Inheritance Tax

Churchill Tax Advisers are one of the UK’s leading Inheritance Tax Specialists and Consultants. Our team of inheritance tax specialists cover the following areas:

Trust tax advice and planning
Family home
Investment properties
Companies, business and shares
Offshore assets
Domicile and residence

Inheritance Tax Advice during Covid-19

Claim for overpaid inheritance tax due to fall in stock market or property prices

a. Drop in property prices following death

If someone passes away leaving behind properties, the inheritance tax is normally payable on the market value of the properties within six months after the date of death. If the property prices have fallen since the date of death, and the properties are sold by the beneficiaries at a loss within three years following the date of death, then a relief/ refund for any excess inheritance tax paid can be claimed. HMRC require the claim to be made within within four year of the end of the four year period during which the sale was made. Specialist advice should be taken before a claim for refund is made as the relief may be restricted.

b. Drop in stock market prices

If someone passes away leaving behind shares in the stock market, the inheritance tax is normally payable on the market value of the shares is normally payable within six months after the date of death. If the share prices have fallen since the date of death, and the share are sold by the beneficiaries at a loss within 12 months following the date of death, then a relief/ refund for any excess inheritance tax paid can be claimed. HMRC require the claim to be made within within four years of the end of the four year period during which the sale was made. Specialist advice should be taken before a claim for refund is made as the relief may be restricted.

Review of family assets and wills by a tax specialist

It is important to carry out an urgent review of the family assets including properties, shares, savings etc and the wills of the main heads of the of the family that own the assets. Whilst it is common to have a mirror will in place, this could be a time bomb for when the surviving spouse passes away and result in a much larger tax liability. This can be avoided as there are more effective tax planning structures available that could be applied to mitigate the overall tax liability of the family. Please contact us if you would like a tax specialist to review your family’s assets and advise on the best possible tax planning strategy that is tailored to your personal circumstances.

Deed of Variation

Where someone has passed away recently leaving behind some assets and there is inheritance tax payable. If the deceased left a will, it is worthwhile speaking to a tax specialist and check if there are any options for mitigating the inheritance tax payable through a Deed of Variation of the will. In our experience, the Deed of Variation if applied correctly can save significant amounts of inheritance tax. Please contact us if you have recently lost a loved one and wish for us to consider any tax mitigation options through a Deed of Variation.

Bereaved Minors Trust

A Bereaved Minors Trust (BMT) can be set up in a will where if a parent dies leaving behind minor children (under the age of 18 years). The benefit of the BMT is that the assets are taken by the Bereaved Minors Trust and there is no inheritance tax payable by the deceased’s estate. The assets need to be transferred to the children when they reach the age of 18 years. Until then, the income or capital of the trust can be used for maintenance of the children. Please contact us if you are worried about leaving behind young children and would like advice on setting up a Bereaved Minors Trust as part of your will.

Inheritance Tax Nil Rate Band

The current nil rate band is £325,000 per person. Any unused nil-rate band can be transferred to the surviving spouse and be utilized at the time of the second death.

There is an additional nil rate band of £175k per person in relation to the main residence. The relief has been phased in from April 2017 at £100k and then will gradually increase by £25k each year until it reaches £175k in April 2020.

There is a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. The withdrawal rate is set at £1 for every £2 over this threshold. Furthermore, the main residence nil-rate band is transferable to the surviving spouse and to be utilized in full at the second death.

Annual Gifts

You can make tax free gifts of cash up to £3,000 per annum to your children. You can carry any unused annual exemption forward to the next year – but only for one year. It is not possible to make multiple gifts of £3,000 in any one year. You can give a gift of up to £5000 to your children on their marriage.

In addition, you can make small gifts to the value of £250 for each of your children. Any gifts in excess of these will become potentially exempt transfers and will remain part of your estate for a period of seven years.

Cash gifts made to children

Any cash gifts made to your children in the last seven years will be considered as Potentially Exempt Transfers (PET). The value of these PETs are reduced over time by Taper Relief (see below) and will fall out of your estate after seven years from the date of the gift.

If however the cash gift was made as regular gifts out of income (see below), then this will be fully exempt and the seven-year rule will not apply.

Gifts to Charities or Political Parties

Gifts to UK Charities or Political Parties are exempt from inheritance tax. There are some conditions for gifts to Political Parties to qualify for the exemption.

Reduced inheritance tax rate of 36%

If you leave 10% of your net estate to a UK Charity, your inheritance tax rate will be reduced to 36%. This could be a useful way to utilize your chargeable estate at death. There is a sliding scale for the overall cost vs benefit depending on the size of the estate.

It may be useful to mention this in your will and leave for your executors to determine whether this would benefit your estate.

Regular Gifts Out of Income

The relevant legislation is found in section 21 of the Inheritance Tax Act 1984.

You can make gifts of any value out of your regular income. These gifts are exempt and for Inheritance tax purposes it is irrelevant whether or not you survive for seven years.

For the exemption to apply, it must be shown that a transfer of value/ gift meets three conditions below:

It formed part of your normal expenditure
It was made out of income (taking one year with another), and
It left you with enough income to maintain your normal standard of living

Taper relief

The relevant legislation is found in section 7(4) Inheritance Tax Act 1984.

Taper relief is available should your death occur prior to the seven years of you making the transfers/ gifts (that are PETs) to your children. Taper relief is available on PETs if you survive more than 3 years after the date of the transfers/ gifts and gets bigger the further you get closer to seven years. The minimum relief is 20% and the maximum is 80% of the inheritance tax. The table below summarizes how the taper relief works: