How Are Assets Valued for Inheritance Tax in 2023?

Assets Valued for Inheritance Tax

When somebody passes away, their estate is sold and distributed by a nominated executor who is going to be responsible for valuing the assets and selling them in the most appropriate way. The valuation process includes the valuation of everything that the individual owned at the time of their debt, minus any of the outstanding debts that they had.

Why Does an Estate Need to Be Valued?

There are a number of reasons as to why an estate needs to be appropriately valued. These include the following:

  • The value of the estate is necessary in order to make a proper probate application.
  • The value will tell you whether or not inheritance tax needs to be paid (and if so, how much needs to be paid).
  • Certain aspects need to be properly valued to calculate the Capital Gains Tax which is needed on any assets which have increased in value since the deceased’s passing away.
  • Finally, valuing the estate makes it possible to ensure that all of the necessary debts are going to be paid correctly by the estate and that what can be distributed to the beneficiaries will also be accurate.

The gross value of the estate is the value of all the assets combined. The total value is everything before funeral expenses, mortgages and debts are deducted. The net estate value is the amount left over once liabilities like funeral expenses and debts have been paid prior to any exemptions applied by inheritance tax.

When is an Estate Valued for Probate?

When the executor of the Will is going through the probate process, one of the first things that need to be done is the value of the estate has to be calculated. This is due to the fact a grant of probate needs to be obtained in order for the distribution of assets to take place and a grant cannot be obtained until Inheritance Tax forms have been completed. Naturally, to calculate the value of inheritance tax, the value of the estate needs to be understood.

If Inheritance Tax has to be paid on the estate then this should be done towards the end of a six-month period after the individual has passed away. It can take months to get an estate valued and therefore, it should be done as soon as possible. There are even some instances where you might have to pay tax before the valuing of the estate is even finished. 

Valuing the Estate for Inheritance Tax

One of the most important reasons why the value of an estate needs to be accurately calculated is because it will help determine whether or not Inheritance Tax is due and if so, how much Inheritance Tax is due. Every estate has a tax-free allowance, this essentially means that anything under a certain limit (or threshold) will not be subject to Inheritance Tax. Currently, the relevant threshold for an estate to become non-taxable (as set out by HM Revenue & Customs) is £325,000.

There also might be another £175,000 tax-free allowance that people could be eligible for depending on whether they are passing down their home to their children or grandchildren. This specific tax allowance is called the residence nil rate band. There are also a number of different Inheritance Tax exemptions that might be applied, it depends on the estate and also who the estate is being inherited from. For instance, if anything is being left to either a charity or to the deceased’s spouse then this isn’t going to be liable for Inheritance Tax.

Valuing Different Parts of the Estate

Some of the main parts of the estate that need to be valued are the assets which make up the estate as well as lifetime gifts and also liabilities/debts that are owed.

When an asset is valued it has to be done so at an open market value. The open market value is the price that an asset might fetch if it was sold on the market at the time of death. The selling price has to be realistic as opposed to being an insurance value or a replacement value.

The different assets that make up the estate include anything which was owned either solely or in distinct shares by the deceased. It also includes anything which was owed to the deceased such as unpaid wages. Different assets which form the value of the estate include the following:

  • Leftover money in bank accounts
  • Land and property
  • Personal possessions
  • Business assets

How Is an Estate Valued?

The first thing that needs to be done is a list of all of the deceased’s assets, debts and tax gifts that aren’t exempt from seven years before their death should be prepared. This information isn’t always readily on hand and as such, research is required beforehand so that people can find out the value of different assets.

You should start by going through the paperwork which is available and also speak to family members, professionals and also friends who might be able to help you. Be prepared as chances are you are going to need to prove you have the right authority to request such information as a lot of it is confidential.

Some of the different people and organisations that you need to write to in order to find out more about the deceased’s assets include:

  • Banks and building societies
  • Pension providers
  • The deceased’s employer
  • Companies that the deceased had shares in
  • Organisations which are holding assets in a trust
  • Life insurance providers
  • Friends and family members

Do You Need Help with Estate Valuation

If you are currently trying to apply for probate and need to pay inheritance tax and need help with valuing an estate, at Probates Online we are able to help. We will sit down and have a look at the estate with you and help to apply for probate and value it. If you have any questions or require any further information then do not hesitate to get in touch.

Grant of Probate Delays Continue to Rise in the UK, Why?

Grant of Probate Delays

Families out there who are attempting to administer the estate of a loved one continue to be faced with frequent delays with their applications for a Grant of Probate. A recent article published by STEP reported that around 23,572 applications were received in January by the HM Courts and Tribunal Service. This is a massive increase compared to the previous month, which only saw 18,275 applications. That increased trajectory continues and is just one of the factors which are leading to delays in issuing grants of probate.

What is Probate?

Probate is common in England and Wales when someone passes away, and their family need to deal with the administration of their estate. Probate is the word used in order to describe the financial and legal process surrounding property, possessions and money for a person who has passed away.

Probate is the process necessary to prove that a will is valid. It also proves who is officially authorised to administer the estate of the individual who has died. Before anything can be done with the assets that make up the estate of the deceased, the next of kin or executor will need to apply for a grant of probate.

What is a Grant of Probate

A grant of probate is the official legal document which is assigned to the executor so that they can access bank accounts, settle debts and sell the assets of someone who has passed away. It should be noted that this document is only referred to as a grant of probate when someone leaves a will; otherwise, it is referred to as a grant of letters of administration. Both of these documents work in a very similar way to one another.

Once probate has been granted, it means that whoever was left in charge of the will is able to deal with the deceased person’s assets. If there has been a will left, then this process is much more straightforward as the will is going to lay out where everything should go and who should benefit from what assets.

