaxPROTEcTINg yOuR WEAlTh


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05

INhERITANcE TAx NIlRATE bANd ANd RATESwe can elp you evaluate te ize of you etate

Inheritance Tax is charged at the following rate on death:

Inheritance Tax Current tax year

Taxable value of you etate above ic it i caged 325,000*

rate at ic it i caged 40 pe cent

* Inheritance Tax threshold frozen until April 2014.

We can help you evaluate the size of your estate - which could include assets

such as property, pensions, shares and personal property - and identify the

oppotunitie tat ill elp you avoid o educe te amount of Ineitance Tax

you family ill ave to pay on you etate and enable you to peeve ealt

fo you dependent if te ot come to te ot.

We can advise on making appropriate provisions for vulnerable beneciaries,

protecting their resources whilst continuing to benet from them. You may also

ant to conide appointing a Lating Poe of Attoney o can manage you

affai in te event you become unable to do o.

Our aim is to maximise the inheritance your beneciaries will receive, avoiding

o minimiing te amount of Ineitance Tax you family will ave to pay on you

etate, enuing plan ae in place to potect you popety o tat you ae not

foced to ell you ome to pay fo you cae ome cot ould te need aie.

We are on hand to provide straightforward, up-to-date advice. We will assessyou ituation and povide advice on a numbe of tax migation olution,

ceating bepoke etate potection planning tategie tat ae tailoed to uit

you and you cicumtance. n

WE cAN hElPyOu EVAluATE

ThE SIzE OfyOuR ESTATE.


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06

Cuent ule mean tat te uvivo of a maiage

or registered civil partnership can benet from up to

double the Inheritance Tax threshold - 650,000 in

te cuent tax yea, in addition to te entitlement to

te full poue elief.

Ineitance Tax i only paid if te taxable value

of you etate en you die i ove 325,000. Te

rst 325,000 of a persons estate is known as the

Ineitance Tax teold o nil ate band becaue

te ate of Ineitance Tax caged on ti amount i

cuently et at zeo pe cent, o it i fee of tax.

Transferring exempt assets

wee aet ae tanfeed beteen poue

o egiteed civil patne, tey ae exempt fom

Ineitance Tax. Ti can mean tat if, on te deat

of the rst spouse or registered civil partner, they

leave all their assets to the survivor, the benet of the

nil ate band to pa on aet to ote membe of

the family, normally the children, tax-free is not used.

wee one paty to a maiage o egiteed civil

patneip die and doe not ue tei nil ate band

to make tax-free bequests to other members of the

family, te unued amount can be tanfeed and

ued by te uvivo etate on tei deat. Ti

only applie ee te uvivo died on o afte

9 Octobe 2007.

In effect, poue and egiteed civil patne no

ave a nil ate band tat i ot up to double teamount of te nil ate band tat applie on te

uvivo deat.

since Octobe 2007, you can tanfe any of te

unued Ineitance Tax teold fom a late

poue o egiteed civil patne to te econd

poue o civil patne wen tey die. Ti can

cuently inceae te Ineitance Tax teold

of te econd patne fom 325,000 to a muc a

650,000, depending on te cicumtance.

Spouse or registered civil partner exemption

Eveyone etate i exempt fom Ineitance Tax

up to te cuent 325,000 teold (fozen until

Apil 2014).

Maied couple and egiteed civil patne aealo alloed to pa aet fom one poue o

egiteed civil patne to te ote duing tei

lifetime o en tey die itout aving to pay

Ineitance Tax, no matte o muc tey pa on,

a long a te peon eceiving te aet a tei

pemanent ome in te UK. Ti i knon a poue

o egiteed civil patne exemption.

If omeone leave eveyting tey on to tei

uviving poue o egiteed civil patne in ti ay,

it not only exempt fom Ineitance Tax but it alo

mean tey avent ued any of tei on Ineitance

Tax teold o nil ate band. It i teefoe available

to inceae te Ineitance Tax nil ate band of te

econd poue o egiteed civil patne en tey

die, even if the second spouse has re-married. Their

etate can be ot up to 650,000 in te cuent tax

yea befoe tey oe Ineitance Tax.

To tanfe te unued teold, te executo o

peonal epeentative of te econd poue o

civil patne to die need to end cetain fom and

uppoting document to hM revenue & Cutom

(hMrC). hMrC call ti tanfeing te nil ate

band fom one patne to anote.

Transferring the threshold

Te teold can only be tanfeed on te econd

deat, ic mut ave occued on o afte 9 Octobe

2007 en te ule canged. It doent matte

when the rst spouse or registered civil partner died,

altoug if it a befoe 1975 te full nil ate band

may not be available to tanfe, a te amount of

poue exemption a limited ten. Tee ae ome

ituation en te teold cant be tanfeed but

tee ae quite ae.

wen te econd poue o egiteed civil patne

die, te executo o peonal epeentative of te

etate ould take te folloing tep.

dOublINg ThEINhERITANcE TAx

ThREShOldTanfeing aet

can eiouly impove

you ealt


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A Guide to Etate Peevation 07

Calculating the threshold you can transfer

The size of the rst estate doesnt matter. If it was

all left to te uviving poue o egiteed civil

patne, 100 pe cent of te nil ate band a unued

and you can tanfe te full pecentage en te

econd poue o egiteed civil patne die even if

tey die at te ame time.

It isnt the unused amount of the rst spouse or

egiteed civil patne nil ate band tat detemine

at you can tanfe to te econd poue o

egiteed civil patne. It te unued pecentage of

te nil ate band tat you tanfe.

If te deceaed made gift to people in tei lifetime

tat ee not exempt, te value of tee gift mut

rst be deducted from the threshold before you can

calculate te pecentage available to tanfe. You

may alo need to etabli ete any of te aet

that the rst spouse left could have qualied for

Buine o Popety relief.

Supporting a claim

You will need all of the following documents from

the first death to support a claim:

na copy of the rst will, if there was one

na copy of the grant of probate (or conrmation in

Scotland), or the death certicate if no grant was

taken out

na copy of any deed of vaiation if one a ued to

vay (o cange) te ill

If you need help nding these documents from the

rst death, get in touch with the relevant court

service or general register ofce for the country you

live in. Te cout evice may be able to povide

copies of wills or grants; the general register ofces

may be able to provide copies of death certicates

The relevant forms

Youll need to complete fom IhT402 to claim te

unued teold and etun ti togete it

fom IhT400 and te fom you need fo pobate (o

conrmation in Scotland).

You mut make te claim itin 24 mont fom

te end of te mont in ic te econd poue o

egiteed civil patne die. n

INhERITANcE TAx IS ONly PAId

If ThE TAxAblE VAluE Of yOuR

ESTATE WhEN yOu dIE IS OVER

325,000. ThE fIRST 325,000 Of APERSONS ESTATE IS kNOWN AS ThE

INhERITANcE TAx ThREShOld OR NIl

RATE bANd bEcAuSE ThE RATE Of

INhERITANcE TAx chARgEd ON ThIS

AmOuNT IS cuRRENTly SET AT zERO

PER cENT, SO IT IS fREE Of TAx.


