Inheritance Tax is usually paid on an estate when somebody dies. It is also sometimes payable on trusts or gifts made during someone’s lifetime. Most estates do not have to pay Inheritance Tax because they are valued at less than the threshold (£325,000 in 2011-12).

In the Finance Act 2010 it was announced that threshold would be frozen at £325,000 until 2014-2015.

The threshold is extremely important and is known as ‘the Nil Rate Band’.

The Nil Rate Band is the level of assets someone who dies can leave without inheritance tax becoming payable.

Since October 2007, married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies – to as much as £650,000 in 2011-12. Their executors or personal representatives must transfer the first spouse or civil partner’s unused Inheritance Tax threshold or ‘Nil Rate Band’ to the second spouse or civil partner when they die.

 Example:

Barbara and Barry are married. Barry has not left any gifts during his lifetime and when he dies his entire estate passes to his wife, Barbara. This means that the amount passing to Barbara is exempt from tax because she is his spouse.

Barry therefore leaves a nil rate band of £325,000.

When Barbara dies this means she will have in essence two nil rate bands totaling £650,000.

So, her house worth £200,000, her shares worth £250,000 and her savings of £10,000 can pass direct to her children under her Will without any inheritance tax becoming due.

 There are lots of situations when the bands can be transferred and there are gifts that sometimes need to be reduced. It is often useful to seek advice regarding gifts and if the Nil Rate Band can be used.

 What are the Exemptions and Reliefs?;

 Sometimes, even if your estate is over the threshold, you can pass on assets without having to pay Inheritance Tax. Examples include:

• Spouse or civil partner exemption. Your estate usually doesn’t owe Inheritance Tax on anything you leave to a spouse or civil partner who has their permanent home in the UK – nor on gifts you make to them in your lifetime – even if the amount is over the threshold.
• Charity exemption. Any gifts you make to a ‘qualifying’ charity – during your lifetime or in your will – will be exempt from Inheritance Tax.
• Potentially exempt transfers. If you survive for seven years after making a gift to someone, the gift is generally exempt from Inheritance Tax, no matter what the value.
• Annual exemption. You can give up to £3,000 away each year, either as a single gift or as several gifts adding up to that amount – you can also use your unused allowance from the previous year but you use the current year’s allowance first.
•  Small gift exemption. You can make small gifts of up to £250 to as many individuals as you like tax-free.
•  Wedding and civil partnership gifts. Gifts to someone getting married or registering a civil partnership are exempt up to a certain amount.
•  Business, Woodland, Heritage and Farm Relief. If the deceased owned a business, farm, woodland or National Heritage property, some relief from Inheritance Tax may be available.

 If an estate does not fall into the nil rate band or any of the above exemptions and reliefs then Inheritance Tax may be payable.

Inheritance Tax is calculated at 40% of the deceased’s estate.

Who pays the Inheritance Tax?

Inheritance Tax is payable by different people in different circumstances. Typically, the executor or personal representative pays it using funds from the deceased’s estate.

 The trustees are usually responsible for paying Inheritance Tax on assets in, or transferred into, a trust. Sometimes people who have received gifts, or who inherit from the deceased, have to pay Inheritance Tax – but this is not common.

 It is often the case that if an estate is likely to attract Inheritance Tax then the deceased will have been or should have been advised regarding Inheritance Tax.

 Insurances can be put in place to assist with the payment of Inheritance Tax and this is often useful if someone would not want a family home to be sold in order to repay this amount.

Who pays the Inheritance Tax on certain gifts can also be stipulated in a person’s Will, if that person wishes to be specific about this.

 How to pay Inheritance Tax?

 If it is calculated that IHT is due from an estate then it should be carefully considered as to how a payment will be made and when.

A full account of the deceased’s estate will be required in any event. Firstly, to enable an accurate calculation to be carried out and secondly, to account to show that either IHT is not due or to show that it is due and should be calculated on £x.

 If IHT is payable then the person dealing with the estate needs to apply for an IHT reference number from HMRC. This number should then be quoted on every correspondence and especially on every payment made.

 HMRC will send by post a note of the reference, a payslip and a payment envelope. Taxpayers can then arrange to pay any tax due using Direct Payment Scheme, at a bank, via an electronic transfer or by cheque.

