George Hay Chartered Accountants were one of the first accountancy firms in the country to obtain a licence to carry out non-contentious probate work. In our monthly column, we give you an insight into the process and provide an update on what is happening in the world of probate and estates.
With all the talk in the press about the abolition of Inheritance Tax (IHT), we thought a quick reminder of how it operates would be useful.
Assuming you are a UK domiciled person, you pay IHT on your worldwide assets.
IHT is calculated as to:-
|Value of Estate on Death
Lifetime Gifts within the previous 7 years
|= Taxable Estate||(T)|
|Tax Payable||T @ 40%|
The above is the basic computation. In valuing assets at death, certain assets can be ignored.
- Any asset left to a spouse in your Will or under the intestacy rules.
- Any assets left in your Will to a charity.
- Any qualifying Business Assets (broadly shares in a trading company or assets used in your trade).
- Qualifying farmland.
The £325,000 can be increased by:-
£175,000 if you have (or have had) a house which was your private residence and is being passed to a descendant.
Up to another £325,000 if your previously deceased spouse did not use all their £325,000 nil rate band on their death.
Up to another £175,000 if your previously deceased spouse did not use their £175,000 residential nil rate band.
In total, the most you can achieve is £1,000,000 before you pay tax.
However, with a rate of 40%, once the tax bites, it bites hard.
As an example, we dealt recently with the estate of an elderly man. He had been divorced, not widowed, and had no children. He only had the nil rate bad of £325,000.
He had a home worth £400,000 and savings of £80,000, so comfortable but not a fortune.
His IHT calculation was:-
|House (£400,000) + Savings (£80,000)||£480,000|
It is examples like this that have led to the case for the abolition of IHT.
There can be a problem if no cash is available. If, in the above example, the deceased had only savings of £10,000, his IHT liability would be based on £410,000 which would be £34,000. This would mean the estate would have to elect for an instalment option until the house is sold, incurring late payment interest at a current rate of 7.75% on the way.
It is often quoted that somebody only pays IHT if they dislike their family more than the tax man, reason being that IHT planning is often possible. The earlier this starts, the better.
As you can imagine, the IHT additional reliefs and exemptions outlined above come with many pitfalls and, therefore, even if you think you do not have a problem, it is always worth checking just to make sure.
To talk to one of our professionals in confidence about our probate and estate services, call 01480 426500, or to find out more about how we can support you estate and Inheritance Tax planning, visit www.ghprobate.co.uk.
Authored by Director of GH Probate Ltd., Barry Jefferd.
Our Probate service is provided through GH Probate Limited. GH Probate is the trading style of GH Probate Limited. Registered in England and Wales number 9630102. Registered Office: St George’s House, George Street, Huntingdon, Cambridgeshire PE29 3GH.
Authorised to carry out the reserved legal activity of non-contentious probate in England and Wales by the Institute of Chartered Accountants in England & Wales.