Inheritance tax (IHT) is a tax charged on the value of a deceased person’s estate if it is above a certain threshold. The standard IHT threshold is £325,000, with anything above this amount taxed at 40%. This means IHT can take a significant cut out of an estate, reducing what beneficiaries ultimately receive.
As IHT rules can be complex, using a solicitor to help minimise your liability is advisable. Here are some of the key ways a solicitor can provide guidance on reducing the IHT due on an estate.
Understanding the Nil-Rate Band and Residence Nil-Rate Band
Everyone has a nil-rate band of £325,000. Inheritance tax isn’t payable on this or less. Married couples and civil partners also have the benefit of being able to transfer any unused nil-rate band to the surviving spouse or partner on the first death. This means their nil-rate band can effectively double to £650,000.
There is also an additional residence nil-rate band of up to £175,000 when passing on a main residence to direct descendants, which can double the allowance to £1 million. A solicitor can advise on making the most of these allowances.
Lifetime Gifts
Gifting assets or money during your lifetime can be an effective way to reduce IHT liability after death. The rules around gifts can be complicated but gifts made more than 7 years before death are exempt from IHT.
Even gifts within 7 years may qualify for taper relief, meaning they are taxed at less than the standard 40% rate. A solicitor can help structure gifts in a tax-efficient timeframe.
Using Trusts
Setting property or assets into certain trusts can assist in reducing IHT liability. For example, a ‘gift trust’ places the assets outside your estate for IHT purposes after 7 years.
A solicitor can advise on whether trusts may be suitable and guide you through the process of establishing them correctly to achieve your IHT objectives.
Maximising Allowable Exemptions
Certain gifts are exempt from IHT so long as they fall within annual limits. These include gifts up to £3,000 each tax year, gifts from income rather than capital, and gifts on marriage up to certain amounts based on your relationship to the recipient.
A solicitor, such as solicitors in Belfast city centre, can ensure you take full advantage of these allowable exemptions to reduce the taxable value of your estate over time.
Claiming Business or Agricultural Relief
If you own a business, agricultural land, or shares in certain trading companies, these assets may qualify for 100% relief from IHT. Qualifying conditions apply so a solicitor can check which of your assets may be eligible for this relief.
Reviewing Your Will
Your will is a key document in establishing IHT liability so should be drafted with this in mind. A solicitor can advise on will provisions that can help minimise tax, such as creating appropriate trusts.
They can also help ensure your will is tax-efficient in case the nil-rate band or other thresholds change in the future. Keeping your will updated is important.
Advising on the Tax Implications of Your Estate Plan
Estate planning encompasses your will along with any gifts, trusts, income, assets, life insurance, pensions, and other financial arrangements. A solicitor looks at the whole picture to identify any IHT liabilities.
They can then recommend a coordinated plan to structure your estate in the most tax-efficient manner. This could involve tweaking your existing arrangements or setting new ones in place to minimise IHT.
Liaising with HMRC
After a death, the executor of the will carries responsibility for reporting details of the estate to HMRC, calculating any IHT due, and paying it. A solicitor can liaise with HMRC directly on the executor’s behalf and handle this process smoothly.
Their expertise helps ensure IHT is calculated correctly and any appropriate reliefs or exemptions are claimed. This takes the administrative burden off the executor.
Contesting HMRC IHT Decisions
If HMRC makes a decision regarding IHT that an executor disputes, a solicitor can help contest it. They will put forward the case for why HMRC’s assessment is unfair or incorrect.
Their knowledge of tax law and ability to negotiate firmly could see HMRC revise IHT down to lower the bill. This saves significant money compared to simply accepting HMRC’s initial IHT calculation.
Choosing a Solicitor with IHT Expertise
Not all solicitors possess specialist inheritance tax knowledge, so it is wise to choose one who deals regularly with IHT matters. Look for a solicitor experienced in both tax and estate planning.
Many solicitors also partner with tax advisers and accountants to offer rounded IHT minimisation advice. Discuss your situation in a free initial consultation to assess their suitability.
Other Ways a Solicitor Can Help with Estate Planning
Beyond just inheritance tax minimisation, a solicitor can provide invaluable assistance with many aspects of estate planning. They can help draft or update your will to ensure it reflects your wishes and avoids any disputes between beneficiaries. A solicitor can also create lasting powers of attorney for managing finances/welfare if you become incapacitated. For business owners, they can advise on succession planning and transferring ownership interests.
When estate assets include property, a solicitor can handle conveyancing and transfers to beneficiaries smoothly. They can also assist with establishing trusts if desired, guiding you on the options and legal requirements. If you have children, a solicitor can offer advice on appointing guardians. For care fees planning, they can recommend ways to protect assets. Throughout the process, a solicitor will explain legal technicalities in plain English and provide tailored recommendations for your situation. Their expertise helps ensure estate planning documents and arrangements fully meet your needs and those of your loved ones.
Navigating IHT rules and planning appropriately to reduce liability can be difficult without professional guidance. An experienced solicitor offers vital expertise in structuring your estate tax-efficiently and liaising with HMRC on your behalf. Investing in good IHT planning advice from a solicitor can ultimately save your beneficiaries thousands of pounds.