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08

To aive at te amount payable wen valuing

a deceaed peon etate, you need to include

aet (popety, poeion and money) tey

owned at tei deat and cetain aet tey gave

away duing te even yea befoe tey died. Te

valuation must accurately reect what those assets

would eaonably eceive in te open maket at te

date of deat.

Ineitance Tax i payable by diffeent people in

diffeent cicumtance. Typically, te executo o

peonal epeentative pay it uing fund fom

te deceaed etate. Te tutee ae uually

eponible fo paying Ineitance Tax on aet

in, o tanfeed into, a tut. sometime people

o ave eceived gift, o o ineit fom te

deceased, have to pay Inheritance Tax - but this is

not common.

Valuing te deceaed peon etate i one of

the rst things you need to do as the personal

epeentative. You ont nomally be able to take

ove management of tei etate (called applying

fo pobate o ometime, applying fo a gant of

representation/conrmation) until all or some of any

Ineitance Tax tat i due a been paid.

The valuation process

Ti initially involve taking te value of all te

aet oned by te deceaed peon, togete it

te value of:

ntei ae of any aet tat tey on jointly it

omeone ele

nany aet tat ae eld in a tut, fom ic tey

had the right to benetnany aet ic tey ad given aay, but in ic

tey kept an inteet fo intance, if tey gave a

house to their children but still lived in it rent-free

ncetain aet tat tey gave aay itin te lat

even yea

Next, from the total value above, deduct everything

that the deceased person owed, for example:

nany outtanding motgage o ote loan

nunpaid bill

nfuneal expene

(If te debt exceed te value of te aet owned

by te peon wo a died, te diffeence cannot

be et againt te value of tut popety included in

te etate.)

Te value of all te aet, le te deductible debt,give you te etate value. Te teold above

ic te value of etate i taxed at 40 pe cent i

cuently 325,000 (fozen until Apil 2014).

When the executor pays Inheritance Tax

Uually, te executo, peonal epeentative o

adminitato (fo etate ee tee no ill) pay

Ineitance Tax on any aet in te deceaed

etate tat ae not eld in tut.

Te money geneally come fom te deceaed

peon etate. hoeve, becaue te tax mut

be paid itin ix mont of te deat and befoe

te gant of pobate can be iued (o gant of

conrmation in Scotland), sometimes the executor

a to boo te money o pay it fom tei on

fund. Ti can appen if it ant been poible to

get te money fom te etate in time becaue it

tied up in aet tat ave to be old.

In tee cae, te executo o te people o ave

advanced te money can be eimbued fom te

estate before its distributed among the beneciaries.

When a trustee pays Inheritance Tax

Ineitance Tax on tanfe into tut i only

neceay if te total tanfe amount i above te

Ineitance Tax teold. It uually payable by te

person making the transfer(s) - known as the settlor -

not te tutee.

The trustees must pay any Inheritance Tax due on

land or assets already held in trust. The occasions

for this include:

na tanfe out of tut (knon a te exit cage)

evey ten yea afte te oiginal tanfe into tut(known as the ten-year anniversary charge)

nwhen the beneciary of the trust (known as the

life tenant) dies - interest in possession trusts only

VAluINg A dEcEASEdPERSONS ESTATE

reponibility fo

paying Ineitance Tax


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When a beneficiary or a donee has to pay

Inheritance Tax

If te executo o te tutee cant pay te

Inheritance Tax, the beneciaries or donees

(ecipient of gift made duing a peon lifetime)may have to pay it. A beneciary or donee only has to

pay Ineitance Tax in ti cae if:

ntey eceive a ae of an etate afte a deat

ntey eceive a gift fom omeone o die itin

even yea of making te gift

nthey benet from assets in a trust at the time of

deat o eceive income fom toe aet

nthey are the joint owner - other than a spouse or a

registered civil partner - of a property

INhERITANcE TAx IS PAyAblE by dIffERENT PEOPlE IN dIffERENT

cIRcumSTANcES. TyPIcAlly, ThE ExEcuTOR OR PERSONAl REPRESENTATIVEPAyS IT uSINg fuNdS fROm ThE dEcEASEdS ESTATE.


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Planning your nances in advance should help you

enue tat en you die eveyting you on goe

where you want it to. Making a will is the rst step in

enuing tat you etate i aed out exactly a you

ant it to be.

If you dont make a ill, tee ae ule fo aing

out you etate called te La of Intetacy, ic

could mean you money going to family membe

o may not need it, o you unmaied patne o a

patne it om you ae not in a egiteed civil

patneip eceiving noting at all.

If you leave eveyting to you poue o egiteed

civil patne teell be no Ineitance Tax to pay

because they are classed as an exempt beneciary.

Or you may decide to use your tax-free allowance

to give ome of you etate to omeone ele o to a

family tut.

Good reasons to make a will

A will sets out who is to benet from your property

and poeion (you etate) afte you deat. Tee

ae many good eaon to make a ill:

nyou can decide o you aet ae aed if you

dont ave a ill, te la ay o get at

nif youe an unmaied couple (ete o not it

a same-sex relationship), you can make sure your

patne i povided fonif youe divoced, you can decide ete to leave

anyting to you fome patne

nyou can make ue you dont pay moe Ineitance

Tax tan neceay

Before you write your will, its a good idea to

think about what you want included in it. You

should consider:

no muc money and at popety and

poeion you ave

nwho you want to benet from your will

no ould look afte any cilden unde

18 yea of age

no i going to ot out you etate and cay out

you ie afte you deat, you executo

Passing on your estate

An executo i te peon eponible fo paing on

you etate. You can appoint an executo by naming

tem in you ill. Te cout can alo appoint ote

people to be eponible fo doing ti job.

Once youve made you ill, it i impotant to keep it

in a afe place and tell you executo, cloe fiend o

elative ee it i.

It is advisable to review your will every ve years

and afte any majo cange in you life, uc a

getting epaated, maied o divoced, aving a

cild, o moving oue. Any cange mut be by

codicil (an addition, amendment o upplement to a

ill) o by making a ne ill.

scotti la on ineitance diffe fom

Engli la. n

cOmbININg PREdIcTAbIlITyWITh clEVER PlANNINgMake ue eveyting

you on goe ee you

want it to tax-efciently


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12

It eay to put off making a ill. But if you die

itout one, you aet may be ditibuted

accoding to te la ate tan you ie. Ti

could mean tat you poue eceive le, o tat

te money goe to family membe o may not

need it.

If you and you poue o egiteed civil patne

on you ome a joint tenant, ten te uviving

poue o civil patne automatically ineit all of

te popety.

If you ae tenant in common you eac on a

popotion (nomally alf) of te popety and can

pa tat alf on a you ant.

