Inheritance Tax is a tax payable, on death, on the total value of your estate.

THE PROBLEM

Most couples leave their estates to each other and then to their children.  There is no Inheritance Tax between spouses but when your estate passes to your children, (subject to some specific exclusions) everything over your personal allowance of £285,000 is then taxed at 40%.

Below is an example of how to work out how much Tax your next of kin will have to pay, there are further examples below. 

A SOLUTION

There are only a certain number of things you can do to reduce or eliminate your Inheritance Tax liability.  Most involve giving away or diluting control of assets you have worked hard to acquire.  One sensible option is to use a properly constructed Will.  This can save your next of kin up to £114,000.

HOW TO USE YOUR WILL

Everybody has an allowance on first death of £285,000.  You can make use of this allowance by including in your Will a clause, which passes all money, investments and your share of the value of your property up to £285,000, into what is termed a "Discretionary Trust".  This is for the benefit of your surviving spouse, children and grandchildren.

On first death the Trust is set up with the help of our solicitors and registered with the Capital Taxes office.  The survivor has access to any income from the Trust and if necessary, could be granted the right to take interest-free, lifetime loans.  Because of the way our solicitors have created the Trust clauses, the survivor will also enjoy full access to the family home.

Your estate is then reduced for Inheritance Tax purposes on second death by whatever value the trust is created by on first death.  For estates up to £570,000 you can reduce your children's Inheritance Tax bill to NIL.

HOW A DISCRETIONARY WILL TRUST CAN SAVE UP TO £114,000 TAX

Imagine your total joint estate is valued at ££570,000.  If left as it is, the Inheritance Tax bill would be £114,000 as shown in the 4th example below.  You could divide your estate into two equal halves of £285,000 and include in both Wills directions to your Executors to set up a Discretionary Trust with your half of the Estate on your death.

On first death your £285,000 is placed into the Trust for the benefit of your spouse, children and grandchildren.  This would leave your spouse with an estate of £285,000.  Since they also have an allowance of £285,000 on their death, the tax to pay would be NIL.

SOME MORE EXAMPLES

If your estate is valued at over £570,000 then there are further options available to deal with the excess, which can be discussed when you meet with our consultant.

HOW MUCH DOES IT COST?

All estates are different and the costs vary depending on the value of your property and the size of your estate.  Because of this, we offer a free no obligation 45 minute consultation at your home.  We will advise you of the cost before starting work and will do nothing without your consent.  

• This information is designed to give you a basic idea about protecting your estate against Inheritance Tax.  It does not go into great detail about the Trusts and should not be considered as a recommendation from W.D.S Will Writers Ltd or our sister company National Professional Wills.  Because every circumstance is different you should discuss all options in detail with one of our advisers.

Summary:

It's OK swimming in the Inheritance Tax sea as long as you take steps to avoid being bitten.  Inheritance Tax is an avoidable Tax as long as Professional guidance is taken ~ and this is where we can help.

There are also income & capital gains Tax implications when setting up the trust (after 1st death) which should be considered.