Inheritance Tax Part 4

Inheritance Tax Saving

Usually any estate worth more than £325,000 faces a bill for Inheritance Tax. At a tax rate of 40% this can be quite substantial, particularly for anyone who owns a property in this part of the country.

Most Inheritance Tax planning needs to be done during one’s lifetime but there are steps that can be taken to reduce or even completely eliminate the tax liability even after someone has died.

A Deed of Variation allows the beneficiaries and the Executors to amend the Will to make it more Tax efficient.

An example where both a husband and a wife have died before the 9th October 2007. (Different rules apply where the second death occurs after that date)

A husband and a wife (with children) own a house worth £600,000. The existing Will leaves everything to the surviving wife or husband on the first death and to the children after the second death.. No tax is payable on the first death. But on the second death the children will have to pay Inheritance Tax of £120,000. We can prepare a Deed of Variation which saves that entire tax bill while still carrying out the parents wishes. A saving of £120,000.

This can be done up to two years after the first death.

When the second death in a marriage or a civil partnership occurs after the 9th October 2007 similar savings may be available without the need of a Deed of Variation. Conditions and time limits do apply

If the deceased was not married or was a widow or widower or if there is no will (intestacy) it may still be possible to save a considerable amount of tax but it is more dependent on the individual’s circumstances

If the net estate is over £325,000 Inheritance Tax may be payable. Surviving spouses and charities are exempt. That Tax is at the rate of 40% on every pound over £325,000. So, for example, an estate worth £600,000 would incur tax of £120,000. (£600,000 minus £325,000 = £325,000 x 40% = £110,000).
Usually Inheritance Tax has to be paid at the same time as you apply for the Grant. There are some exceptions and sometimes a bank will release enough money in advance to cover the Tax.