Planning to give your home away to your children

while youre still alive

You alo need to bea in mind, if you ae planning to

give you ome aay to you cilden ile youe

till alive, tat:

ngift to you cilden, unlike gift to you poue

o egiteed civil patne, aent exempt fom

Ineitance Tax unle you live fo even yea

afte making tem

nif you keep living in you ome itout paying a

full maket ent (ic you cilden pay tax on)

it not an outigt gift but a gift it eevation,

o it till teated a pat of you etate, and o

liable fo Ineitance Tax

nfolloing a cange of ule on 6 Apil 2005, you

may be liable to pay an Income Tax cage on te

benet you receive from having free or low cost

ue of popety you fomely oned (o povided

te fund to pucae)

nonce you ave given you ome aay, you

cilden on it and it become pat of tei aet.

so if tey ae bankupted o divoced, you ome

may ave to be old to pay cedito o to fund pat

of a divoce ettlement

nif you cilden ell you ome, and it i not tei

main ome, tey ill ave to pay Capital Gain

Tax on any inceae in it value

If you dont ave a will tee ae ule fo deciding

wo ineit you aet, depending on youpeonal cicumtance. n

fINANcIAl PRudENcEItll take longe to ot out you affai

if you dont ave a ill


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Probate (or conrmation in Scotland) is the system

you go toug if youe andling te etate of

omeone o died. It give you te legal igt to

ditibute te etate accoding to te deceaed

ie. Ineitance Tax fom ae pat of te poce

even if te etate doent oe Ineitance Tax.

If te deceaed left a ill, it uually name one

o moe executo o can apply fo te gant of

pobate. If te named executo doent ant to act,

omeone ele named in te ill can apply (depending

on a tict ode of pioity). Ti peon i called te

adminitato and tey apply fo a gant of lette of

adminitation it ill.

If te deceaed died itout leaving a ill, a

blood elative can apply fo a gant of lette of

administration. This is based on a strict next-of-kin

order of priority dened in the rules of intestacy. The

peon o applie i alo called te adminitato.

The catch-all term for a grant of probate, letters of

adminitation it ill o lette of adminitation

is a grant of representation. The catch-all term for an

executo o adminitato i peonal epeentative.

Different terms in Scotland and Northern Ireland

scotland and Noten Ieland ave diffeent legal

ytem, pocee and tem. Te teminology i

geneally te ame in Noten Ieland. hoeve,

in Scotland the process is called conrmation and

te peonal epeentative applie fo a gant of

conrmation. Different forms are required in Scotland

and Noten Ieland too. n

ThE PRObATE PROcESSGetting tated: at you need to kno

ITS EASy TO PuT Off mAkINg AWIll. buT If yOu dIE WIThOuT ONE,yOuR ASSETS mAy bE dISTRIbuTEdAccORdINg TO ThE lAW RAThERThAN yOuR WIShES.


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14

A look at te tep to take in England and wale (te

poce diffe in scotland and Noten Ieland).

Step 1 - Value the estate to see if you need a grant

of representation.

wen you migt not need a gant of epeentation.

A gant may not be needed if te etate:

nis a low-value estate - generally worth less than

5,000 (though this gure can vary) - and doesnt

include land, popety o ae

npae to te uviving poue/civil patne becaue

it a eld in joint name

wen you contact te deceaed bank o ote

nancial institutions, they will either release the

fund o tell you to get a gant of epeentation (o

conrmation) rst.

Some banks and nancial institutions may insist on a

gant befoe giving you acce to even a mall amount

of money.

When a grant of representation is usually needed

You ill almot cetainly need a gant if te

etate include:

naet geneally ot moe tan 5,000 in total

(though again this gure varies)

nland o popety in te ole name of te deceaed, o

eld a tenant in common it omeone ele

ntock o ae

nome inuance policie

Step 2 - Applying for a grant of representation

Youll have to ll in an Inheritance Tax form in addition

to te PA1 Pobate Application fom, even if te etate

doent oe Ineitance Tax. Te etate ill only oe

Ineitance Tax if it ove te teold cuently

325,000 (fozen until Apil 2014).

Te Ineitance Tax fom you need depend

on te following:

nwhere the deceased lived - England and Wales,

scotland, Noten Ieland o aboad

nte ize of te etate

nete it i an excepted etate (i.e. you

dont need to ll in a full Inheritance Tax account -

fom IhT400)

Uually, if an etate a no Ineitance Tax to pay, it

ill be an excepted etate. hoeve, ti i not alay

te cae. some etate tat dont oe Ineitance Tax

till equie a full Ineitance Tax account.

If youe not ue ete te etate i an excepted

estate, youll need to start lling in a Return of Estate

Infomation fom (fom IhT205 in England and wale).

Depending on you ane to cetain quetion, te

form will make clear when you should stop lling in

tat fom and itc to fom IhT400 (a full Ineitance

Tax account) intead.

Step 3 - Send the forms to the relevant

government bodies

send completed IhT205 fom and te PA1 Pobate

Application fom to you neaet Pobate regity.

Youll alo ave to include te oiginal ill (if tee

is one), the death certicate, and the probate fee. If

youve lled in form IHT400, follow the instructions onpage 55 of te IhT400 guidance note.

Te poce i diffeent in scotland and

Noten Ieland.

TAkE IT STEP by STEPho to avoid te pobate pitfall


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If you leave eveyting to you poue o egiteed

civil patne, in ti intance tee uually ont

be any Ineitance Tax to pay becaue a poue

o egiteed civil patne count a an exempt

beneciary. But bear in mind that their estate will be

ot moe en tey die, o moe Ineitance Tax

may ave to be paid ten.

Other beneficiaries

You can currently leave up to 325,000 tax-free to

anyone in you ill (fozen until Apil 2014), not

jut you poue o civil patne. so you could, fo

example, give ome of you etate to omeone ele o

a family tut. Ineitance Tax i ten payable at

40 pe cent on any amount you leave above ti.

UK Charities

Ineitance Tax int payable on any money o aet

you leave to a egiteed UK caity tee tanfe

ae exempt.

Fom 6 Apil 2012, if you leave 10 pe cent of youetate to caity te tax due may be paid at a

educed ate of 36 pe cent intead of 40 pe cent.

Wills, trusts and financial planning

A ell a making a ill, you can ue a family tut

to pa on you aet in te ay you ant to. You

can provide in your will for specic assets to pass

into a tut o fo a tut to tat once te etate

is nalised. You can also use a trust to look after

assets you want to pass on to beneciaries who

cant immediately manage tei on affai (eite

becaue of tei age o a diability).

You can ue diffeent type of family tut depending

on at you ant to do and te cicumtance. If

you ae planning to et up a tut you ould eceive

pecialit advice. If you expect te tut to be liable

to tax on income o gain you need to infom hM

revenue & Cutom Tut a oon a te tut

i et up. Fo mot type of tut, tee ill be an

immediate Ineitance Tax cage if te tanfe

take you above te Ineitance Tax teold. Tee

ill alo be Ineitance Tax cage en aet

leave te tut. n

WhO gETS WhAT?Dont leave you ei emboiled in yea of legal feuding

Step 4 - Pay any Inheritance Tax due

If te etate oe Ineitance Tax, you ont eceive

the grant of representation (or conrmation) unless you

pay some or all of the Inheritance Tax rst. The due

date i ix mont afte te date of deat.

