Inheritance Tax (IHT)

Getting your tax affairs in order prior to death

Your tax liabilities don’t end when you pass away. That’s why getting your tax affairs in order prior to death is so helpful for those you leave behind. Here’s what you need to know.

If you’ve always thought that your tax affairs end once you die, then think again. The truth is that the requirement for tax filings doesn’t end with the death of the taxpayer.

There are tax considerations:

  • Up to the date of death
  • For the period of administration, the time between death and the final winding up of the deceased’s estate
  • And the documentation potentially applicable to inheritance tax.
  • What this means is that you could leave complicated tax liabilities behind for your loved ones, family and the executor of your will to sort out.

So, how do you ensure you leave your tax affairs as tidy and manageable as possible?

Understanding end-of-life tax responsibilities for your personal representative

When a taxpayer dies, their personal representative is responsible for completing any outstanding tax returns. There will be one for the current tax year up to the date of death, and possibly one (not normally more, but there can be) for previous tax years.

HM Revenue & Customs (HMRC) has a very clear process for what happens once a taxpayer comes to the end of their life:

  • When HMRC is notified of the taxpayer’s death, any outstanding returns will normally be cancelled and then re-issued, together with one for the current year to the date of death. These returns will be sent to your personal representative.
  • If HMRC has issued a notice to submit a tax return. it must be completed unless they agree to cancel it. But in cases where HMRC already has all the information from their own sources – if, for example, your only income is from employment – they will not normally require a separate tax return to be filed.
  • Any re-issued returns must normally be submitted within 3 months and 7 days to HMRC. The return for the current year is due by the following 31 January. Electronic returns cannot be submitted – they must be in paper form.
Providing the required financial information to HMRC

Following your death, it will be your personal representative (usually the executor of your will) who has to deal with your financial and tax affairs on your behalf

Where a return is required, it will be your personal representative’s responsibility to collate the information that’s required and get your tax return completed and filed with HMRC.

So, how does this work in practice?:

  • HMRC will be able to provide details of income from any employment, state and other pensions, as well as any taxable welfare benefits.
  • Banks and building societies should be able to provide values for any interest payments. Dividends on listed shares should be evidenced by dividend vouchers, although the amount paid per share is also publicly available. Dividends on unlisted shares can be confirmed with the company’s accountant if vouchers are not readily available.
  • Any capital assets owned at the date of death go into the deceased person’s estate at the then-market value but are not deemed to have been disposed of by the deceased. Accordingly, these are not required to be reported for capital gains tax purposes. Any assets disposed of prior to death should of course be included in the final tax return.
  • Any tax refund due will be paid to the estate, and the estate is responsible for any tax payable by the deceased.
  • In addition to tax returns up to the date of death, it may also be necessary to complete a return covering any income and capital gains arising during the period of administration – this is the time between the date of death and distribution of assets to the beneficiaries. Where income from interest would result in a tax liability of £100 or less, no return will be required, and the tax-free status of income derived though individual savings accounts (ISAs) is maintained.
  • Where a tax return is required for this period, it will be a Trust and Estate Tax Return, not a normal personal tax return. Often though, HMRC will accept the necessary information less formally, in a written summary.
  • Where any residential property is disposed of from the estate, any capital gains must be reported within 60 days, and tax paid at the same time.
  • The final area of tax following death is in respect of inheritance tax (IHT). That is an area where you should always seek professional advice.
Talk to us about getting your tax affairs in order

Tax administration following death can be confusing, and something your surviving family members will likely find emotionally difficult. We’re always there to help in these circumstances.

Where the size of your estate is likely to exceed the inheritance tax threshold of £325,000 (excluding the residence nil rate band) please talk to us to explore if there is any planning that can be undertaken to reduce your potential IHT exposure.

As your adviser, we can also help you make sure your financial and tax affairs are always in order, and that you have funds put aside to cover your end-of-life tax liabilities.

Get in touch to get your tax affairs in order and let’s find out how we can help from The Stan Lee.

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5 vital things to set up before you pass away

5 vital things to set up before you pass away

Thinking about end-of-life planning might sound morbid. But by planning ahead, you remove the worry and hassle for your loved ones and secure your long-term legacy.

No-one wants to spend too much time thinking about their own mortality. But the reality is that forward planning removes a lot of the uncertainty for your loved ones in the event of your death. The following guidance may also be useful to help you guide others.

Passing on without any clear legal instructions regarding your finances, assets and estate can leave your nearest and dearest in a very difficult position. It’s far better to make plans well in advance and to have these documents safely stored away, should they be needed.

