Lawyers specialising in Inheritance Claims, Probate Administration, Will Writing and both Wealth and IHT Planning
Whether you are looking to some inheritance tax (IHT) planning, need help with the administration of a loved one’s estate or are considering contesting a will, our specialist inheritance solicitors can help you. This page explain all you need to know about IHT planning and inheritance claims in the UK.
Click here to read more about Estate Administration and how our Probate Solicitors can help you.
Inheritance tax – the bill keeps getting bigger
When it comes to passing down our worldly goods to our loved ones, it is fair to say that the devil really is in the detail. By starting the process of estate planning early, you can ensure that as much as possible is handed down to your family and not to the tax man.
According to HMRC, the number of UK deaths that resulted in inheritance tax (IHT) being paid saw a large increase between 2022 and 2023. According to their figures, HMRC received £7.1billion in IHT between April 2022 and March 2023. IHT receipts for April 2023 alone were £597 million, £90 million more than in April 2022.
This is a year-on-year pattern that is expected to see IHT reach a staggering £8.4 billion by 2027/28. And that’s exactly why specialist advice from experienced inheritance solicitors as part of wealth planning for you and your family is so very important.
In addition to IHT planning, by ensuring your Will is as clear and well-drafted as possible, you can remove the possibility of an inheritance claim. These kind of claims are becoming all the more common, not least because of the large value of estates being left behind.
For FREE initial phone advice on Inheritance Claims or Inheritance Tax Planning, simply call our Solicitors on FREEPHONE 0800 1404544 or one of our local office numbers [see below] .
Why is inheritance tax planning so important?
Simply put, inheritance tax planning is all about making sure that as much of your inheritance reaches your loved ones and not HMRC. On your death, the total value of your estate will be worked out. If you have an estate worth more than the IHT threshold (i.e. £325,000), 40% of the amount over the threshold must be paid to HMRC. As a result, without careful and proper inheritance tax planning, a large portion of your hard-earned net worth could be lost to taxation.
The UK’s property market has seen enormous growth in recent decades, leading to many estates being charged IHT. This is because the point at which IHT must be paid (the IHT threshold) has not kept up with the large increase in house values. The main IHT threshold (also called the “nil rate inheritance tax band”) has remained frozen at £325,000 since 2009, while the average house price leapt by an estimated 67%. As a direct result, more and more estates are, therefore, falling within the threshold each year.
Thankfully, as we explain below, there are several ways to reduce or remove IHT, but early action is really important. Strategies to reduce or remove the need to pay IHT include trusts, gifts, and taking advantage of reliefs that legally and ethically reduce the taxable value of your estate. Other methods include giving a portion of your estate to charitable causes, enabling you to leave a lasting legacy that benefits both society and your family’s reputation.
Overall, inheritance planning also plays a key role in avoiding disputes between loved ones when you die.
Inheritance claims can destroy family relationships and lead to months or even years of legal disputes. As family structures and dynamics become more complex, especially with blended families, well-structured estate planning is important to make sure that inheritance intentions are set out clearly. This minimises the possibility of confusion and family disagreements.
Inheritance tax (IHT) planning
By understanding the rules for IHT and ways that you can reduce the amount of IHT paid on your death, you can make sure that more of the money and assets you have worked hard for go to your loved ones. Sadly, our inheritance solicitors regularly find that too many people think about their IHT liability too late or do not consider IHT planning at all.
What is inheritance tax?
Inheritance tax is, simply put, the amount of money payable to HMRC from the estate of a person when they die. Inheritance tax must be paid to HMRC within six months of death by the Executor of your Will.
How much IHT will be paid on my death?
The current rate of IHT is 40%, and this is charged on the total value of your estate (i.e. your property, possessions and money) over the IHT threshold. The exact IHT threshold that will apply to your estate will depend on your circumstances.
The main IHT threshold (the “nil rate band” is £325,000. This means that, as standard, on your death, your Executor will pay 40% of the value of your estate over £325,000 to HMRC.
You may have a higher threshold, however. If your spouse passed away before you and their nil-rate band (NRB) was not used on their death, you can apply to transfer their NRB to you. If approved, you will have an NRB of £650,000.
Your threshold will also increase if you pass on your family home to your children or grandchildren. This is referred to as the “residence nil rate band” (RNRB). As of 2023, the RNRB is £175,000. Again, it is possible to inherit the RNRB of your spouse if they die before you.
Adding all of these bands together, it is possible for individuals who survive their married or civil partner to have a total IHT threshold of £1,000,000, i.e.