Steps 5 to 7 - What happens next?

Once youve paid any Ineitance Tax and ent off

te fom to te Pobate regity, te poce take

about eigt week if tee ae no poblem. Tee

ae tee tage:

nexamination of forms and documents - Probate

regity taff ceck te fom and document and

pepae te pape fo you intevie

n swear the oath - all the personal representatives

o ave applied fo a gant of epeentation ill

need to ea an oat, eite at te Pobate

Registry or local probate ofce

nprobate is granted - the grant of representation is

ent to you by pot fom te Pobate regity

Afte you get te gant of epeentation (o

conrmation) and have paid any Inheritance Tax

due, you can collect in te money fom te etate.

You can ten pay any debt oed by te etate and

ditibute te etate accoding to te ill o te ule

of intetacy. n

WhEN yOu cONTAcT ThE dEcEASEdS bANk OR OThER fINANcIAlINSTITuTIONS, ThEy WIll EIThER RElEASE ThE fuNdS OR TEll yOu TOgET A gRANT Of REPRESENTATION (OR cONfIRmATION) fIRST.


16/28



Tut may incu an Ineitance Tax cage en

aet ae tanfeed into o out of tem o en

they reach a ten-year anniversary. The person who

put aet into a tut i knon a a ettlo. A

tanfe of aet into a tut can include popety,

land o ca in te fom of:

nA gift made duing a peon lifetime

nA tanfe o tanaction tat educe te value of

te ettlo etate (fo example, an aet i old to

trustees at less than its market value) - the loss to

te peon etate i conideed a gift o tanfe

nA potentially exempt tanfe eeby no fute

Ineitance Tax i due if te peon making te

tanfe uvive at leat even yea. Fo tanfe

afte 22 Mac 2006 ti ill only apply en te

tut i a diabled tut

nA gift it eevation ee te tanfeee till

benets from the gift

If you die itin even yea of making a tanfe

into a tut, exta Ineitance Tax ill be due at te

full amount of 40 pe cent (ate tan te educed

amount of 20 pe cent fo lifetime tanfe).

In ti cae you peonal epeentative, o

manage you etate en you die, ill ave to pay

a fute 20 pe cent out of you etate on te valueof te oiginal tanfe. If no Ineitance Tax a due

en you made te tanfe, te value of te tanfe

i added to you etate en oking out ete

any Ineitance Tax i due.

Settled property

Te act of putting an aet into a tut i often

knon a making a ettlement o ettling popety.

Fo Ineitance Tax pupoe, eac item of ettled

popety a it on epaate identity.

Ti mean, fo example, tat one item of ettled

popety itin a tut may be fo te tutee to

ue at tei dicetion and teefoe teated like a

dicetionay tut. Anote item itin te ame

tut may be et aide fo a diabled peon and

teated like a tut fo a diabled peon. In ti cae,

tee ill be diffeent Ineitance Tax ule fo eac

item of ettled popety.

Even toug diffeent item of ettled popety may

eceive diffeent tax teatment, it i alay te total

value of all te ettled popety in a tut tat i ued

to ok out ete a tut exceed te Ineitance

Tax teold and ete Ineitance Tax i due.

If you make a gift to any type of tut but continue

to benet from the gift you will pay 20 per cent

on te tanfe and te gift will till count a pat

of you etate. Tee ae known a gift wit

reservation of benet.

Avoiding double taxationTo avoid double taxation, only te ige of tee

cage i applied and you wont eve pay moe

tan 40 pe cent Ineitance Tax. howeve, if te

person who retains the benet gives this up more

TRANSfERRINg ASSETSUsing a trust to pass assets to beneciaries

16


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tan even yea befoe dying, te gift i teated

a a potentially exempt tanfe and tee i no

fute liability if te tanfeo uvive fo a

fute even yea.

Fom a tut pepective, tee ae fou main

occaion en Ineitance Tax may apply to tut:

nwhen assets are transferred - or settled - into a trust

nwhen a trust reaches a ten-year anniversary

nen ettled popety i tanfeed out of a tut

o te tut come to an end

nen omeone die and a tut i involved en

oting out tei etate

Relevant property

You ave to pay Ineitance Tax on elevant

popety. relevant popety cove all ettledpopety in mot kind of tut and include money,

ae, oue, land o any ote aet. Mot

popety eld in tut count a elevant popety.

But popety in te following type of tut doent

count a elevant popety:

ninteet in poeion tut it aet tat ee

put in befoe 22 Mac 2006

nan immediate post-death interest trust

na tanitional eial inteet tut

na diabled peon inteet tut

na tut fo a beeaved mino

nan age 18 to 25 tut

Excluded property

Ineitance Tax i not paid on excluded popety

(altoug te value of te excluded popety may be

bougt in to calculate te ate of tax on cetain exit

charges and ten-year anniversary charges). Types of

excluded popety can include:

npopety ituated outide te UK tat i oned

by tutee and a ettled by omeone o a

pemanently living outide te UK at te time of

making te ettlement

ngovenment ecuitie, knon a FOTrA (fee of

tax to eident aboad)

Ineitance Tax i caged up to a maximum of 6 pe

cent on aet o popety tat i tanfeed out of

a tut. Te exit cage, ic i ometime called

te popotionate cage, applie to all tanfe of

elevant popety.

A tanfe out of tut can occu en:

nte tut come to an endnome of te aet itin te tut ae ditibuted

to beneciaries

na beneciary becomes absolutely entitled to enjoy

an aet

nan aet become pat of a pecial tut (fo

example, a caitable tut o tut fo a diabled

peon) and teefoe ceae to be elevant popety

nthe trustees enter into a non-commercial

tanaction tat educe te value of te tut fund

Tee ae ome occaion en tee i no

Ineitance Tax exit cage. Tee apply even ee

te tut i a elevant popety tut, fo intance, it

int caged:

non payment by tutee of cot o expene

incued on aet eld a elevant popety

non some payments of capital to the beneciary

ee Income Tax ill be due

nen te aet i tanfeed out of te tut

itin tee mont of etting up a tut, o itin

three months following a ten-year anniversarynwen te aet ae excluded (popety

foeign aet ave ti tatu if te ettlo wa

domiciled aboad)

Passing assets to beneficiaries

You may decide to ue a tut to pa aet

to beneciaries, particularly those who arent

immediately able to look afte tei on affai. If you

do ue a tut to give ometing aay, ti emove

it fom you etate povided you dont ue it o get

any benet from it. But bear in mind that gifts into

tut may be liable to Ineitance Tax.

Tut offe a mean of olding and managing money

o popety fo people o may not be eady o able

to manage it fo temelve. Ued in conjunction

it a ill, tey can alo elp enue tat you

aet ae paed on in accodance it you ie

afte you die.