The Probate Process

A lot of tax, financial and legal work goes into the probate process. The steps necessary include the following:

  • Phase 1: The first thing to do is identify all of the deceased’s assets. All of the liabilities and debts which are owed by the deceased also need to be properly worked out. Steps also need to be taken in order to work out who is entitled to inherit what as per the terms laid out in the will.
  • Phase 2: Inheritance tax needs to be paid to HMRC wherever it is applicable. Afterwards, an application to the Probate Registry will be made for the grant of representation, which is a document outlining who has the legal authority to administer the estate.
  • Phase 3: Once the grant of representation has been assigned, whoever is administering the estate is going to be responsible for liquidating different assets and settling the liabilities of the deceased. Accounting for HMRC and expenses for administration and accounting should also be settled.
  • Phase 4: The estate accounts need to be prepared so that all payments can be made into and out of the estate. This will reveal the balance left and, subsequently, what is going to be sent out to the beneficiaries.
  • Phase 5: So long as there aren’t any complicating factors that will get in the way of the distribution, the final phase of the process involves simply transferring different assets to the beneficiaries.

Why Are There Delays for Grants of Probate?

As discussed above, there are an increasing number of applications made for a grant of probate, and naturally, the process is delayed following such an increase. That being said, there are other factors that can also lead to a delay in the grant of the probate application process. Some of the most common causes of delays include the following:

  • Missing Documents: A lot of the time, delays tend to be caused when the documents needed to support the application aren’t submitted at the same time as the application.
  • Missing Information About Inheritance Tax (IHT): As discussed throughout the process above, inheritance tax needs to be paid before the application can officially be approved. As such, the forms for inheritance tax need to be filled in and submitted 20 days before the application is made. If this isn’t done, then it could lead to undue delays.
  • Missing Executors: The whole point of getting a grant of probate is so that executors are able to start settling debts and distributing work to beneficiaries; as such, information about the executors needs to be available when the application is made. If this isn’t done, then it could cause delays as the court will need to find out information about who the executor is.
  • Questions About the Condition of the Will: There are a number of laws and restrictions put in place in order to make sure that a Will is legitimate. As such, in order to lessen the risk of fraud as much as possible, if there are any stains on a will, staple holes, tears or pages missing, these could all be questioned, slowing down the process.
  • An Inability to Locate the Will: Wills should be registered because this means that they are easier to find. If there are problems locating a will after someone’s death, then it could slow down the process for a grant of probate.

Do You Need Help with Applying for Probate?

As can be seen above, there is a lot that goes into applying for a grant of probate and a number of factors can slow the process down. If you want to speed up your application as much as possible and cut out complications, then be sure to reach out to Probates Online. Our team of experts will be able to help you with your application. If you require any further information, then do not hesitate to get in touch.

Procedure for Grant of Probate for Tenants in Common

Grant of Probate for Tenants in Common

When a joint tenant dies, the deceased’s share of the property automatically passes to the surviving tenant. Known as Right of Survivorship, there is no need to apply for a Grant of Probate in these circumstances. However, if one owns a share of a property as a tenant in common, if one of the owners dies, their share does not automatically pass to the remaining co-owners. What happens to that share largely depends on whether they left a will or not. Either way, a Grant of Probate for tenants in common will be required in order to administer the estate of the deceased, including their share of the co-owned property.

What do we mean by tenants in common?

Under a tenants in common agreement, each individual person owns a share of the property, but it doesn’t need to be equal shares. How much of a share each person owns could be broken down by who put the most money into the property or, if buying with family, a parent might own 50% of the property but their two children a share of 25% each.

In most cases, when friends are buying a property together or families help their children get on the property ladder, a tenants in common agreement will be used. It is different from a joint tenancy in that each owner is allowed to sell their share of the property or leave their share to anybody in their will. It is also possible for one owner to mortgage their share of the property, but that is rare, principally because most mortgage lenders would be unwilling to lend on this basis.

However, certain clauses that can be written into the agreement can state no owner is allowed to sell without giving the first refusal to the other owners, or they have the option to ‘vet’ any potential new owners. If this clause isn’t in the agreement and an owner decides to sell their share, the remaining co-owners are entitled to file a petition action with the court which asks the court to sell the property via a court order and the proceeds of the sale are distributed equally among all the owners.

The agreement should include who is responsible for paying the mortgage and other bills, although in most cases, a joint account is set up, and each owner pays their share of the outgoings into this account. However, as tenants in common, there are a number of legal rights for each owner:

  • The tenant in common owner can’t be forced to leave the property without a court order.
  • None of the other tenants in common owners can sell the entire property without every owner’s agreement or court order.
  • No additional loans can be taken out against the property without every tenant in common owner’s agreement.

However, it is possible to add owners at a later date and include their names on the property’s title deeds.

Grant of Probate for tenants in common

So, let’s look at it in more detail. Firstly, let’s give you some examples of situations where a property is owned by tenants in common.

  • Parents and their children – often, parents help their children get on the property ladder by investing in a property with them and will own the property together with a tenants in common agreement.
  • Business partners – a tenants in common arrangement works well if either business partner wishes to pass on their share in the property to a family member, such as their spouse and/or children.
  • Co-habitees – couples living together may want to protect their share of the property should the relationship not continue or if they want to leave their share of the property to someone other than their co-habitee on their death.
  • Married couples with children from a previous relationship – to ensure children from a previous relationship don’t miss out on any inheritance, a tenants in common agreement is put in place so that each co-owner can leave their share of the property to their own children. However, in this situation, it is a good idea to ensure the new spouse has the right to live in the property until their death, i.e. a life interest.

When a property is owned by a tenants in common agreement, there are two situations when a co-owner of a property dies; they either left their share to another party in their will, or they didn’t leave a will and therefore the Rules of Intestacy with regards to inheritance applies. The one point to remember is that with tenants in common, a co-owner’s share of the property does not automatically pass to the other co-owners because there is no Right of Survivorship with this type of ownership.

