It’s the tax we don’t talk about – and the most hated tax of all!
A lot of people have heard of inheritance tax but it’s one of those things that you’ll not think about if you don’t have much wealth. Even if you do, we don’t like to talk about it “seriously”, in the main.
The tax free amount is currently £325,000 and in many cases no tax will be due. But increasingly, families are finding they will have to pay inheritance tax when a loved one passes away. Often this is due to the rising value of property.
This especially happens if the deceased person was single or widowed and the property is mortgage free. If the property was the only thing left it may be necessary to sell the property to pay the tax.
There are ways to mitigate or even eliminate inheritance tax, depending upon the net value of what you own and what you want to do with your wealth. Some of the options are radical and not for the faint hearted.
Where to Start? Where There’s a Will, There’s a Way
A good starting point is having a Will that really reflects what you want. Without sounding morbid, we actually think it’s important to have a Will as soon as you have your own immediate family, so that if the worse should happen, they will not have the added uncertainty on top of losing a father or mother.
We come across people even in their sixties seventies and even eighties who have not made a Will. The other dimension to this is that often, people don’t realise how flexible a Will can be, especially where “family politics” are involved.
Arguably the second most important aspect that affects Inheritance Tax is a thing called “Joint Tenancy”. This is where, in layman’s terms, more than one person has a complete interest in an asset. A good example is a joint bank account. What people don’t often understand is that a joint tenancy is only disregarded if the other person is your spouse.
If you apply this principle to say two single people that jointly own a property, the implications for tax can be serious. The person who has died is often treated as holding half of the value for tax purposes but sometimes the proportion can be higher.
Once a family have realised that there is a tax bill, the next question usually is “when will it all be over?” Families want to remember their loved one but equally they want to move on and dealing with HM Revenue and Customs on this can be stressful even if a solicitor or accountant is engaged to help.
The Time-Consuming Wind Up Process
In our experience, Executors and Beneficiaries have an optimistic expectation of how long it will take to wind up an Estate. The key to that process is getting Probate, this can’t occur until the tax bill has been agreed with the Tax Man.
The latest “timetable” for this was published this year by HMRC, setting out what people might expect and in “Part Two” we will set this out in detail.