Writing a will

wen iting a ill, tee ae eveal kind of tut

tat can be ued to elp minimie an Ineitance

Tax liability. Fom an Ineitance Tax pepective,

an inteet in poeion tut i one ee a

beneciary has the right to use the property within

te tut o eceive any income fom it. Aet put

into an inteet in poeion tut befoe 22 Mac

2006 ae not conideed to be elevant popety, o

there is no ten-yearly charge.

Duing te life of te tut tee ae no exit cage

a long a te aet tay in te tut and emain

the interest of the beneciary.

If te tut alo contain aet put in on o

afte 22 Mac 2006, tee aet ae teated aelevant popety and ae potentially liable to te

ten-yearly charges. n

ThE AcT OfPuTTINg ANASSET INTOA TRuST IS

OfTEN kNOWNAS mAkINg ASETTlEmENTOR SETTlINgPROPERTy.


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A Guide to Etate Peevation18

One of te mot effective ay you can manage you

etate planning i toug etting up a tut. Te

tuctue into ic you can tanfe you aet

can ave lating conequence fo you and you

family and it i cucial tat you cooe te igt one.

Te igt tuctue can potect aet and give you

family lasting benets.

A tut i a legal aangement ee one o moetutee ae made legally eponible fo aet. Te

assets - such as land, money, buildings, shares or

even antiques - are placed in trust for the benet of

one or more beneciaries.

Te tutee ae eponible fo managing te tut

and caying out te ie of te peon o a

put te aet into tut (te ettlo). Te ettlo

ie fo te tut ae uually itten in tei ill

o given in a legal document called te tut deed.

The purpose of a trust

Tut may be et up fo a numbe of eaon,

fo example:

nto contol and potect family aet

nen omeone i too young to andle tei affai

nen omeone cant andle tei affai becaue

tey ae incapacitated

nto pa on money o popety ile you ae till alive

nto pa on money o aet en you die unde

the terms of your will - known as a will trust

nunde te ule of ineitance tat apply en

omeone die itout leaving a valid ill (England

and wale only)

Tee ae eveal type of UK family tut and eac

type of tut may be taxed diffeently. Tee ae

other types of non-family trusts. These are set up for

many reasons - for example, to operate as a charity,

o to povide a mean fo employe to ceate a

penion ceme fo tei taff.

What is trust property?

A tut popety i a pae often ued fo te aet

eld in a tut. It can include:

nmoney

ninvetment

nland o building

note aet, uc a painting, funitue o

jewellery - sometimes referred to as chattels

Te ca and invetment eld in a tut ae alo

called te tut capital o fund. Ti capital o fund

may poduce income, uc a inteet on aving o

dividend on ae. Te land and building may

poduce ental income. Aet may alo be oldpoducing gain fo te tut. Te ay income i taxed

depend on te type of income and te type of tut.

What is a settlor?

A ettlo i a peon o a put aet into te

tut. Ti i knon a ettling popety. Aet ae

nomally put into te tut en it ceated, but

tey can alo be added at a late date. Te ettlo

decide o te aet in te tut and any income

eceived fom it ould be ued. Ti i uually et

out in te tut deed.

In some trusts, the settlor can also benet from the

aet teyve put in. Tee type of tut ae knon

as settlor-interested trusts and they have their own

tax ule.

The role of the trustees

Tutee ae te legal one of te aet eld in a

tut. Tei ole i to:

ndeal it tut aet in line it te tut deed

nmanage the trust on a day-to-day basis and pay any

tax due on te income o cageable gain of te tut

ndecide o to invet te tut aet and/o o

the assets in the trust are to be used - although

ti mut alay be in line it te tut deed

Te tut can continue even toug te tutee

migt cange. hoeve, tee mut be at leat

one tutee. Often tee ill be a minimum of to

tutee: one tutee may be a pofeional familia

with trusts - a lawyer, for example - while the other

may be a family membe o elative.

What is a beneficiary?

A beneciary is anyone who benets from theaet eld in te tut. Tee can be one o moe

beneciaries, such as a whole family or a dened

TRuST IN yOuR fuTuREhelping you contol and potect family aet


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group of people, and each may benet from the trust

in a diffeent ay.

For example, a beneciary may benet from:

nthe income only - for example, they might get

income from letting a house or at held in a trust

nthe capital only - for example, they might get shares

eld on tut en tey eac a cetain age

nboth the income and capital of the trust - for

example, tey migt be entitled to te tut income

and ave a dicetionay inteet in tut capital

If youre a beneciary you may have extra tax to pay

o be entitled to claim ome back depending on you

oveall income.

Trust law in ScotlandTe teatment of tut fo tax pupoe i te ame

tougout te United Kingdom. hoeve, scotti

la on tut and te tem ued in elation to tut

in scotland ae diffeent fom te la of England and

wale, a ell a Noten Ieland.

When you might have to pay Inheritance Tax on

your trust

Tee ae fou main ituation en Ineitance Tax

may be due on tut:

nwhen assets are transferred - or settled - into a trust

nwhen a trust reaches a ten-year anniversary of

en it a et up

nen aet ae tanfeed out of a tut o te

tut come to an end

nen omeone die and a tut i involved en

oting out tei etate

ONE Of ThE mOST EffEcTIVEWAyS yOu cAN mANAgE yOuRESTATE PlANNINg IS ThROughSETTINg uP A TRuST.

Tee ae no tee main type of tut.

Bare (Absolute) trusts

With a bare trust you name the beneciaries at

outet and tee cant be canged. Te aet, bot

income and capital, ae immediately oned and can

be taken by the beneciary at age 18 (16 in Scotland).

Interest in possession trusts

With this type of trust, the beneciaries have a right

to all te income fom te tut, but not neceaily

the capital. Sometimes, a different beneciary will

get te capital ay on te deat of te income

beneciary. Theyre often set up under the terms of

a will to allow a spouse to benet from the income

duing tei lifetime but it te capital being

oned by tei cilden. Te capital i ditibuted on

te emaining paent deat.

Discretionary trusts

hee te tutee decide at appen to te income

and capital tougout te lifetime of te tut and

o it i paid out. Tee i uually a ide ange of

beneciaries, but no specic beneciary has the rightto income fom te tut.

some tut ill no ave to pay an Ineitance

Tax cage en tey ae et up, at 10 yealy

inteval and even en aet ae ditibuted. Te

igt type of tut in conjunction it you oveall

nancial planning could help minimise the amount

of Ineitance Tax payable. Ti i a igly complex

aea and you ould obtain pofeional advice

to enue te igt type of tut i et up fo you

paticula cicumtance. n

ThE RIghT TyPE Of TRuSTEnue you dont moe tax tan i neceay


20/28



20

Tee ae ome impotant exemption tat allo you

to legally pa you etate on to ote, bot befoe

and afte you deat, itout it being ubject to

Ineitance Tax.