Here’s our five-point checklist of things to consider as part of your end-of-life planning.

Having a clear outline of your end-of-life wishes and planning

Yes, it may seem morbid to think about your own death. But with your affairs in order, and all the required legal documents in place, you can be confident that your end-of-life wishes will be carried out correctly and that your loved ones and dependents will be provided for.

Here are five vital elements to include in your end-of-life planning:

  1. Make sure you have a last will and testament – it’s crucial to create a last will and testament. This legal document will state your wishes regarding the distribution of your finances and assets and will also appoint an executor. This executor will ensure your wishes are carried out accurately and efficiently and will manage your estate plan to deliver on your instructions re charitable donation, gifts and your legacy.
  2. Set up power of attorney and health directives – you can choose to grant a trusted individual (or individuals) with the power of attorney (PoA). This PoA allows them to handle your financial matters and make decisions on your behalf. It’s also a good idea to establish health directives, such as a living will or medical power of attorney, to ensure your medical preferences are followed.
  3. Create a funeral plan to cover these costs – funerals can be expensive and a financial burden for those you leave behind. You can ease this burden by arranging a funeral plan in advance, and setting up an insurance policy that sets funds aside to cover the costs. Preparing for funeral costs in advance alleviates the financial strain on your family and allows them to grieve without worrying about payment of the funeral.
  4. Get your taxes in order – it’s important to organize your tax records and consult with a tax professional to make sure your tax affairs are in order. Setting aside funds to cover any potential tax liabilities is also sensible. This will prevent complications for your loved ones during the settlement of your estate and tax liabilities.
  5. Think about digital legacy planning – in a world where so much of our life is lived online, it’s vital to have a digital legacy plan. This comprehensive plan will provide information and guidance regarding your digital assets, including compiling a list of online passwords and account information. It’s a good idea to name a digital executor in your will to manage and transfer your digital presence. This will help with social media accounts, but also software subscriptions or online accounts you hold.

Talk to us about getting your end-of-life planning in order

When it comes to end-of-life planning, there’s no time like the present. The future can often be uncertain, so it’s good practice to have your will, estate plan, powers of attorney and digital legacy plan set up and safely stored away, should they be required.

As your accountant and tax adviser, we can help you review your financial and tax planning considerations and can put you in touch with the relevant legal advisers to create a comprehensive end-of-life plan.

Get in touch to talk about end-of-life planning and visit us how we can help from The Stan Lee.

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The Autumn Budget 2022 at a Glance

The Autumn Budget 2022 has a significant to you and your business as it has huge number of changes on tax matters once the Mini Budget 2022 became questionable. While people are suffering from living costs, the Government takes many steps in this budget. In this article, the writer will note the summary of key tax matters relevant to you and your business.

Income Tax Allowance and Rates for Individuals

  • The basic, higher, and additional income tax rates will remain at 20%, 40% and 45% respectively for 2023/24 tax year
  • The basic and higher rate thresholds remain at the current level of £12,570 and £50,270. However, the additional income rate thresholds will reduce from £150,000 to £125,140 from April 2023
  • The personal allowance will remain frozen at £12,570 until 6 April 2028

 National insurance (NI) Contributions

  • The employment allowance is set at the current level of £5,000
  • The Health and Social Care Levy is no longer going ahead and the temporary NIC increase of 1.25% has been removed from 6 November 2022
  • The national insurance thresholds for all classes will be maintained at the current level until April 2028

National Minimum Wage

  • From April 2023, the hourly national minimum will increase to £10.42 (aged 23 or over), £10.18 (aged between 21 and 22), £7.49 (aged from 18 to 29), £5.28 (16-17 years old) and £5.28 (apprentice rate)   

Dividend Allowance and Tax Rates

  • The annual dividend allowance for individual will reduce from £2,000 to £1,000 from April 2023 and a further reduction to £500 from April 2024
  • The dividend tax rate will remain at the current level of £8.75%, 33.75% and 39.35% respectively for the basic, higher, and additional taxpayers

Corporation Tax

  • From April 2023, the companies with profits over £250,000 will pay tax at 25% and small companies with profits up to £50,000 will pay tax at the current rate of 19%
  • Companies with profits between £50,000 and £250,000 will pay tax the main rate reduced by a marginal relief providing gradual increase in the effective corporate tax rate

Annual Investment Allowance

  • Annual Investment Allowance (AIA) has been confirmed at a permanent rate of £1 million from April 2023

Annual Exemption Reduction of Capital Gains Tax (CGT)

  • The annual exemption of capital gains tax for individuals will reduce from £12,300 to £6,000 from April 2023 and then further to £3,000 from April 2024