Nil Rate Band: £325,000
Transferred Nil Rate Band: £325,000
Residence Nil Rate Band: £175,000
Transferred Residence Nil Rate Band: £175,000
What makes up the value of my estate?
The value of your estate is made up of the value of all of your assets when you pass away. This includes any property (in the UK or overseas), pensions, investments, cash savings, personal possessions, and valuable items (e.g. cars).
In addition, any outstanding debts or liabilities that you owe when you die will be paid from your estate.
It is the job of your Executor to correctly work out the value of your estate. To do this, they will list all of your assets and liabilities and request valuations for each. Once they have worked out the value of your estate, they will then assess how much IHT is to be paid to HMRC.
By accurately assessing the value of your assets and liabilities and the likely IHT due before you die, you can properly plan your estate and make sure that it is distributed in accordance with your wishes.
How can a trust reduce IHT?
Trusts in the UK provide one of the main ways to reduce your IHT bill. A trust is a legal structure into which your assets can be transferred during your lifetime. A trustee will manage the assets held in the trust for the benefit of beneficiaries (e.g. your family members). One of the main benefits of a trust is that while you may have given away part of your estate, you still retain control of what you have transferred.
By using a trust, you reduce the amount of IHT paid from your estate because the value of assets transferred to the trust are effectively removed from your estate’s value. With a “bare trust”, for example, as long as you survive for 7 years after making the transfer, no IHT is payable.
Our 12 strong private client team includes a particular trusts specialist – with a background in both high Street law firms and lecturing to solicitors nationwide about trusts.
Click here to read more about how our Trust Solicitors can help you with both trust creation and our Professional Trustee service
How can gifting reduce IHT?
Gifting your assets can reduce your IHT, but it is important to understand the rules that apply, as follows:
· You can gift up to £3,000 in each tax year without paying IHT
· There is no IHT payable on gifts between spouses or civil partners (they must live in the UK permanently, and you must be legally married or in a civil partnership together).
N.B.If you are living together, then it’s particularly important that you take specialist wealth planning advice or else you risk not only paying a particularly high level of inheritance tax, but when you pass, you may also leave your partner in financial and practical difficulties.
· No IHT is payable on gifts to charities or political parties
Tapered relief applies to gifts. This means that if you die over 7 years after your gift is made, no IHT is payable. If you die within 7 years of the gift, some IHT may be payable, as follows:
|Years between gift and death||Rate of tax on the gift|
|3 to 4 years||32%|
|4 to 5 years||24%|
|5 to 6 years||16%|
|6 to 7 years||8%|
|7 or more||0%|
Other inheritance planning considerations
When reviewing your IHT planning needs, it is also advisable to consider a living will or advance directive, a long-term care plan, lasting power of attorney, and appointing a guardian. Each of these measures will give you greater control over what will happen to you in the later stages of your life, and your financial and medical matters will be handled according to your wishes by people you trust.
Cross border tax advice available
If your financial affairs are particularly complex and involve assets overseas, or you are not UK domiciled or are in a relationship where one of you is a UK national and the other isn’t, we can still help you.
Although this is a highly complex area, and very few law firms have the right level of expertise, our own Elizabeth Webbe, a highly senior member of the team, has extensive experience with clients with these kind of issues, and make sure that her tax solutions do not impact adversely on any home territory tax planning – often working alongside specialist accountants.
Elizabeth is a member of the Society of Trust and Estate Practitioners (STEP), the global body for lawyers and other professionals specialising in family wealth succession planning structures.
And our probate team regularly help with estate administration advice for expats.
Click here to read more about how our team can help you if you are an Executor of a UK Will Living Abroad
Inheritance claims – contesting wills or probate
Inheritance claims have sadly been on the rise in recent years for several reasons.
The ageing population in the UK has led to a much greater amount of wealth being held by the older generation. In large part, this is due to the escalating rise in property values. Potential beneficiaries are aware of the rising values of estates, and, as a result, more and more people have an incentive to bring an inheritance claim.
Another key reason for inheritance claims is the rise in blended families and complex family dynamics. These dynamics can lead to disputes over inheritance rights. This is especially so if family members understand the wishes of the deceased in different ways. In addition, greater public awareness of high-profile inheritance claims has encouraged more people to explore their options.
Rising living costs and inflation are also driving claims because more and more people are relying on expected inheritances for their own financial stability. If they don’t receive the inheritance they expect, they may be motivated to bring an inheritance claim. Many family members may also have a strong emotional attachment to family assets (e.g. property). Because of this, they may try to keep those assets within the family.
Although our team regularly act for both the estate in defending inheritance claims, and on behalf of claimants themselves, we always advise those involved to think twice before getting involved in a dispute, or worse still actual litigation. The experience of our inheritance solicitors is that this can often split families for generations – almost certainly the last thing that your loved one who has recently passed would want.