Exempt beneficiaries

You can give ting aay to cetain people and

oganiation itout aving to pay any Ineitance

Tax. Tee gift, ic ae exempt ete you

make tem duing you lifetime o in you ill,

include gift to:

nyou uband, ife o civil patne, even if youe

legally epaated (but not if youve divoced o te

egiteed civil patneip a diolved), a long

a you bot ave a pemanent ome in te UK

nUK caitie

nome national intitution, including national

mueum, univeitie and te National Tut

nUK political patie

But, bea in mind tat gift to you unmaied

patne o a patne it om youve not fomed a

egiteed civil patneip aent exempt.

Exempt gifts

some gift ae exempt fom Ineitance Tax

becaue of te type of gift o te eaon fo making

it. Tee include:

Wedding gifts/civil partnership ceremony giftswedding o egiteed civil patneip ceemony

gift (to eite of te couple) ae exempt fom

Ineitance Tax up to cetain amount:

npaent can eac give 5,000

ngandpaent and ote elative can eac

give 2,500

nanyone ele can give 1,000

You ave to make te gift on o otly befoe te

date of te edding o civil patneip ceemony.

If it i called off and you till make te gift, ti

exemption ont apply.

Small gifts

You can make mall gift, up to te value of

250, to a many people a you like in any one tax

yea (6 Apil to te folloing 5 Apil) itout tem

being liable fo Ineitance Tax.

But you cant give a lage um 500, fo example

and claim exemption for the rst 250. And you cant

ue ti exemption it any ote exemption en

giving to te ame peon. In ote od, you cant

combine a mall gift exemption it a edding/

egiteed civil patneip ceemony gift exemption

and give one of you cilden 5,250 en tey get

maied o fom a egiteed civil patneip.

Annual exemption

You can give aay 3,000 in eac tax yea itout

paying Ineitance Tax. You can cay foad all o

any pat of te 3,000 exemption you dont ue to te

next yea but no fute. Ti mean you could give

aay up to 6,000 in any one yea if you adnt uedany of you exemption fom te yea befoe.

You cant ue you annual exemption and you mall

gift exemption togete to give omeone 3,250. But

gIVINg AWAy WEAlThTax-efciently passing on parts of your estate


21/28



you can ue you annual exemption it any ote

exemption, uc a te edding/egiteed civil

patneip ceemony gift exemption. so, if one ofyou cilden maie o fom a civil patneip you

can give tem 5,000 unde te edding/egiteed

civil patneip gift exemption and 3,000 unde te

annual exemption, a total of 8,000.

Gifts that are part of your normal expenditure

Any gifts you make out of your after-tax income

(but not you capital) ae exempt fom Ineitance

Tax if teye pat of you egula expenditue.

Ti include:

nmontly o ote egula payment to omeone,

including gift fo Citma, bitday o

edding/civil patneip anniveaie

negula pemium on a life inuance policy (fo

you o omeone ele)

Its a good idea to keep a record of your after-tax

income and you nomal expenditue, including gift

you make egulaly. Ti ill o tat te gift ae

egula and tat you ave enoug income to cove

them and your usual day-to-day expenditure without

aving to da on you capital.

Maintenance gifts

You can also make Inheritance Tax-free maintenance

payment to:

nyou uband o ife

nyour ex-spouse or former registered civil partner

elative o ae dependent on you becaue of old

age or inrmity

nyour children (including adopted children and step-

children) who are under 18 or in full-time education

Potentially exempt transfers

If you, a an individual, make a gift and it intcoveed by an exemption, it i knon a a potentially

exempt tanfe (PET). A PET i only fee of

Ineitance Tax if you live fo even yea afte you

make te gift.

Gift tat count a a PET ae gift tat you, a an

individual, make to:

nanote individual

na tut fo omeone o i diabled

na bereaved minors trust where, as the beneciary

of an Inteet In Poeion (IIP) tut (it an

immediate entitlement folloing te deat of te

peon o et up te tut), you decide to give up

te igt to eceive anyting fom tat tut o tat

igt come to an end fo any ote eaon duing

you lifetime

Only outright gifts count as PETs

If you make a gift it ting attaced (tecnically

known as a gift with reservation of benet), it will

till count a pat of you etate, no matte o long

you live afte making it. Fo example, if you give

you oue to you cilden and cay on living tee

itout paying tem a full commecial ent, te value

of you oue ill till be liable fo Ineitance Tax.

In ome cicumtance a gift wit ting attaced

migt give ie to an Income Tax cage on te

donor based on the value of the benet they retain.

In ti cae te dono can cooe wete to pay

te Income Tax o ave te gift teated a a gift

wit eevation. n

yOu cAN gIVE

ThINgS AWAy TOcERTAIN PEOPlEANd ORgANISATIONSWIThOuT hAVINgTO PAy ANyINhERITANcE TAx.


22/28


23/28



Decreasing term assurance

Deceaing tem auance can be aanged to cove

a potential Ineitance Tax liability and ued a a Gift

Inte Vivo policy (a gift given duing te life of te

ganto o no longe a any igt to te popety

and can not get it back itout te pemiion of te

paty it a gifted to). Ti i a type of deceaing

tem plan tat actually educe at te ame ate a te

cageable Ineitance Tax on an etate a a eult of a

Potentially Exempt Tanfe (PET).

Fo example, if you gift pat of you etate aay befoedeat, ten tat pat i claed a a PET, meaning

tat fo a peiod of even yea tee could be tax due

on te tanfe. Ti amount of tax educe by a et

amount eac yea fo even yea.

Te Gift Inte Vivo plan i deigned to follo tat

reduction to ensure sufcient money is available to

meet te bill if te peon o gifted te etate die

before the end of the seven-year period.

suc policie ould be itten in an appopiate tut,

o tat te poceed fall outide you etate.

Business and agricultural property

Buine and agicultual popety ae exempt fom

Ineitance Tax.

Business Property relief: To qualify, te popety mut

be elevant buine popety and mut ave been

oned by te tanfeo fo te peiod of to yea

immediately peceding deat. wee deat occued

afte 10 Mac 1992, elief i given by educing te

value of te aet by 100 pe cent. Pio to 10 Mac

1992, te elief a 50 pe cent.

Agricultural Property relief: Agicultual popety i

dened as agricultural land or pasture and includes

oodland and any building ued in connection

with the intensive rearing of livestock or sh if the

oodland o building i occupied it agicultual

land o patue and te occupation i ancillay to tat

of te agicultual land o patue, and alo include

uc cottage, fam building and famoue,

togete it te land occupied it tem a ae

of a caacte appopiate to te popety. wee

deat occued afte 10 Mac 1992, elief i given

by educing te value of te popety by 100 pe cent(cetain condition apply). Pio to tat date te elief

a 50 pe cent.

Woodlands relief:There is a specic relief for

tanfe of oodland on deat. hoeve, ti a

become le impotant ince te intoduction of

100 pe cent elief fo buinee tat qualify a

elevant buine popety.

wee an etate include oodland foming pat

of a buine, buine elief may be available if te

ordinary conditions for that relief are satised.

wen a oodland in te United Kingdom i tanfeed

on deat, te peon o ould be liable fo te taxcan elect to ave te value of te timbe tat i, te

tee and undeood (but not te undelying land)

excluded fom te deceaed etate.

