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A GUIDE TO
PrOTECTING wEALThFOr GENErATIONs
ESTATEPRESERVATION
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A guIdE TO ESTATE PRESERVATION
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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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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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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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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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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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A Guide to Etate Peevation 11
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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A Guide to Etate Peevation 13
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.
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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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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
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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
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A Guide to Etate Peevation 21
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.
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A Guide to Etate Peevation 23
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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A Guide to Etate Peevation
A guIdE TO ESTATE PRESERVATION
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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A guIdE TO ESTATE PRESERVATION
A Guide to Etate Peevation 25
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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A Guide to Etate Peevation
A guIdE TO ESTATE PRESERVATION
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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A guIdE TO ESTATE PRESERVATION
A Guide to Etate Peevation 27
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.
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