If the deceased made a will, it is highly likely they will have stated who inherits their share of the property. In some cases, they may have made another co-owner a beneficiary or even named all other co-owners to receive an equal share. Alternatively, they may have left their share to a family member or another beneficiary.

If they didn’t make a will, the Rules of Intestacy are applied, and their share of the property will pass to the deceased’s nearest living relatives. If there are no living relatives to receive the inheritance, it will pass to the Crown.

Whether there is a will or not, either the executors, if there is a will or a close family member will be required to apply for a Grant of Probate. This is because it is highly likely that the value of their share of the property will exceed the £10,000 limit of probate not being required.

Declaration of Trust

In many tenants in common situations, it is advisable to get a Declaration of Trust drawn up, which details what share of the property each owner has. This document should also list who pays for what in terms of outgoings, such as bills, mortgage and maintenance. It can also be used should a co-owner decide to sell their share of the property, whether they can do that with or without the consent of the other owners, or if one of the co-owners wishes to sublet their share. When parents are contributing to the purchase of a property for their children, such as paying the deposit, it is a good way to ensure they get their money back.

At Probates Online, we offer a will writing service or a Complete Estate Service to help you through the probate process and estate administration upon the death of a loved one. If you are looking for advice on inheritance tax, gifts or trusts, or need to apply for Grant of Probate, Letters of Administration or would like to take advantage of our entire Estate Administration service, visit our website for more information or contact us today.

What Is a Limited Grant of Probate in the United Kingdom?

Limited Grant of Probate

If a will is disputed by potential beneficiaries of an estate on the death of a person, those disputing the validity of the will can apply to the Probate Registry for a caveat to be placed against the deceased’s estate. This prevents the executors of the will from obtaining a grant of probate and stops them from administering the estate.

In these situations, it can take considerable time before the matter is resolved. In that time, not being able to collect and subsequently sell the assets of the estate may result in not only the deterioration of the asset, such as property but also in a reduction in the value of the estate.

In these circumstances, it may be possible to apply to a court for a limited grant of probate that allows the executors to continue administering the estate in order to protect its value, as well as pay any estate liabilities, such as tax.

What is a limited grant of probate?

In the UK, there are several reasons for contesting a will, and they are:

  • Testamentary capacity – did the deceased have the required mental capacity to make a valid will?
  • Due execution – there was a failure to meet the required formalities when making the will. For example, the will wasn’t correctly signed and witnessed.
  • Insufficient knowledge and approval of the will – did the deceased know about and understand the meaning and/or content of the will?
  • Under undue duress or influence – was the deceased under pressure from another party to make or change their will?
  • Forgery or fraud – was any part of the will changed without authority, or were the signatures faked?
  • Rectification and construction – is the will or any of its content unclear, ambiguous or does not carry out the deceased’s wishes or intentions?

Anyone that wishes to contest a deceased’s will must do so within six months of the date the grant of probate was issued. However, if the will is contested before the grant of probate has been granted, the executors of the deceased’s estate can no longer proceed with the administration of the estate.

In order to maintain and preserve the assets of the estate’s value and pay its liabilities, such as paying inheritance tax to HMRC, the executors (usually done via a solicitor as the person that applies must be independent of the dispute) can apply for a limited grant of probate.

Called a Grant ad colligenda bona, it means that the executors or administrator of an estate is granted permission to preserve the estate’s assets but not distribute any assets. However, they are in some cases allowed to continue with the sale of a property or other assets if they are not part of a beneficiary’s inheritance. In addition, HMRC will require a full account regarding the estate.

A limited grant of probate is only valid for six months. If the dispute hasn’t been resolved within that time, the executors will need to apply for a continuation of the limited grant of probate. Solicitors are also able to apply for a ‘grant pending determination of a probate claim’. Both provide the authority to gather in and preserve the deceased’s assets as part of their estate, and continue to administer the estate, but cannot distribute any part of the estate to beneficiaries, including any monetary amounts gathered, until the dispute has been resolved and full grant of probate or administration has been made by the Probate Registry.

Applying for a limited grant of probate in these circumstances, or if a caveat has been lodged with the court, means that the value of any assets that may depreciate in value if they are not maintained is preserved, thereby avoiding any potential of negligence allegations at a later date.

If any assets or funds that are part of the deceased’s estate are distributed, the personal representatives of the estate, i.e. the executors or solicitor, may be held personally liable for the assets or funds that have been paid out to beneficiaries.

Applying for a limited grant of probate

Applying for a limited grant of probate, which can include limited grants of administration to solicitors, grants pending suit (called pendente lite) and grants to the use and benefit of a minor, must be done through the Probate Registry.

The application must be supported by an Affidavit and Oath detailing the reasons why a limited grant of probate is required. For example, if a property forms part of the estate and due to the time taken to resolve any dispute, the empty property may fall into disrepair, a limited grant of probate may be granted to allow the executors to look after the property and preserve its value. Before the Probate Registry can issue the grant, it must also be approved by HMRC and the District Registrar. Although in urgent cases the grant can be approved quickly, most of the time it takes four to six weeks.

Once the Grant ad colligenda bona has been approved, it is important that the powers within the limited grant are not exceeded. In addition, once the dispute has been resolved to the satisfaction of all parties or all the information required has been gathered, the executors (or solicitor) of the deceased’s estate will still need to apply for a full grant of probate. Without this, they will not have the authorisation to distribute the estate’s assets to beneficiaries in accordance with the deceased’s wishes.

At Probates Online, we offer a will writing service or a Complete Estate Service to help you through the probate process and estate administration upon the death of a loved one. If you are looking for advice on inheritance tax, gifts or trusts, or need to apply for Grant of Probate, Letters of Administration or would like to take advantage of our entire Estate Administration service, visit our website for more information or contact us today.

How Long Does a Grant of Probate Take in the United Kingdom?