If te timbe i late dipoed of, it value at te time

ill be ubject to Ineitance Tax. relief i available if:

nan election i made itin to yea of te deat,

toug te Boad of hM revenue & Cutom ave

dicetion to accept late election, and

nthe deceased was the benecial owner of the

woodlands for at least ve years immediately before

death or became benecially entitled to it by gift

o ineitance.

The Pre-Owned Assets Tax

Pre-Owned Assets Tax (POAT), which came into effect

on 6 Apil 2005, clamped don on aangement

eeby paent gifted popety to cilden o ote

family membe ile continuing to live in te

popety itout paying a full maket ent.

POAT is charged at up to 40 per cent on the benet

to an individual continuing to live in a popety tat

tey ave gifted but ae not paying a full ent, and

ee te aangement i not caugt by te gift it

eevation ule.

so anyone o a implemented uc a ceme ince

Mac 1986 could fall itin te POAT net and be

liable to an income tax cage of up to 40 pe cent of

te annual maket ental value of te popety.

Altenatively, you can elect by 31 Januay folloing

the end of the tax year in which the benet rst arises

tat te popety emain in you etate.

rental valuation of te popety mut be caied out

every ve years by an independent valuer. n

WEAlTh PRESERVATIONMaking te mot of diffeent olution

ThERE ISA SPEcIfIcRElIEf fORTRANSfERSOf WOOdlANdON dEATh.


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24

PAyINg INhERITANcE TAxReecting an accurate open market value

Te peonal epeentative (te peon nominated

to andle te affai of te deceaed peon) aange

to pay any Ineitance Tax tat i due. You uually

nominate te peonal epeentative in you ill (you

can nominate moe tan one), in ic cae tey ae

knon a te executo. If you die itout leaving a ill a

cout can nominate te peonal epeentative, in ic

cae tey ae knon a te adminitato.

If you ave been nominated a omeone peonal

epeentative you ave to value all of te aet tat

te deceaed peon oned. Ti valuation mut

accurately reect what the assets would reasonably

fetc in te open maket at te date of deat.

In mot cae, if an etate oe Ineitance Tax, you

mut uually pay it itin ix mont afte te deat o

inteet ill be caged. In ome cae, you can pay by

intalment once a yea ove ten yea. Te due date

diffe if Ineitance Tax i due on a tut.

Forms you need to complete

If the estate is unlikely to be subject to Inheritance Tax

(an excepted estate)

If the estate is likely to be subject to Inheritance Tax

In ti cae you complete fom IhT400 plu any elevant

upplementay fom (tee ae indicated on te IhT400).

You alo complete:

nfom IhT421 Pobate ummay if te deceaed

peon lived in England, wale o Noten Ieland

npobate application fom PA1 if te deceaed lived in

England o wale

nfom C1 Inventoy if te deceaed lived in scotland

(In Noten Ieland you only complete a pobate

application fom at intevie.)

Te due date fo Ineitance Tax i ix mont afte te

end of te mont in ic te deceaed died. You mut

pay Ineitance Tax befoe you can get te gant of

probate (or conrmation in Scotland).

Country in which the

deceased person lived

England

scotland

Noten Ieland

Required forms for

excepted estates

Fom IhT205 and fom

PA1 application fo

pobate

Fom C1 (Inventoy) and

fom C5 if tey died on o

afte 6 Apil 2004; if tey

died befoe ti date fom

C1 only

Fom Ih205 only

Month when the

person died

Januay

Febuay

Mac

Apil

May

June

July

Augut

septembe

Octobe

Novembe

Decembe

Inheritance Tax

due date

31 July

31 Augut

30 septembe

31 Octobe

30 Novembe

31 Decembe

31 Januay

28/29 Febuay

31 Mac

30 Apil

31 May

30 June


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If youre paying Inheritance Tax by instalments, the rst

intalment i due ix mont afte te deat on te due

date. Te econd intalment i due 12 mont afte tat.

If omeone give you a gift and doent uvive fo even

yea afte making it and te gift i liable to Ineitance

Tax, te payment on te gift i alo due ix mont afte

te deat on te due date.

If te value of te aet being tanfeed exceed te

cuent Ineitance Tax teold 325,000, Ineitance

Tax can be due:

non tanfe into a tut

non tanfe out of a tut

nevey ten yea afte te oiginal tanfe into tut

nTe due date depend on wen te aet

ae tanfeed

nFo tanfe made beteen 6 Apil and 1 Octobe,

te due date i 30 Apil in te folloing yea

nFo tanfe made beteen 30 septembe one yea

and 6 Apil te next, te due date i ix mont afte

te end of te mont in ic te tanfe a made

If you dont pay Ineitance Tax in full by te due date,

hM revenue & Cutom (hMrC) ill cage inteet on

te amount outtanding, ateve you eaon fo not

paying by te due date. It alo cage inteet if you

pay by annual intalment.

If Ineitance Tax i due, you ave 12 mont fom te

end of te mont in ic te deat occued to end in

a full Ineitance Tax account, ti include fom IhT400,

any upplementay page and pape elating to pobate

(or conrmation in Scotland).

Unle you ave a eaonable excue fo not deliveing a

full and accuate account itin 12 mont, you may aveto pay a penalty in addition to any inteet you oe. n

ThE duE dATE fOR INhERITANcE TAx IS SIx mONThS AfTER ThEENd Of ThE mONTh IN WhIch ThE dEcEASEd dIEd. yOu muST PAyINhERITANcE TAx bEfORE yOu cAN gET ThE gRANT Of PRObATE(OR cONfIRmATION IN ScOTlANd).


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26

Administration

Dealing it te affai and etate of a peon o a

died, including collecting tei aet, paying tei debt

and paying the residue to the people who are to benet.

Affidavit

A document giving evidence ic i on in font of a

olicito o ote peon o can adminite oat.

Agricultural Property Relief (APR)

relief fom Ineitance Tax fo te agicultual value of

ome fam and famoue (te value if te land and

building could only be ued fo agicultual pupoe

and not te open maket value). Vaiou condition

apply, including a minimum oneip peiod.

Beneficiary

A peon o oganiation o ill eceive aet fom

te etate of te deceaed.

Bequests and Legacies

Bequet and legacie ae name fo gift left in a ill.

Business Property Relief

relief fom Ineitance Tax fo buinee; a minimum

oneip peiod applie and te buine o inteet in

the business must full the conditions.

Capital Gains Tax

Ti i tax ic may be payable on a dipoal

(fo example, en you ell an aet) if you make a

cageable gain. Uually you ave made a gain if te

aet i ot moe at dipoal tan it a en you

acquied it. A dipoal i not only a ale fo money

ot. You ill only pay Capital Gain Tax on capital

monie (monie tat you eceived) tat do not fom pat

of you income. Te tax applie not to te value of te

aet but to te inceae in value.