 The relevant form for the IHT account needs to be completed. This is called form IHT400. This can be downloaded from HMRC website or collected from a local court or registry. Your solicitor can assist or complete this form on your behalf when dealing with an estate that is in probate.

 Note, that even if inheritance tax is not payable and an estate is exempt then a person dealing with an estate must complete the relevant form IHT205 which confirms if an estate is exempt and that inheritance tax is not payable.

 Helpful Hints;

• It is important to remember to apply for the reference in good time. The HMRC recommend a period of at least three weeks. Any delay in obtaining the reference could delay in making the payment
• All inheritance forms can be completed online, the forms can be saved and returned to later to allow for extra information to be sought and extra time allowed.

HMRC published a helpful toolkit on 29 September 2010. This provides guidance on the errors that commonly occur. http://www.hmrc.gov.uk/agents/toolkits/iht.pdf

When a loved one dies, before probate is granted, no one has the right or obligation to deal with the deceased’s estate.  Their assets and property cannot be dealt with until the Probate Registry grants a Grant of Representation giving legal authority to the Executor nominated in the deceased’s Will.

This assumes that the deceased did leave a Will, in which case the estate passed to whoever is named within it.  If no Will was written, then the Rules of Intestacy apply.

It is difficult to state with certainty how long the probate process will take.  This depends on a number of factors, such as how many assets there are, the type of those assets, and whether the supporting documents are readily available.  Generally speaking, the probate process does take some months.

The Executor’s duties;-

The Executor has certain duties, such as providing details of all the deceased’s assets and debts.  A tax return can then be prepared in respect of the estate.

Other executor’s duties are;-

• To inform relevant people of the death; next of kin, close family and those named in the Will as heirs.
• To inform relevant people, as above, of their role as Executor.
• To obtain the Will and carry out its contents.
• To register the death, if this has not been done.
• To make the funeral arrangements.
• To locate any beneficiaries.
• To make a list of all the deceased’s assets, locating all the necessary paperwork, such as bank statements, cheque/paying in books, building society passbooks, mortgage statements, credit card statements, stocks and share details, pension details, business accounts and any cash.
• To make sure the property is secure i.e. locking doors/windows and setting alarm.
• To obtain the death certificate.
• To locate any insurance policies i.e. life insurance, house insurance.
• To gather together all unpaid household bills and other debts, and then to ensure that those debts are paid by the estate by locating any creditors.
• To gather together all tax documents and wage slips.
• To complete and file any necessary tax return.
• To ensure that the net proceeds of the estate are distributed in accordance with the Will.

As you can see, the task of acting as Executor is very demanding and you may need specialist advice from a Probate & Estates Solicitor in order to carry out all the necessary duties.

You can be sure that our Probate & Estates Solicitor can provide you with guidance and support, taking away the problems sometimes faced by Executors, such as locating missing beneficiaries and filing the necessary tax return.

Call our Probate & Estates Solicitor, Stacey Phoenix, for free no-obligation legal advice.

Paul Watson Solicitor, who has been qualified for over 30 years, passed examinations in Private Child Law and Domestic Abuse to gain his specialist status under the Resolution scheme.

Originally set up in 1999, the scheme is designed to help people who are facing family breakdown to make an informed choice when deciding which family solicitor to appoint.  To become a Resolution accredited specialist, family solicitors to appoint.  To become a Resolution accredited specialist, solicitors have to agree to upholf the Resolution Code of Practice and to have passed a written test demonstrating a breadth of knowledge of family law issues and specialist knowledge in at least two areas of family law.

Paul Watson comments, “As a Resolution member, I am committed to encouraging a non-confrontational approach to resolving family disputes. That way, both the emotional and financial costs of divorce or family breakdown are minimised for those involved.  Now, by choosing a Resolution specialist, individuals can be assured that they are being advised by someone who has a wide knowledge and experience of family law, and has the qualifications to demonstrate it.”

Looking for advice from a family law solicitor?  Call us now for a free initial, no-obligation appointment.