Grant of Probate Take

When someone dies in the United Kingdom, if they leave an estate, i.e. their assets, that is valued at more than £5,000, an application for a Grant of Probate is necessary if there is a will. If there is no will, Letters of Administration will need to be applied for, which is a form of probate.

Only an executor of a will, or next of kin if there is no will, are allowed to apply for Grant of Probate, or Letters of Administration respectively. But how long is Grant of Probate time and what other aspects can speed up or delay the process?

What is a Grant of Probate?

Grant of Probate is the official authorisation from the court that allows the executor(s) of a deceased’s will to administer their estate. This includes assessing whether any Inheritance Tax (IHT) is due to be paid and settling with HMRC, finalising the deceased’s accounts and distributing assets to beneficiaries according to the deceased’s wishes as detailed in their will.

Letters of Administration is the same as Grant of Probate but for deceaseds’ estates that do not have a will but grant the next of kin authorisation to administer the estate in the same way an executor would do so.

Is a Grant of Probate needed?

If the value of the deceased’s estate is over £5,000, then a Grant of Probate from the court is needed.

If the deceased left a will, the appointed executor(s) applies for a Grant of Probate. If there isn’t a will, the deceased’s next of kin or a family member applies for Letters of Administration; they will be called the Administrator. Both grant the recipient the authority to administer the deceased’s estate. 

There are other situations where Letters of Administration are needed instead of Grant of Probate, and they are:

  • One person has been left the entire estate;
  • There are no executors named in the will;
  • The named executors are not prepared to accept the role.

It is not always necessary to apply for a Grant of Probate. For example, if the majority of the deceased’s estate is jointly owned with their living spouse or civil partner.

What is the current Grant of Probate time?

The person’s death should be registered within five days and the application for Grant of Probate must be submitted to the Probate Registry within six months.  The reason for this is that any IHT due must be paid to HMRC within this time frame.  So, the earlier you can apply for a Grant of Probate, the quicker you will be able to submit the relevant forms to HMRC regarding the estate’s value.

The Grant of Probate time is normally within 8 weeks from the time the application is received. The Probate Registry will start to action your application – most individuals and solicitors apply online – but you will also need to send originals of certain documents, like the death certificate. Any delay in sending these documents may result in the approval of the Grant of Probate.

When you submit your application, you will need to pay an application fee, which is currently £273 if the estate is valued at over £5,000. If below this valuation figure, there is no fee to pay. It is always advisable to purchase at least one extra copy of the Grant of Probate document (£1.50/copy) as you may need to send an original copy to other parties, such as HMRC. However, the Probate Registry is still catching up from the delays incurred during the Covid-19 pandemic so it may take a few weeks longer to receive a Grant of Probate or Letters of Administration.

Applying for Grant of Probate/Letters of Administration

The process for Grant of Probate or Letters of Administration is similar.  Before you apply, make sure you have: 

  • An official copy of the death certificate (if applying online, you can scan the certificate as an image to upload it and send the original by post);
  • The original will;
  • The application fee.

You can only apply for probate online if all the named executors are alive and able to make decisions and the deceased lived the majority of their life in England and Wales.

If the executor(s) or next of kin aren’t sure about applying for a Grant of Probate or Letters of Administration, a solicitor is able to complete the process on their behalf. If there is a will, the process for applying is:

  • Complete and submit Grant of Probate or Letters of Administration forms. It’s a good idea to complete HMRC’s inheritance tax forms at the same time. All of the forms can be submitted online but you will need to send the original documents, such as the will and death certificate, as well.
  • Pay any inheritance tax due on the estate to HMRC, if applicable. The Probate Registry will liaise with HMRC to ensure this has been completed.
  • Whilst waiting, pay any outstanding debt, such as utility bills, credit card balances, loans or mortgages.
  • If there’s life insurance, contact the company to claim the fund’s payout as this may be enough to cover any outstanding debts and funeral costs.

At the same time, the application is being processed, advise beneficiaries of progress and contact the utility companies, banks, insurers and mortgage providers to request they close the deceased’s account. This stops any additional charges from being applied; also ask them to send a final statement.

If there is no will, the deceased’s next of kin or a close relative will need to apply for Letters of Administration which you can do yourself via post using the form PA1A, the probate application form. 

At Probates Online, we offer a will writing service or a Complete Estate Service to help you through the probate process and estate administration upon the death of a loved one. If you are looking for advice on inheritance tax, gifts or trusts, or need to apply for a Grant of Probate, Letters of Administration or would like to take advantage of our entire Estate Administration service, visit our website for more information or contact us today.

How to Value an Estate for Inheritance Tax and Report Its Value

When someone dies and the executors of the deceased’s will apply for probate, or relatives apply for letters of administration if there is no will, part of the process is to determine whether any Inheritance Tax (IHT) is due to be paid. 

To calculate the inheritance tax value, the deceased’s assets and/or debts need to be identified and confirmed, their estate needs to be valued and this figure needs to be reported to HMRC. However, if the deceased’s estate is valued below the IHT threshold, which is currently £325,000, no tax will need to be paid. But the value still has to be reported to HMRC to confirm nil tax.

If there is tax due, the IHT forms must be completed within one year and the tax must be paid, or part paid, within six months of the date of death. If you’re not a solicitor, it can be difficult to understand how to value an estate for IHT purposes and which forms to complete to report the estate’s value to HMRC. So, let’s look at this in more detail.

Why does a deceased’s estate need to be valued?

There are several reasons why a deceased’s estate must be valued:

  • To complete the probate application.
  • To determine if IHT is due and if so, how much must be paid to HMRC.
  • To determine if any individual assets are subject to Capital Gains Tax (CGT), if they have increased in value since the date of death.
  • To ensure any debts are paid before the estate can be distributed correctly and according to the deceased’s wishes.

IHT is paid on the net estate value i.e. after all debts, including funeral expenses, have been deducted and only if it is above the IHT threshold. Once this has been determined, the net inheritance tax value is reported to HMRC to calculate whether any tax is due and, if so, how much.

