3,574 inheritance tax investigations were launched from 2020 to 2021 because of the rise of house prices across the country.
Since launching the probes, HMRC has gained an additional £254 million in revenue, with the average investigation securing an additional £71,000, as reported by Inside Conveyancing.
HMRC revealed that in the first half of 2021 and 2022, they had received £3.1 billion in inheritance tax. Many more estates are now liable for inheritance tax as property prices have risen significantly in recent years, but the nil-rate band (below which inheritance tax is not owed) hasn’t been adjusted since 2009. It still stands at £325,000, with an additional £175,000 allowance for passing on your main residence to your direct descendants.
One of the leading drivers of the high number of inheritance tax investigations is that many families choose to handle their loved one’s estate when they pass away without assistance from a solicitor. This means it is easy to make mistakes, especially around inheritance tax.
Problems can also be caused where the deceased did not take professional advice on estate planning before their death, meaning the opportunity to minimise their estate’s inheritance tax liability was missed.
Ensuring that inheritance tax is planned for means that the amount of inheritance tax due could be significantly less than if it was not planned for. Those handing their loved one’s affairs after they have passed away should seek professional help from a probate solicitor who will be able to ensure that the estate is being handled correctly, including making sure that any inheritance tax owed is paid promptly and in full.
Why is it important to plan for inheritance tax?
When somebody dies, anything above the nil-rate band will be liable for inheritance tax at 40%. Good inheritance tax planning means that the estate’s liability for inheritance tax can often be reduced, increasing the amount that passes to your heirs.
If you don’t plan for inheritance tax, your estate might need to pay more inheritance tax than is necessary, leaving your beneficiaries with less than what they could have received if it was properly planned.
How can you reduce your inheritance tax?
If you have an estate that has the potential to have inheritance tax applied, there are ways to reduce the amount that will need to be paid.
Options for reducing your estate’s inheritance tax liability include:
- Leaving everything to your spouse/civil partner – they will not be charged inheritance tax.
- Leaving everything above the NIL rate to your spouse/civil partner/charity/local sports club – they will not be charged inheritance tax.
- Giving gifts whilst alive – If you die within seven years, the receiver could be liable to inheritance tax. This will depend on who received it and the value.
- Leaving money to charity, a political party and/or local sports club - Anything that is left to a UK registered charity, political party, and a local sports club will be exempt from inheritance tax. Another benefit is if you leave 10% or more of the net value of your estate to charity, your inheritance tax rate reduces from 40% to 36%.
Why is it important to have inheritance tax advice from a solicitor?
Solicitors are well skilled in all manners of inheritance tax planning, from cases that are simple to those a little more complicated. They will be able to provide inheritance tax advice to ensure that your family get the most out of your wealth and property.
Inheritance tax planning refers to ways that you can reduce the amount of inheritance tax your estate will need to pay. An inheritance planning solicitor will be able to assist with:
- How much you can pass on tax-free
- The IHT (inheritance tax) incentives of being married or in a civil partner
- The tax-free gifts you can make during your life
- How to take advantage of the potentially exempt transfer rules
- The IHT benefits of leaving shares of your property to children, grandchildren, or other descendants
- The IHT benefits of leaving money to charity
- The IHT benefits of trusts
- Other ways you can protect your wealth from IHT
Why is it important to have a solicitor assist in administering the estate?
Being the executor of an estate can be a lot of work to undertake and can take up a lot of time, especially if the deceased person’s estate is complex.
Before you are legally able to proceed in dealing with their estate, probate needs to be granted first (except in certain limited circumstances where probate isn’t necessary).
A probate solicitor will be able to advise and assist on the following:
- Advising you whether a grant of probate is required
- Complete and apply the grant of probate application on your behalf
- If the Probate Registry raises any queries, they will deal with them on your behalf
- If there are disagreements, they can lodge a notice to prevent grant of probate until resolved
- Ensure inheritance tax is paid or deferred
- Assist in the administrating of the estate when probate is granted
Having expert legal advice and assistance means that there are fewer chances for mistakes. It will ensure that the deceased person’s wishes are properly followed and help to prevent any contentious probate claims and inheritance tax investigations.
What are the problems of administering an estate without a solicitor?
Administrating an estate can be challenging and often time-consuming, even with a solicitor. But without the advice of a solicitor, there is the possibility of mistakes occurring, which can be costly and may delay the execution of the estate.
Paying any inheritance tax due on the estate is one of the most important responsibilities of whoever is dealing with the administration. The executor or estate administrator can be held personally liable for any mistakes they make, so proceeding without expert legal advice can be a significant risk.
Failing to consult a professional can increase the risk of contentious probate claims and inheritance tax investigations by HMRC.
Who is responsible for paying inheritance tax?
If an estate passes the nil-rate band threshold, the estate could be liable for inheritance tax on anything above this. The person in charge of executing the estate has responsibility for the inheritance tax being paid to HMRC.
Because inheritance tax applies to any gifts that were made within seven years of the giver’s death, those receivers will be responsible for ensuring that the IHT is paid.
Get in touch with our Wills, trusts and probate solicitors in Gravesend, Kent
If you need assistance to put your legal affairs in order, please get in touch to see how our Wills, trusts and probate solicitors can help.
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