Caveat

A notice enteed at te Pobate regity, fo example, if

you ave enteed a caveat you ill be aned befoe any

Gant of repeentation i iued.

Chattels

Aet of a peon ote tan land fo example,

jeelley, onament, clote, ca, animal, funitue

and o on.

Charity

A caity i an oganiation tat a a it aim pupoe

ic ae excluively caitable (a ecognied by la),

uc a te elief of povety o pomoting education.

Caitie can be tuctued in a vaiety of ay fo

example, a a company it a boad of diecto o a a

tut fund it a boad of tutee. Caitie mut be fo

the public benet. Most charities must register with the

Caitie Commiion. Caitie ae tictly egulated.

Codicil

An addition to a ill ic may cange, modify, delete,

extend o add to a ill.

Deed of Variation

A document tat can vay te diviion of a peon

etate afte tey ave died, eite by canging tei ill

etopectively o alteing te peon entitled on an

intestacy (where there is no will or the beneciaries no

longe exit). Ti mut be done itin to yea of te

peon deat.

Discretionary Trusts

A tut wee te tutee can cooe wic

beneciaries (if any) should receive income and/or

capital. They are a exible way of setting property

aside for the benet of one or more persons.

Domicile

You domicile ill affect ete you pay Ineitance Tax

on paticula aet and can affect o muc Ineitance

Tax you pay. Domicile i not te ame a eidence.

Estate

All te popety and aet of te peon o a died.

Executor

Ti i te peonal epeentative o a been

appointed by te ill o codicil.

Guardian

A guadian will ave paental eponibility fo any

cild (unde 18) of wom tey ae named guadian.

Paental eponibility mean legal autoity to actin elation to a cild on uc matte a medical cae,

wee tey ae to live, tei education and wat

uname tey ould be known by. Guadian may be

appointed by a paent wo a paental eponibility,

ESTATE PRESERVATION glOSSARyhelping you to look afte and maintain you ealt

in the most efcient way


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an exiting guadian o te Cout. If you name a

guadian in you will, te appointment may not take

effect if you cild a a uviving paent wit

paental eponibility.

Inheritance Tax

A tax on te value of a peon etate on tei deat and

alo on te value of cetain gift made by an individual

duing tei lifetime. You may be ubject to Ineitance

Tax on all you aet eveyee in te old if you

ae domiciled in England and wale. Ineitance Tax

alo applie to mot type of tut and may be caged

en aet ae added to o leave te tut, and on te

ten-yearly anniversaries of the trusts creation.

Intestate/Intestacy

Te ule tat goven ee a peon etate i to pa

and o can deal it te etate in te abence of a ill.

Joint Tenancy

A way of co-owning land and other property. On the

death of one of the co-owners, the other takes their share

by uvivoip. Fo example, if you and you poue o

egiteed civil patne on you ome a joint tenant

it ill automatically pa to te uviving poue en

one of you die. You ae of you oue ill not be pat

of you etate a it pae automatically.

Letters of Administration

A gant of epeentation ee tee i no valid ill, o

tee i a ill but no executo appointed.

Life Tenant

This is a person who is entitled to benet from a trust

duing tei lifetime. Tey cannot ave te capital in

te tut fund; tey ae entitled only to te income o

enjoyment of te popety. Fo example, if te tut fund

was a house, the beneciary would be entitled to live there.

Personal Representative

Te peon o i dealing it te adminitation of te

etate of te peon o a died.

Potentially Exempt Transfer (PET)

Ti i an outigt gift by an individual to anote

individual o cetain type of tut. If te give

(dono) uvive te gift by even yea it ill become

completely exempt fom Ineitance Tax, and ill be

outide te dono etate fo te pupoe of calculating

Ineitance Tax.

Power of Attorney

Ti i a fomal document giving legal autoity fom

one peon (te dono) to anote (te attoney) o tat

te Attoney may act on bealf of tei pincipal. Poe

of Attoney may be an odinay Geneal Poe o it maybe a Lating Poe of Attoney.

Lasting Power of Attorney

A Lating Poe of Attoney can elate to you popety

and affai o you peonal elfae, i.e. deciion about

you medical teatment. In ode to make a Lating

Poe of Attoney you mut ave mental capacity to do

so, which must be certied by a certicate provider. An

odinay Geneal Poe of Attoney ill come to an end

if you loe you mental capacity but a Lating Poe of

Attoney ill not.

Probate (Grant of)

Te poving of a ill by ending it to te Pobate regity.

Residue

Te emainde of te etate of te peon o a died

after all their debts have been paid and any specic gifts

tey made unde tei ill ave alo been paid.

Revocation (of will)

Ti i te poce by ic omeone cancel o take

back a ill (o codicil) made peviouly en tey

no longe intend tat ill to take effect. Te Tetato

(peon o made a ill o codicil) mut ave mental

capacity to evoke te ill (o codicil). Te effect of

evocation i tat any ealie ill i euected and ill

take effect a if te late cancelled ill doe not exit. If

tee i no peviou ill ten te peon evoking tei

ill become intetate. Mot ne ill contain an

explicit claue tating tat tey evoke any peviou

ill. Tee ae fomal equiement fo evocation of a

ill a tee ae fo making a ill.

Statutory Legacy

If a peon die intetate it a poue o civil patne,

te tatutoy legacy i te amount of te deceaed

etate tat tei poue o civil patne ill eceive. A

common miconception i tat te poue o civil patne

ill automatically eceive all of te etate of te peon

o a died intetate, but ti i not neceaily te

cae if tee ae uviving cilden and it i teefoe

deiable to make a ill to enue tat you poue o

civil patne ineit all tat you intend tem to take.

Testator/Testatrix

Te peon making a ill (male o female).

A Trust

A legal elationip in ic one o moe peon old

property for the benet of others (the beneciaries). A

tutee i te peon o i acting in te tut and old

the property for the benet of someone else.

A Will

Te fomal document knon a a tetamentay

disposition by which somebody conrms their wishes as

to te diviion of tei etate on deat. n


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Content of the articles featured inA Guide to Estate Preservation are for your general information and use only and is not

intended to address your particular requirements. They should not be relied upon in their entirety and shall not be deemed to be,

or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee

that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual orcompany should act upon such information without receiving appropriate professional advice after a thorough examination of

their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.

The pension and tax rules are subject to change by the Government Tax reliefs and State benets referred to are those currently

All too often, a lack of effective etate planning

results in delays in releasing funds, difcult

family deciion egading ee tat capital i

bet ditibuted aving to be made, and moe

painfully tan tat, te fact tat te taxman may

often take a vey lage amount of te total value.

Often te miconception i tat ti only

affects the super-rich as property values have

inceaed ove te geneation, tax i becoming

moe and moe of an iue fo eveyone.

You ealt can ave a maive impact beyond

you lifetime. wit foeigt, you can enue

tat ti impact i a poitive a poible. we

can elp you pepae fo tomoo.

Contact us today

Documents

A Guide to Estate Preservation 2013