New regulations were introduced by HMRC in January 2022 that not only simplify the reporting process, but also increase the thresholds. This means that more of a deceased’s estate will be exempt from tax liabilities.

The IHT threshold is currently £325,000, which hasn’t changed. This figure needs to be deducted from the estate’s total value before calculating any tax liability. There may also be other tax exemptions, such as the residence nil rate band tax allowance (it could be double the IHT threshold) if the deceased’s home or some of their estate is bequeathed to their children or grandchildren.

The new changes to threshold limits mean that any part of the estate left to a living spouse or a registered charity is exempt from IHT as long as the estate is valued at less than £3 million. In addition, any assets held in a trust or a lifetime gift (as long as the gift was made seven years prior to death) valued at less than £250,000 are not liable for IHT.

Steps to calculate the inheritance tax value of an estate

There are three main steps that need to be completed to calculate the inheritance tax value of a deceased’s estate.

  1. Identify the deceased’s assets and/or debts – before you can calculate the estate’s value, and therefore inheritance tax due (if any), a list of all the deceased’s assets, debts, trusts or lifetime gifts must be drawn up. For example, pension and life insurance policies, mortgage payments, business assets, money in bank or building society accounts, property and/or land, furniture, jewellery or artwork, trusts, shares and investments, loans and HP agreements, as well as any outstanding bills. In many cases, some of these details may not be easy to find so you’ll become a bit of a detective. Alternatively, hiring a probate solicitor will help the process and they are also able to write to organisations on your behalf. You will need to submit a copy of the deceased’s death certificate and prove that you have the legal authority, i.e. are the executor or a court appointed representative if there is no will, to request and receive information that is confidential.
  2. Determine the estimated value of assets – once you have the full and final list, the next step is to determine the open market value of each asset. With insurance policies, mortgage companies, banks, building societies, trusts, shares and investments, loans, outstanding bills and any other creditors, the provider will give you an up-to-date value of the asset or debt. You will also be able to discuss payment terms and get any added interest stopped. For lifetime gifts, the value at the time of gifting is used unless the person receiving the gift benefited from it; then the value at the date of death is required. You will also need to value any joint assets, even if it is being passed on to the living joint owner.
  3. Having a property and its contents valued – this part of the process is more complicated than the above assets. The value placed on the deceased’s property and/or land as well as the contents must be a realistic selling price should it come to the open market at the time of death. There are two parts to the valuation:
    1. Ask a local estate agent or surveyor that is experienced in valuing property for inheritance tax purposes to visit and value the property and/or land. The reason you need to ensure they are experienced in providing an IHT valuation is that HMRC will ensure the valuation is examined by the District Valuer Services (DSV) to determine the valuation’s accuracy. If they feel that it is too low or too high, they may request further evidence to support the given valuation.
    2. Firstly, make a list of the contents, including jewellery, furniture, artwork and cars, then carry out searches online to determine the average value for the items if they were being sold. However, keep in mind that you are comparing used items with new items. For some items that are more expensive, such as jewellery and artwork, it is worth getting a professional valuation. If you feel this is too big a task, a probate solicitor can liaise with a house clearance company to carry out this task for you.

Reporting inheritance tax value to HMRC

Prior to January 2022, estates that required a grant of probate had to complete a full inheritance tax return (IHT400) or if the estate was exempt, a summary inheritance tax return (IHT205).

However, new regulations (after 1st January 2022) mean that representatives of a deceased’s estate that is exempt from IHT, known as excepted estates, and does not require grant of probate don’t have to complete an inheritance tax return.

Instead, the executors (solicitors or representatives of the estate) will need to make a declaration to HMRC to confirm the value of the estate as part of the probate application process. That said, if the deceased’s estate is complex, such as including foreign property, asset trusts in excess of £1 million or several lifetime gifts, a full IHT return will be required.

At Probates Online, we offer a Complete Estate Service to help you through the probate process and estate administration upon the death of a loved one. If you are looking for advice on inheritance tax, gifts or trusts, or need to apply for Grant of Probate, Letters of Administration or would like to take advantage of our entire Estate Administration service, visit our website for more information or contact us today.

What is the Inheritance Threshold – Rules and Allowances?

Inheritance Threshold

When someone dies, there is a tax applied to the value of that person’s estate which is known as Inheritance Tax (IHT). The beneficiaries and/or executor of the deceased’s estate are liable to pay the tax if the value is above a tax-free allowance, which is known as the threshold.

In some cases, there will be no inheritance tax to pay but if the value of the deceased’s estate is above the threshold, IHT will be payable. There are measures that can be taken in order to reduce the level of inheritance to be paid on your death if you think that the value of your estate is likely to be above the threshold limit.

To add to the mix, the government announced a series of changes to inheritance tax in 2021 that have become applicable in January 2022. The changes are designed to make reporting IHT returns simpler for estates above and below the threshold limit. So, let’s explain the inheritance tax threshold limit, as well as the rules and allowances around IHT.

Inheritance tax thresholds

There is currently only one threshold and that is £325,000, which is called the nil rate band. So, any estates valued below this threshold limit are levied at nil tax. Any estates above the threshold must pay IHT on the sum over and above £325,000 at 40%. Let’s give you an example:

If your estate is worth £600,000, your IHT is calculated as follows:

£600,000 – £325,000 = £275,000
£275,000 x 40% = £110,000 IHT

So, based on this calculation, the estate’s beneficiaries will receive £325,000 + £165,000 which equals £490,000; this is the remainder following payment of IHT.

However, there are several situations where the threshold is different.