Mediation can take place as often as the parties like and for as long as the parties are willing. It can also be revisited after an agreement has been reached, if necessary. Mediation is also available to parties who are already involved in court proceedings and can be vital for even the narrowest of issues.

If either party feels at any stage that the process is not working, then they have the option to apply to the court. It is imperative that legal advice is sought from a Family Solicitor during the mediation process, as this ensures that the final agreement is legally binding on both parties.

Mediation also has costs advantages. If you are assessed as eligible, mediation can be funded by the Legal Services Commission and would therefore be free of charge. Even if Legal Aid is not an option then it is important to note that mediation rates are usually less than the rates of solicitors and an agreement is usually reached in a shorter period of time.

As a firm it is our intention is to seek resolution for our clients in a way that is best suited to their needs. Every case is different and in some circumstances, mediation will not be suitable.  However, due to the new Mediation Protocol under the Family Procedure Rules 2010, mediation must always be considered in every case.

If you need help regarding a family dispute, please contact our Family Solicitor, Stacey Phoenix, for a free no-obligation appointment or discussion via telephone.

Mediation is not the appropriate service for reconciliation.  Instead, it attempts to resolve issues resulting from the breakdown of a relationship and not resolving the breakdown of the relationship.

If you need help regarding a family dispute, please contact our Family Solicitor, Stacey Phoenix, for a free no-obligation appointment or discussion via telephone.

Statistics suggest that agreements reached at mediation have a higher success rate; this is mainly due to the fact that both parties have mutually agreed the arrangements. Mediation has obvious advantages, especially when children are involved, as it removes a degree of hostility and confrontation.

The New Family Procedure Rules 2010 Mediation Protocol also ensures that mediation is considered in relation to applications for children; this includes disputes about contact and residence, save for in emergency circumstances.

Mediation can also be considered during proceedings and if a Judge believes that the parties would benefit from mediation then the court proceedings can be postponed whilst mediation is reconsidered.

If you need help regarding a family dispute, please contact our Family Solicitor, Stacey Phoenix, for a free no-obligation appointment or discussion via telephone.

It may be at this stage that further negotiations can be undertaken via solicitors or the case may require court intervention to reach an agreement.

Neither person is allowed to use the content of the mediation sessions as evidence in legal proceedings, if mediation fails and the matter goes to court. The discussions at mediation remain confidential and this information will not even be disclosed to the parties’ solicitors. This is why it is essential that you discuss matters with your Family Solicitor and receive advice throughout the mediation process.

If you need help regarding a family dispute, please contact our Family Solicitor, Stacey Phoenix, for a free no-obligation appointment or discussion via telephone.

By removing the court room battles that often surround a divorce or separation, couples will save considerable amounts of money and time.

If you need help regarding a family dispute, please contact our Family Solicitor, Stacey Phoenix, for a free no-obligation appointment or discussion via telephone.

Once both parties have received legal advice and assuming you are both still happy with the proposals, the summary prepared by mediation will be drafted as a legally binding document and approved by the court. This is merely a ‘rubber stamping’ exercise and in the majority of circumstances, neither party will be required to attend court.

When the Family Solicitors have drawn up the agreement, known as a “consent order”, this will be signed by all parties and sealed by the court. This will ensure that the agreement is legally binding and can be enforced by the court, should either party breach the agreement.

If you need help regarding a family dispute, please contact our Family Solicitor, Stacey Phoenix, for a free no-obligation appointment or discussion via telephone.

If you decide not to mediate, this stage is necessary if you want to go to court, as the court will expect a certificate from the mediator saying whether or not the case is suitable for mediation before you can start court proceedings.

The mediator will speak to you briefly about the process to ensure you understand how it works. They will then contact the other party and have the same conversation with them. Sometimes mediators prefer to do this face to face, rather than on the telephone.

Further meetings will be scheduled, at which you might work on communication issues, renewing arrangements for residence or contact with children, exchanging financial information and considering available options. The mediator may suggest other help, such as financial advice or support for your children. Between meetings it is advisable for parties to seek advice from their solicitors; this allows for any questions to be answered and the relevant advice to be given.  

If you need help regarding a family dispute, please contact our Family Solicitor, Stacey Phoenix, for a free no-obligation appointment or discussion via telephone.