Inheritance Tax: Christmas Gift Guide

December 5, 2018December 30, 2018Leave a comment

Happy Christmas to you all!!

Did you realise that you could use this time of year to make gifts which will reduce your liability to Inheritance Tax? We thought we’d prepare a little guide about what you can give away whilst still keeping the taxman happy…

A lot of people don’t realise that Inheritance Tax may have to be paid on their estate when they pass away. This can be 40% of everything over the tax-free threshold (currently set at £325,000). Given that the average price of a property in Hertfordshire is over £500,000 it’s easy to exceed those limits!

However there’s a simple way to reduce this liability, and help your family have an extra special Christmas at the same time.

Did you realise that you can give away £3,000 worth of gifts to your family and friends each tax year – this amount is immediately removed from the value of your estate?
You can also give as many small gifts of up to £250 to as many people as you want (as long as they haven’t also received part or all of the £3,000 mentioned above).
Additionally you can give gifts out of your income. For example, Christmas and Birthday presents – but you must be able to maintain your standard of living after making the gifts.
If any of your family or friends are getting married soon, don’t forget you can give a cash gift which immediately reduces the value of your estate for Inheritance Tax purposes. You can give your child up to £5,000, your grandchild up to £2,500 and you can gift anyone else who is getting married up to £1,000.
There are certain people and organisations you can make unlimited gifts to without paying Inheritance Tax. These include:
- Your husband, wife or civil partner provided they live in the UK.
- Charities registered in the UK.
- Some national organisations like universities, museums and the National Trust.

Please note that new rules and thresholds regarding passing your property to your children were introduced in April 2016. If you would like more information regarding gifts or Inheritance Tax thresholds then visit www.gov.uk.

We hope that’s given you some food for thought…

If you can’t spend it yourself, the next best thing to do is to give away what you can to reduce the likely Inheritance tax bill on your estate. Why don’t you use this Christmas to help your family, friends and your favourite charities and reduce your Inheritance Tax liability at the same time?

You can of course make bigger gifts but then you have to live a certain period before the gift is treated as not belonging to you in it’s entirety (commonly known as the 7 year rule).

At A R K we specialise in offering free advice on anything related to Wills, Lasting Powers of Attorney, Funeral Plans and Probate. Do ring us on 01438 746977 or email us at info@arkpowers.com for more information.

The law regarding Inheritance Tax and making gifts

October 17, 2017December 30, 2018Leave a comment

Believe it or not, you are actually allowed to make some gifts without your heirs having to pay any tax at all. Understanding where these boundaries lie however, is generally an area many of us can find confusing. With this in mind, I’ve pulled together a breakdown that whilst comprehensive should be easily digestible!

The law –

You are allowed to make tax free gifts as follows:

Gifts to ‘exempt beneficiaries’:

You can give as much money as you like to certain people and organisations without paying Inheritance Tax (this applies whether you give money whilst living or after you death, via your will). Exempt beneficiaries include:

Your husband, wife or civil partner, provided they live permanently in the UK
Charities registered in the UK – to check which charities qualify, visit the HMRC website
Some national organisations like universities, museums and the National Trust

NOTE that gifts to unmarried partners or unregistered civil partners are not exempt from Inheritance Tax.

Your Annual Exemption:

You are allowed to give away a total of £3,000 each year, without any tax implications after your death. Bear in mind that this is the total annual amount that you can give away, NOT a total amount you can give to each beneficiary, each year.

It is also worth noting that your Annual Exemption can be carried forward for one year if it has not been used. In other words, if you did not make any gifts of money during last year, you can give away a total of £6,000 this year. Equally, if you gave away £1,500 last year, you’ll be able to give away a total of £4,500 this year.

The Annual Exemption cannot be carried forward by more than one year.

Giving small cash gifts:

In addition to the exemptions above, you can give away small gifts – not more than £250 – to as many people as you like in one tax year. However, some points to remember include:

You can’t make a gift of more than £250, and claim exemption on the first £250 (larger gifts are treated differently)
You can’t combine the small gifts exemption with another exemption when giving money to one person. In other words, you can’t give one person £3,250 and claim exemption based on a combination of the small gifts and ‘Annual’ exemption.

Wedding gifts:

Provided that you give or promise to give a cash gift on, or shortly before, the ceremony you can make quite large cash gifts as wedding or civil partnership presents, without being liable for Inheritance Tax. The limits on such gifts depend on your relationship with the recipient:

If you are a parent you can give up to £5,000 tax free
Grandparents can give up to £2,500
Anyone else can give up to £1,000

Remember, however, that if the wedding or civil partnership is called off and you still give the gift, it will NOT be exempt from Inheritance Tax.

Regular gifts or payments:

Any gifts that are part of your normal expenditure are exempt – provided they are made from your net, ie. after tax income (not your savings); and that you have enough money left over to maintain your lifestyle. These exempt payments include:

Maintenance for your husband, wife, civil partner
Maintenance for your ex-husband, ex-wife or former civil partner
Maintenance for relatives who depend on you
Maintenance for your children, adopted children or step-children, as long as they are under 18 or in full-time education
Monthly or regular payments to anyone
Regular gifts for Christmas, birthdays or wedding/civil partnership anniversaries
Premiums on life insurance policies

What if I want to make other/larger gifts? – The ‘Seven Year’ rule

Any gifts you make that do not fall under the scope of those mentioned above will be treated as your asset in decreasing percentages for some time after you have made that gift.
Gifts made 3 to 7 years before your death are taxed on a sliding scale known as ‘taper relief’.

We’d all rather our loved ones benefitted from the full inheritance we want to leave them, let’s not line the taxman’s pockets with more than we have to. Contact A.R.K on 01438 746977 or email info@arkpowers.com for more information.