Married and civil partnerships – if you are married or in a civil partnership and leave your entire estate to your spouse or partner, should you die first, there is no tax to pay and in most cases, the nil rate band threshold won’t have been affected either. This means that the living spouse will be able to add the unused balance of their deceased spouse’s/partner’s threshold to their own, essentially doubling their threshold. But if your spouse/partner leaves a part of their estate to other beneficiaries, or made a lifetime gift seven years prior to their death, if the estate is of high enough value there will be IHT to pay and some of the nil rate band threshold may be taken.
Leaving a property – if you are married or in a civil partnership and leave the family home to your living spouse or a direct descendent, i.e. a child or grandchild only, in its entirety, under current rules there is a further £175,000 tax free allowance but only if the value of the property is under £1 million. Anything above this value and the allowance drops significantly. Again, any unused tax allowance balance can be added to the living spouse’s allowances on their death.

Spouses/civil partners and IHT

In most cases, you are able to leave your estate, i.e. your assets, property and any other possessions, to your spouse/partner tax free. In addition, the surviving spouse or partner is able to add any unused tax free allowance to their own tax allowances. So, in reality, you could leave your spouse/partner as much as £650,000, or £1 million if it includes a property, without them having to pay any IHT.

However, if the deceased spouse/partner used most or all of their tax free allowance by leaving a proportion of their estate to a direct descendent, the above does not apply. Also, if the spouse/partner died before 21 March 1972, the double allowance rule does not apply either.

Tax free gifts and trusts

When making gifts to spouses/partners or to charities, there is the potential they are exempt from tax but it does depend on when the gift was made. If it was given at least seven years prior to death to an individual – that means it was not gifted to a business or a trust – there will be no tax to pay on the gift. However, if the person dies before the seven years, there will be a tax levy to pay. How much tax is paid depends on when the person dies during that seven year period. For example, if the person dies within 5 years, only those five years apportioned to the gift are tax free; the remainder of the gift is included in the deceased’s estate. This is known as IHT taper relief on potentially exempt transfers (PETs).

The total amount a living person is allowed to gift a spouse/partner, another individual or a charity or a political party in any one tax year is £3,000, which is known as an annual exemption. This can be carried forward for one year only; i.e. if you didn’t make any gifts in one tax year, you can add the annual exemption allowance from that year to the next year, making a total annual exemption in the second year of £6,000, or £12,000 if making gifts as a couple.

You can also gift tax free to your children, up to the age of 18, for their training or education. In addition, parents are allowed to gift their children £5,000 tax free for their wedding and any gifts for the maintenance of relatives that are infirm or old is also tax free. Any gifts below £250 are also tax free.

It is also possible to put assets into a trust that is left to a beneficiary after your death. Whilst the trust doesn’t exempt the estate from paying IHT, it can go some way to reducing the amount of IHT paid. The reason is that assets held in a trust are managed by appointed trustees on behalf of the beneficiaries – it is worth noting here that the trust legally owns the assets and not the trustees or the person who set up the trust. If you live beyond seven years from the date the trust was established, those assets are not included in the estate upon death and may be tax free. Instead, a 20% IHT tax levy is imposed when you set up the trust and every ten years, the assets are revalued and 6% IHT is paid at the time, minus the nil rate band threshold of £325,000.

Ultimately, before you consider any of the above, you must always get professional advice and it is recommended to use a solicitor or probate firm to help you.

At Probates Online, we are able to offer a professional probate service online, including making gifts and establishing trusts on your behalf.. If you are looking for advice on inheritance tax, gifts or trusts, or need to apply for Grant of Probate, Letters of Administration or would like to take advantage of our entire Estate Administration service, visit our website for more information or contact us today.

Inheritance Tax Relief by Leaving a Gift to Charity

Inheritance Tax Relief

As people in the UK are being encouraged to get their will drawn up and their estate planning in order, there are several ways to reduce the amount of inheritance tax payable on a deceased person’s estate. One of these is the inheritance tax relief received by leaving a gift to charity.

As the value of property increases so does the value of people’s estates, pushing them above the £325,000 inheritance tax threshold. Indeed, the OBR, Office for Budget Responsibility, are suggesting that by 2026 there could be as many as 50,000 estates falling victim to inheritance tax. But by leaving a gift to charity in your will, your beneficiaries could receive inheritance tax relief.

What is inheritance tax relief?

First, let’s start with explaining inheritance tax. It is the amount of tax your beneficiaries will pay on your estate upon your death. Currently, the inheritance tax rate is 40% and the threshold is £325,000. So, if your estate is valued at £600,000 and you deduct the threshold amount of £325,000, your beneficiaries who have inherited your estate will pay 40% tax on the remainder – £275,000 – to HMRC. If the estate is valued at less than £325,000, there is no inheritance tax payable.

However, there are some tax allowances that can reduce the amount of inheritance tax paid by your estate beneficiaries. One of these allowances is if a percentage or the entire estate is ‘gifted’ to a charity, or the estate is left to a living spouse or civil partner. Inheritance tax relief also applies to gifts that have been made to a beneficiary seven years prior to the death of the testator.

Why leave a gift to charity?

Many people have favourite charities which they have supported in their lifetime, and they often choose to further support the charity upon their death by leaving a gift to them in their will. As well as the charity benefiting from the gift, it can also benefit the deceased’s family by reducing the amount of inheritance tax (IHT) payable.

When gifts are left to qualifying charities – a charity that is established for a charitable purpose and satisfies jurisdiction, registration and management conditions – the level of IHT applied to the deceased’s estate above the threshold drops to 36%, as long as a minimum of 10% of the net estate’s value (the baseline amount) is gifted.

So, taking our example above, if the deceased gifts £50,000 to charity, which is above the 10% baseline amount, and the cost of funeral expenses and paying any debts are deducted, i.e. £20,000, the amount of IHT payable is £275,000 – £70,000 = £215,000 x 36% = £77,400.

So, the total amount payable to HMRC is £77,400, leaving £137,600 to the deceased’s beneficiaries as their inheritance.

What to consider when leaving a gift to charity in your will?