On what grounds can I challenge a Will?
There are several grounds on which a Will can be challenged.
If there are concerns that a Will was drafted by a person who lacked the mental capacity to understand what they were entering into, this may lead to a challenge.
Similarly, a Will may be challenged if there are concerns that someone placed undue pressure on the person who wrote the Will. This may happen, for example, if a family member or friend of the deceased coerced them to distribute their estate in a certain way.
Likewise, if there are doubts regarding the validity of the Will, this may also lead to a challenge. A Will, for example, may not be valid if it was not signed or witnessed properly.
In some cases, it may be possible to make a challenge under the Inheritance (Provision for Family and Dependants) Act 1975 (the Inheritance Act 1975). Under the Inheritance Act 1975, a person can bring a claim if a person on whom they were financially dependent has not made provision for them in their Will when they die.
Those who can make a claim against the estate of the deceased include:
· Surviving spouse or civil Partner
· Anyone who lived with the deceased before their death for at least two years as a cohabitee
· Natural, step, and adopted children who were financially dependent on the deceased parent and
· Anyone who was financially dependent on the deceased
It is important to bear in mind that you cannot just dispute a Will because you don’t agree with its contents. To challenge a Will under the Inheritance Act, it must be shown that you depend financially on the deceased person.
In addition, your claim must be made within 6 months of the grant of probate.
What will the Courts take into account in Inheritance Act claims?
Key to their assessment is the question asked in the Inheritance Act, “Has the deceased’s estate made reasonable and financial provision for the class of the potential applicant by the standard applicable to that applicant?”.
The courts will normally take into account a range of other factors, including:
· The size of your estate
· Any promises made by the deceased to the claimant
· The needs and resources of the claimant
· The needs and resources of any other beneficiaries
· The responsibilities of the deceased towards the claimant and
· Any disabilities experienced by the claimants
Our Inheritance Solicitors advice – how to reduce or remove the possibility of an inheritance claim?
From the perspective of the person writing a Will, it is always preferable to avoid the potential for an inheritance claim after their death. The reason is that inheritance disputes can irreparably damage family relationships. There are several ways that such claims can be avoided, as outlined below.
- Make sure you have an up-to-date and valid Will
Ensuring that your Will is always up-to-date and valid will ensure your wishes are clear from the outset. By removing the potential confusion, you will also remove the possibility of disagreement and conflict between your loved ones when you die. This prevents emotional strain, preserves relationships, and respects your wishes, discouraging legal challenges.
It is especially important to remember to update your Will following any important life event, e.g. after getting remarried or divorced, buying a new home, selling your family business, or in the event of a serious illness. Even the government themselves on the gov.UK website recommend a regular review of your will.
Click here to read more about writing your will
- Explain your wishes before you die
While it may be tempting to avoid telling your family what you have decided, openly discussing any decisions you have made regarding your Will to anyone who might expect to receive part of your estate can reduce the possibility of future claims and disputes.
This proactive and honest approach can foster family unity and enable those affected to understand your choices.
- Get a Testamentary capacity report
Testamentary capacity reports can play a key role in ensuring the validity of Wills. This can be especially important if you believe that someone may try to claim against your estate on the basis that you did not have enough mental capacity when you wrote your Will (i.e. that you did not understand what you were entering into).
Click here to read more about mental capacity for wills
Testamentary capacity reports are written by expert psychiatrists who can properly assess your mental capacity to write a Will. Such reports provide a legal safeguard that a future claim cannot be made against your estate due to incapacity or undue influence.
- Draft a mutual Will
Another way to avoid potential Will conflict is to draft a mutual Will. Mutual Wills are often used by spouses and partners to come to an agreement on how they wish their estates to be distributed after death. Most importantly, mutual Wills have a clause that prevents the surviving person from changing who their estate will go to when the first person dies. As such, mutual wills can help prevent disputes and challenges to the distribution of assets, providing certainty for all parties involved.
Click here to read more about the differences between joint, mirror and mutual wills
- Include a “sweetener” in your Will
Including a “sweetener” in your Will can reduce the possibility of a claim against your estate after your death. A sweetener in this sense may be a portion of your estate to those who may otherwise contest your Will. The idea of including a sweetener in your Will is to demonstrate goodwill. In turn, this can ease tensions, fostering a more harmonious outcome. Of course, there is no certainty that including a sweetener will prevent a claim against your estate by a disgruntled family member or friend, it will reduce the likelihood of inheritance disputes.
NB all figures on this page are accurate as at September 2, 2023