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HM Revenue & Customs took £5.2bn in inheritance tax (IHT) in 2017-18, 8% up on the previous year and the highest level ever collected. Record high inheritance tax receipts are great news for the Government, but they also signal the importance of organising your afterlife.

The statistics suggest more and more tax is now being paid by UK individuals in their estates because they haven’t done any tax planning, or they’ve left it too late. As accountants, tax is our business – and having a specialist by your side can ensure you gain the maximum reliefs while going through the probate process.

What is probate?

Probate refers to the legal and financial processes involved in dealing with the property, money and possessions (also called the assets) of someone who has died.

Accountants or lawyers?

Historically the preserve of lawyers, probate opened up to accountants in 2014 when the Institute of Chartered Accountants in England and Wales was approved to regulate probate services. Haines Watts can now offer expert advice in probate affairs. For clients, there are obvious benefits to consulting their accountant rather than a lawyer.

Because your accountant or tax advisor is already handling your tax planning, they’ve got all the knowledge and information needed to ensure that all the detail is being followed during probate and all the relevant reliefs are being granted by HMRC.
The client at this point is going through a tough time; they’ve lost someone they love – a family member or someone close to them. We may have been advising them for years, so we’re their trusted advisor.

Official hurdles

Probate applications – the PA1 form – can be particularly daunting. This involves details about the estate values and, all the beneficiaries. IHT forms have to be filled out with HMRC to calculate the amount of tax to be paid. The hurdle people fall over is that the inheritance tax has to be paid six months from date of death before Probate is granted. For a grieving family, it’s the last thing they want to be doing after sorting out the funeral and the house.

Don’t pay twice

Typically, the tax calculations related to valuing an estate are passed to an accountant, even if probate is handled by a law firm. Effectively the client ends up paying two firms whereas if they’re able to just go to an accountant who’s licensed to do this, they’re only paying once.

Using an advisor to complete the probate and IHT forms is not a legal requirement – but it may save time and pain later.
The issue you have is that you might save on cost if you do it yourself, but you might end up paying a higher rate of tax. People save all their lives to pay off their mortgage and provide for the future of their family – the worst thing to happen then is for the Revenue to take 40% of that back.

Inheritance saving strategies

1. Make sure you have an up-to-date will. If you made your will ten years ago, life may have changed a great deal since then.
2. Get your tax planning organised sooner rather than later. ‘Death-bed planning’, as it’s called, can be done – but it isn’t as effective.
3. Maximise your gifts Charitable giving, wedding gifts, small gifts not exceeding £250, and gifts from surplus income are ‘exempted gifts’ and can all be utilised to reduce your IHT exposure.
4. The seven year rule If there’s any IHT to pay, it’s charged at 40% on gifts given in the 3 years before you die. Those made 3 to 7 years before your death are taxed on a scale known as ‘taper relief’.
5. Don’t be tempted to try and deal with it all yourself. Speak to someone you trust about how they can help.

Read more like this:

ISAs and Inheritance Tax

Capital Gain Tax uplift on death

For more information about how Haines Watts can get your probate in order, find and contact your local Haines Watts office.

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