If you are thinking about leaving a donation to a charity in your will, here are some points to consider:

Cash or asset – leaving a gift to charity doesn’t have to be cash; you can also leave an asset, such as property, jewellery, antiques or even artwork. It is then up to the charity what they do with that asset. In addition, you can also leave what is known as a reversionary gift; this is a gift, like a physical asset, that is initially left to the deceased’s specified beneficiary, usually a spouse, and upon their death it passes to the charity.
Ensure it is a qualifying charity – not every charity can claim to be a qualifying charity so make sure the charity you choose is registered with the Charity Commission in England and Wales. Scotland and Northern Ireland have their own charity register where you can check to see if the charity you’ve chosen is registered. If your charity is not registered but adheres to the Charities Act definition of a charity, your estate and beneficiaries will still benefit from inheritance tax relief.
Add any instructions – when making a gift to charity, you may want the funds you give, or the asset, to be used in a specific way, such as aiding research. In this situation, you can add any instructions to your gift in your will but make sure you discuss with the charity of your choice first, to ensure it is feasible for the charity to honour your wishes.
The gift value may change – if you are gifting a lump sum to a charity or a percentage of your estate, be aware that this may change and the charity may receive less than you intended. By index-linking the gift, you can protect your charitable gift from increases in inflation which would impact a lump sum. However, if gifting a percentage of your estate and the value of your estate decreases in size, you may wish to adjust the percentage of the gift in your will.
Residual gifts – similar to the above, if you leave the residual amount of your estate, i.e. what’s left after expenses, debts and any other legacies have been deducted, you may find that the charity receives a greater proportion of your estate because their gift is tax-free, whilst another beneficiary will have tax deducted from their share.
Double-check the charity’s details – when drawing up your will in advance of your death and making a gift to a charity, always keep up to date with the charity’s details, such as any name changes to the charity, or a different address or the charity closes. Therefore, add the charity’s registration number (if there is one) and if not, update your will accordingly.
The cause of a dispute – always be upfront with your family and other beneficiaries about your charitable gift in your will. In accordance with the Inheritance Act (Provision for Family and Dependants) 1975, beneficiaries have the right to dispute a charitable gift. So to avoid any disputes after your death, make your intentions clear and reassure family and beneficiaries they will be provided for in the future.

At Probates Online, we are able to offer a professional probate service online that is efficient and affordable. If you are an Executor of a will and need to apply for Grant of Probate, Letters of Administration or would like to take advantage of our entire Estate Administration service, visit our website for more information or contact us today.

What Are the Risks When You Set Up Lasting Power of Attorney?

Should you have a long-term debilitating illness or be suffering from a loss of mental capacity, it is reassuring to know that someone you trust is managing not only financial matters, but is also able to make decisions regarding your ongoing health, welfare and care.

To make this possible, before (and if) you get to this stage in your life you will need to draw up a Lasting Power of Attorney (LPA). By appointing someone, known as the ‘attorney’, to look after you and make decisions on your behalf when you are not capable of doing so yourself can bring great peace of mind. However, there can be risks associated with a Lasting Power of Attorney.

What is a Lasting Power of Attorney (LPA)?

An LPA is a legally-binding document that allows an appointed, or ‘chosen’, person, called an attorney, to handle your financial, health, well-being and care matters should you be in a position where you are unable to make decisions for yourself.

There is a difference between a Power of Attorney (POA) and an LPA – a POA is only designed for an attorney to handle your financial and property affairs. An LPA is designed for an attorney to manage your financial, property, health, welfare and care matters.

Whilst you can draw up your own LPA using a DIY option, it is better to have a POA or LPA drawn by a legal professional who is experienced in this matter to ensure that nothing has been left out, that it is correct and that it will be registered with the Office of the Public Guardian (OPG) in England and Wales via a form. There are different rules for drawing up an LPA in Northern Ireland and Scotland. This means that should the POA or LPA become active, there is no possibility of it being rejected by another party, such as banks, doctors or utility providers.

Choosing the right person to act as attorney is crucial to an effective, properly managed LPA; they must be over 18 years of age and someone that you trust to look after your affairs. They don’t necessarily need to be a member of your family, they can be a close personal friend and sometimes that can be a preferred option to release any emotional pressure a family member may feel. Remember that the person you choose will have access to your bank accounts and all matters relating to you. They will be making decisions and signing off on any financial matters, including selling or buying property, as well as your care and where you will live.

You may decide to choose more than one attorney, each having a different responsibility towards you, such as one to look after property matters, another to make financial decisions and another to manage your care and welfare. Ultimately it is up to you but bear in mind that their individual decisions will have an impact on another attorney’s decision so make sure they all know each other and are happy to collaborate together.

If you do not have an LPA and lose the mental capacity to make decisions yourself, then an application to the Court of Protection must be made and they will make a decision about your financial, property, health and welfare matters, or appoint a deputy to act for you.

Risks associated with an LPA

As with any situation where you are handing over control of your affairs, there is an element of risk involved. Some of these risks are:

● They will have access to your personal, private and confidential information.
● They will be making decisions about your lifestyle, such as where you will live if not in your own home.
● They will make decisions on what treatment you should and should not receive.
● They have access to your personal correspondence and other papers, such as your medical records.
● They will be managing your bank account(s) and other financial matters. However, if it is found by the court that they have acted dishonestly, fraudulently or mis-managed your finances they will have to pay you back.

It is vitally important that you trust the person(s) you appoint as an attorney(s). It may be wise to include an advance decision or statement in your LPA that specifies your wishes/preferences in certain situations. Some questions to consider when choosing your attorney are:

● Do you wish to have another person, i.e. a member of your family, to have a say in what treatment you receive, your future healthcare and personal care. Ultimately the decision is down to your attorney but if you’ve made this wish, they should consult with the other person.
● Will your attorney listen to medical professionals about your treatment/healthcare and always have your best interests at heart?
● Will they be making decisions for you in the short-term or long-term?
● Do you fully trust them to make the right decisions for you as you would have made yourself?