What does that mean?… Will and Probate related terms

September 9, 2017December 30, 2018Leave a comment

There are few things in life that are likely to be more traumatic than dealing with the death of a loved one. It is, however, an unfortunate and painful reality that we will probably all have to face at some point.

Thankfully there are safeguards we can put in place to ensure that when faced with these situations, we can allow ourselves to deal with the emotional turmoil such events bring, knowing that the practicalities of dealing with finance, insurance companies and assets have all been taken care of in advance.

There are many considerations when it comes to Wills and Probate, and the process of the tying up of a loved ones’ affairs. You may be aware of some of the more well-known elements; such as the Will itself and what it means to be a Beneficiary. However, for many, knowing what it means to be ‘Intestate’ and understanding the legal requirements of the ‘Trust Minutes’ is an unknown entity. With this in mind, I’ve compiled a list of terms and their definitions, to remove the potential cloak of confusion surrounding an area we all need to have a clearer understanding of.

Will

The legal document allowing you to leave your ‘estate’ the way you would like to leave it. A Will must be in writing, it must be signed and dated in the presence of two witnesses, who must then sign to confirm they are witnessing it.

Estate

The total value of your assets when you die, after deducting any debts and funeral expenses.

Intestate

If you die ‘intestate’ you die without leaving a Will. Your estate will then be distributed to your family in accordance with the laws of intestacy. Only if you have no family at all will your estate pass to the government.

Executor

The person or people appointed to look after your estate. Responsibilities include:

Arranging the funeral
Notifying any relevant companies/organisations regarding death
Calculating the value of an estate to establish whether Inheritance Tax is due to be paid.
Establishing whether a ‘Grant of Probate’ is needed and if so applying to the court for this document.
Calling in assets and paying any debts
Distributing the estate in accordance with a Will or the laws of intestacy.
Running any Trusts that are created (if separate Trustees are not appointed)

Power of Attorney

The document you will need to sign, in front of a witness, to give a solicitor or other professional authority to act as executors on your behalf.

Trustee

A person appointed to run any Trusts that are created following a death. Often this is the same person/people who are appointed as executors, but sometimes separate Trustees are appointed.

Trust fund

The value of assets placed in Trust for children or others following a death.

Trust minutes

These are required by law. All Trustees are obliged to meet at least annually and to minute that meeting to ensure that the Trust is being run correctly.

Guardian(s)

The person or people appointed to look after any child under the age of 18 when parents are not able to look after the child themselves.

Beneficiary

Someone who benefits from a Will i.e. inherits something in a Will.

Legacy

The ‘gift’ you are left in a Will.

Probate

This is often the general term used to describe the process of administering an estate after someone has died.

Grant of Probate/Representation

This is the document that is often needed to call in assets (obtain funds from banks etc that are holding money belonging to the deceased’s estate), or to sell property. An application to court has to be made and a fee is payable. Individuals applying will have to attend court or a solicitor’s office personally to swear oath, whereas professional executors do not have to do this.

Letters of Administration

The Scottish equivalent of a Grant of Probate.

Assets

Any item of value owned by the deceased.

Liabilities

Any debts the deceased had at the time of their death, plus costs which occur whilst the estate is being finalised e.g. funeral costs/professional fees and disbursements.

Residuary estate

This is the net estate available to be distributed to beneficiaries after all liabilities have been paid and specific gifts have been made.

Deed of Variation

A legal document which allows a beneficiary to vary the terms of someone’s Will up to two years after they have died. This is useful where a beneficiary does not want to inherit something as it may have an impact on Inheritance Tax that would be due on their death. They can vary a Will so that their inheritance will pass straight to their child/children.

Right to occupy/Life interest

If a Will specifies that you have been given a ‘right to occupy’ or a ‘Life Interest’ in a property it means that you will be allowed to live in the property for a defined period, but you will not actually own the share of the property that was owned by the deceased. This share will be held in Trust.

Inheritance Tax (IHT)

The tax that can be payable on death (and on some gifts made prior to this). There is an annual exemption each year (currently £325,000) and if the estate is valued above this level Inheritance Tax will be payable at 40% on the excess. In the case of a married couple the allowance which is unused by the first person to die can be transferred to the surviving spouse, meaning that, based on current rates, up to £650,000 can be treated as being exempt from Inheritance Tax.

Residence Nil Rate Band

A new Inheritance Tax ‘allowance’ that was introduced in April 2017. If you
have a property that you are ultimately leaving to children you can currently
leave an additional £100,000 without IHT being due. For a couple this can be
transferred to a spouse, meaning that the couples’ allowance is increased
from £650,000 to £850,000 in the 2017-18 tax year. By 6th April 2020 a
couple leaving a property to children or step-children will be able to leave up
to £1 million without IHT being due on their combined estates.

Distribution (final or interim)

This the act of making a payment to a beneficiary, and also the term used
to describe the payment. A distribution can be ‘interim’ if funds are paid to a
beneficiary prior to the estate being wound up, or it can be ‘final’ if all
calculations have been completed and the estate is being finalised.

Many of us spend years debating the drafting of our Wills and never actually get around to writing them. This can be because people are uncomfortable having discussions with their loved ones on the seemingly cold and callous topic of how the estate will be split, who will be entitled to what, how and when. At A.R.K. we understand how difficult this process can be, and are here to help you every step of the way with expert, jargon-free advice; ensuring you and your family are protected from the worst.

If you feel the time is right for you to put pen to paper, and ensure that your loved ones aren’t left with anything other than peace of mind for the future, call us today on 01438 746977 or email info@arkpowers.com.