What do you need to consider most? UK Taxation Laws….
How inheritance is organised?
How estates are administered under the laws of England & Wales?
How UK taxation laws affect inheritance?
How to ensure adequate succession planning?
Mitigating the amount of Tax?
Understanding Domicile?
Appointing suitable administrators and Executors?
All of the above and more are matters that need to be understood before completing a properly drawn Will.
How inheritance is managed and administered under the laws of England & Wales
Wills
In the UK, people have choice. They can choose which assets, money and property pass and to whom it should pass. The method of that choice is by drawing up a Last Will & Testament (known as a “Will”).
Aside from directing who is to inherit the money and assets of the deceased, a Will deals with a number of other matters, such as funeral arrangements and the appointment of trustees and executors whose duties include:
- The administration of the collecting in of the assets
- The payment of estate liabilities and costs
- The passing of final sums to the beneficiaries inheriting
- Paying all inheritance taxes due for the estate
In the UK, people are not compelled to make a Will. Less than ½ of people actually have a current Will. Lawyers in the UK constantly need to remind their clients of the importance of having a Will in place and to ensure that they are regularly updated to meeting changing circumstances (taxation laws, changes in family circumstances etc).
Intestacy
If there is no Will, the UK laws of Intestacy apply. Those are relatively basic and limited in scope. For a married couple with children, a proportion of the 1st spouse’s estate passes to the 2nd spouse – but not the whole amount. Some of the estate is advanced to the children. There are no protections built into those rules. That means that an inheritance passing to a spouse is not protected to ultimately pass to children, it is not protected against future divorces, insolvency or attack from care fees. For those reasons, and for certainty and mutual understanding of a couple of what is to happen, a Will is essential and absolutely advisable in order to ensure smooth passing of estate to the chosen beneficiaries, protected as far as is possible from outside claim or attack.
On death – managing an Estate
The process of managing the estate is commonly described as the Probate process.
In summary, it involves:
- Reviewing the terms of the Will (if any) or Intestacy
- Collecting in information on the assets, liabilities, costs of the estate
- Determining previous gifts of the deceased within the last 7 years (including gifts into trust within the last 14 years)
- Preparing Inheritance Tax returns – confirming the snapshot asset/liability picture for the deceased at the date of death.
- Applying any Tax exemptions (including spouse exemptions, charitable exemption, business property, agricultural property etc)
- Filing the tax return at the appropriate office
- Applying for the document entitled the “Grant” of Probate/Letters of Administration as may apply.
Much, if not all of that process requires expert input from an experienced Estate administration or Probate advisor at the time. The roles require understanding and expertise at a time of stress and grief for the family – often those role of Trustee and Executor is appointed to the expert advisor in order to save time and cost and to provide peace of mind that tax, administration and finances are being handled and managed correctly.
How UK taxation laws affect inheritance?
In the UK, on death the deceased’s assets cannot pass to beneficiaries until all taxation matters are resolved. For the majority, that is involving two primary taxations:
- Inheritance Tax; and
- Income Tax
Inheritance Tax (IHT)
IHT is the tax that is applied on capital value of the deceased’s net assets as at the date of death. An IHT return is required to be made (and relevant IHT paid) before a Grant is issued. Although that process often is worrying to families, thinking that tax has to be paid in full all up front before having access to the deceased’s assets, the UK tax office provide a concession allowing tax that relates to property assets to be paid over 10 yearly instalments (or until property sale takes place if earlier). In addition, there is a useful process that can be claimed such that the tax that attributes to capital and money assets is paid by the banks etc prior to Probate being issued. So in reality, it is very rare to find a situation that requires a bridging loan or finance to pay the IHT.
IHT is a tax paid on net assets of a deceased at a rate of 40% above certain thresholds and subject to certain exemptions and allowances. As the rate of tax is relatively high, advice is ideally sought long in advance as to IHT mitigation and planning.
Succession Planning
Possibly the most important matter to address in a UK Will is the matter of succession. That means ensuring that a husband’s estate benefits not only his widow (and vice versa) but that it is ultimately protected to pass to surviving children.
Wills in the UK are individual documents protecting the individual testator’s own assets.
In terms of being ‘protected’ we are talking about ensuring that if, following the death of a husband, his widow (for example) remarries and changes her own Will, that the husband’s wishes are not forgotten and that the children ultimately inherit on the widow’s death despite her changed circumstances and/or Will.
In the UK, Trusts are a huge part of Estate and Wills Planning. For you to understand what is necessary in terms of estate planning using Trusts, you need a personal, expert service from an experienced trusts and Wills advisor.
As this process is often new and a little daunting to people when making Wills, we provide all the information and assistance that is needed to obtain the understanding you personally require in this area. Usually that takes the form of one or two fairly lengthy meetings covering all of the aspects.
The primary difficulty that Trusts seek to overcome is that it is almost impossible at law to provide the following: “ I want to give my estate to my Wife, and then on her death, gift it to the children”. The issue is that once it is gifted to his Wife, it remains gifted and cannot be gifted again. The use of Trusts seeks to overcome this by providing a tailored use of the estate for the Wife for her lifetime but with the provision at the point of her death of creating a trust due from her estate to the children.
Inheritance Tax
Another major issue for international clients holding UK property and assets is how best to ensure that Inheritance Tax (IHT) is fully mitigated. To achieve good Estate Planning and IHT mitigation, expert assistance is again required. We start that process by meeting with you and understanding your estate value and likely future value.
Domicile
The rules on domicile for UK Inheritance Tax purposes are different to those rules relating to ‘residence’ for UK Income Tax purposes. ‘Domicile’ (for IHT purposes) can be affected by:
- Your country of birth;
- How long you have resided in the UK from an Income Tax perspective;
- Declarations as to Domicile made during your lifetime;
- Other relevant circumstances and information.
I have needed to argue domicile for International deceased clients. Many people do not appreciate that representations to our tax authorities as to domicile can be made during a person’s lifetime. That enables the position to be established in time to carry out suitable other planning.
How do you ensure that your UK Estate Planning marries up with your other Estate Planning?
We can tailor your UK Estate Planning according to the needs and requirements of other plans you have put in place. In practice, we can tailor your UK Will so that it can do any of the following:
- Override your other planning so that the UK Will governs all of your estate;
- Override any previous UK planning but specifically does not override your other Wills or planning.
- Tie in and be administered according to other overseas structures such as Wills or trusts.
Meeting with You
Meeting with you initially is an important part of the process of providing the very best service. This enables us to obtain the correct information to provide the relevant advice. If we can start off matters understanding everything that is relevant, it means we go down the correct tracks and routes that are suited for you.
We have excellent meeting room facilities at our London office as well access to other meeting rooms all over the World. However, for international clients not currently resident in the UK, we use Zoom video conferencing or Skype facilities to have face to face video meetings.
If you’d like a chat to see how I can help, please get in touch.