Don’t leave your heirs embroiled in years of legal feuding
If you leave everything to your spouse or registered civil partner, in this instance there usually won’t be any Inheritance Tax to pay because a spouse or registered civil partner counts as an exempt beneficiary. But bear in mind that their estate will be worth more when they die, so more Inheritance Tax may have to be paid then.
You can currently leave up to £325,000 tax-free to anyone in your will (frozen until April 2014), not just your spouse or civil partner. So you could, for example, give some of your estate to someone else or a family trust. Inheritance Tax is then payable at 40 per cent on any amount you leave above this.
Inheritance Tax isn’t payable on any money or assets you leave to a registered UK charity – these transfers are exempt.
In Budget 2011 the rate of Inheritance Tax was cut from 40 per cent to 36 per cent from April 2012 for those who leave at least 10 per cent of their estates to a good cause.
Wills, trusts and financial planning
As well as making a will, you can use a family trust to pass on your assets in the way you want to. You can provide in your will for specific assets to pass into a trust or for a trust to start once the estate is finalised. You can also use a trust to look after assets you want to pass on to beneficiaries who can’t immediately manage their own affairs (either because of their age or a disability).
You can use different types of family trust depending on what you want to do and the circumstances. If you are planning to set up a trust you should receive specialist advice. If you expect the trust to be liable to tax on income or gains you need to inform HM Revenue & Customs Trusts as soon as the trust is set up. For most types of trust, there will be an immediate Inheritance Tax charge if the transfer takes you above the Inheritance Tax threshold. There will also be Inheritance Tax charges when assets leave the trust.