It is worth noting that if you have appointed more than one attorney to look after specific areas of your life, they cannot make a decision on an aspect they have not been appointed for; i.e. if they are looking after your financial and property matters, they cannot make a decision about your healthcare or welfare.

There are some areas where an attorney is not allowed to make a decision on your behalf, such as:

● To go against any decision or preference you’ve made, i.e. refusal of certain treatments, in your advance decision/statement in your LPA.
● To agree to a deprivation of liberty (a situation where your liberty is taken away from you, i.e. you are not free to leave and are placed under constant supervision) to be imposed on you without a court order.
● If you are under a guardianship, they are not allowed to make a decision that conflicts with your guardian’s decision, such as where you live.
● They are not allowed to make decisions that you wouldn’t normally make yourself, such as going against the law.

At Probates Online, we are able to offer a professional online probate service, including drawing up a Lasting Power of Attorney or Power of Attorney, which is efficient and affordable. If you want advice on LPAs and POAs or need to apply for Grant of Probate, Letters of Administration or would like to take advantage of our entire Estate Administration service, visit our website for more information or contact us today.

Why Use an Estate Planning Lawyer to Make a Will?

Some people don’t need to worry about making a will, such as young adults with no children or assets, just yet; however, a large proportion of people in the UK not only need to make a will but also need to consider estate planning lawyer if they have a number of valuable assets. 

Whether your estate is reasonably straightforward or more complex, such as an extensive property portfolio of assets in foreign countries, using an estate planning lawyer enables you to incorporate several aspects pertaining to your estate under one roof.

What is estate planning?

There are several aspects to estate planning, including making a will, which incorporates every aspect of planning who gets what, where, and when upon your death, as well as who makes decisions on your behalf, if required during your lifetime. Let’s look at the different aspects of estate planning:

  • Making a will – a will is a legal document that lists all your assets and their relative value, states your beneficiaries and what you have decided they will receive upon your death.
  • Powers of Attorney (POA) – a POA gives permission to a person of your choice to make certain decisions on your behalf should you be in the position of losing your mental capacity to make the decisions yourself or will be out of the country for a long period of time, or you are seriously ill for any reason. However, there are three forms of POA:
  • A continuing power of attorney gives permission regarding your property assets and financial matters.
  • A welfare power of attorney is only used when you do not have the mental capacity to make decisions on your medical care or about the treatment you receive, and even about where you live.
  • A combined power of attorney brings together the above two POAs so the person of your choice can make decisions about your financial matters as well as about welfare and health.
  • Planning business succession – if you run a business, an estate planning lawyer will help you plan the running of the business when you want to retire or upon your death, including:
    • Who takes over the business’s operations?
    • Where do the business’s profits go, i.e. equally to beneficiaries or reinvested back into the business?
    • Does your death impact a partnership agreement?
    • If you’ve appointed an executor, are they experienced in selling a business?
  • Trusts – a trust is a method to manage your finances and assets for your beneficiaries, and they can help reduce the impact of inheritance tax and capital gains tax.

What’s included in your will?

There are four forms of wills – simple, joint, living, and testamentary trust – which one you choose largely depends on your circumstances and your estate. Whilst there are also handwritten wills and oral wills, known as ‘nuncupative’ wills, let’s look at the four main types.

  • Simple will – the most common, a simple will is the choice of many people. It details your assets, who will receive them, names guardians for your children under the age of sixteen. A simple will often forms the basis of other wills.
  • Joint will – also known as mirror wills, they are signed by more than one person but culminate in separate wills for each testator. They are usually made by spouses where the executor, beneficiaries and other matters are the same. The drawback of joint wills is that should the surviving spouse’s wishes change, they can’t change the joint will.
  • Living will – this type of will isn’t to do with distributing your estate on your death but is to do with your wishes should you become incapacitated. Similar to POAs, you can specify who will make decisions on your behalf and what your wishes are should something happen to you.
  • Testamentary trust – this type of will puts certain assets into a trust, such as property, for your beneficiaries to benefit at a later date, i.e. minor children. You will need to name the trust’s trustees – the people who will manage the trust – in the testamentary trust will.

Before you carry out any estate planning or make a will, you will need to take an inventory of your assets. An estate planning lawyer will be able to help you with this task and review your assets to work out the most tax-efficient way in which to pass on your assets to your beneficiaries.

Your will needs to include:

  • Physical property, such as buildings and land.
  • Intangible property, such as stocks and shares, bonds, patents and copyrights, intellectual property and businesses owned, or any interest in a business that you have – you will need to specify who will take over your part of the business.
  • Unproductive property of value, such as jewellery, artwork, cars and furniture.
  • Cash, including money in your bank accounts and savings accounts. Don’t forget that your spouse and family will require cash to pay any outstanding debts as well as taxes upon your death.

However, there are some things that shouldn’t be included in your will, such as:

  • Property that is held as a joint tenancy, i.e. a property that is jointly owned with someone else. The reason is that the property will transfer for the other joint owner automatically.
  • Any insurance policies, trusts or other retirement plans that already state a beneficiary. However, it is possible to change your beneficiary, or beneficiaries, on any of these, as well as pensions and life assurance policies.
  • Any stocks, shares or bonds that are already set up to transfer to someone else upon your death.
  • Digital assets are also not included in wills, at the moment, so cryptocurrencies may be a difficult asset to place in a will. However, an estate planning lawyer will be able to advise you accordingly.

The more concise and accurate your estate planning and will be, the smoother the transition for your family and beneficiaries.

At Probates Online, we offer a professional probate service online that is efficient and affordable. If you are an Executor of a will or close relative of a deceased person, and you need to apply for a Grant of Probate or would like to take advantage of our entire Estate Administration service, visit our website for more information or contact us today.