Inheritance Tax (IHT)

  • The thresholds will remain at the current level (until April 2028) for Inheritance tax nil-rate band (£325,000) and residence nil-rate band (75,000)
  • Without IHT liability, qualifying estates can continue to pass on up to £500,000 and qualifying estate of a surviving spouse or civil partner can continue up to £1m

Stamp Duty Land Tax (SDLT)

  • The cut of Stamp Duty Land Tax (SDLT) will remain in place until 31 March 2025. On 23 September 2022, the government increased the nil-rate threshold of SDLT from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland and increased the nil-rate threshold paid by first-time buyers from £300,000 to £425,000
  • The maximum purchase price for which First Time Buyers’ Relief can be claimed was increased from £500,000 to £625,000. This will now be a temporary SDLT reduction which will remain in place until 31 March 2025

Disclaimer: The above information is just as a general information that might help you. However, we highly recommend having expert advice suited for your circumstances. The Stan Lee and its author are not liable if you rely on this and have any consequences.

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When is someone subjected to Inheritance Tax (IHT) affairs?

When is someone subjected to Inheritance Tax (IHT) affairs?

When is someone subjected to Inheritance Tax (IHT) affairs?

Inheritance tax can be a little confusing for some people. Paying tax on a pot of money that you have already paid tax on seems a little unfair. However, in this article we explain what inheritance tax (IHT) is and when someone will be subjected to it.

What is inheritance tax?

IHT is taxed at 40% of a deceased person’s estate(s) if those estate(s) are worth over the IHT threshold, which is currently £325,000 tax applied.

There are occasions when IHT doesn’t need to be paid:

  • If the value of the estate(s) is below the £325,000 threshold
  • Leaving everything above the £325,000 threshold to your civil partner, spouse, charity, or a local amateur sports club

It is the executor’s job to pay the inheritance tax as well as administer the estate and allocate funds and assets to the beneficiaries.

What’s included in the estate(s)?

For the purpose of IHT the estate(s) includes:

  • Your savings
  • Possessions including property
  • Pension funds (certain payments from pension funds may be subject to IHT)
  • The value of any money or property you gave away during the seven years prior to death – some of these might be subject to exemptions so it is important to check

The first £325,000 of your estate is tax-free so the 40% tax will only apply to anything over this value.

Who is subjected to inheritance tax?

In many cases where someone has died and the assets in their estate exceed the allowance for their circumstances, then the estate will pay the inheritance tax.

If there is a will then it is the job of the executor (or administrator if there is not a will) to be responsible for organising the payment of IHT to HMRC. It is normally paid directly from the deceased’s bank account or other qualifying assets.

Speak to the inheritance tax experts

For more information about inheritance tax, you can speak to one of the team here or call us direct on 020 3778 0973 or email info@thestanlee.com 

Our team of experienced professionals will be able to assist you in all areas of IHT planning and will be able to advise you on what to look out for.

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A Quick Guide to Understanding Inheritance Tax

A Quick Guide to Understanding Inheritance Tax

A Quick Guide to Understanding Inheritance Tax

Your inheritance allows you to support your children, siblings and loved ones after you’re gone, and as such it becomes one of the most important financial decisions you will make. However, you should be aware that your inheritance could be subject to inheritance tax and below is a quick guide to understanding what it means for you financially.

What is inheritance tax?

Inheritance tax is a one-off payment on the value of your estate after you have died. This includes money, property, and any other assets you own. The tax is calculated and paid from the estate after any inheritance allowance is deducted after death.

How does inheritance tax work?

After death, the Government will need to know the total value of your assets, and liabilities, which includes any outstanding debt. Your main assets will include: 

  • Money held in bank accounts
  • Property or properties you own
  • Any other business investments
  • Vehicles 

Any insurance policies not in trust (includes death in service and some older pension schemes) inheritance tax is then calculated and paid from the estate, which is what’s left once debts are subtracted from the assets. Depending on the value of the estate, it may be required to pay inheritance tax.

When do you not pay inheritance tax?

There are occasions when you don’t have to pay inheritance tax, these are:

  • The value of your estate is below £325,000
  • You leave your estate to your spouse or civil partner

In the event of death there are forms that will need to be completed regardless of whether inheritance tax is owed. At The Stan Lee our experts can help you understand which forms need to be filled out that are associated with inheritance tax.

Who pays inheritance tax?

Everyone is subject to inheritance tax but depending on the value of your estate, whether it is above or below £325,000, depends on whether you will have to pay inheritance tax, which is at 40%. Many people look for ways to minimise their taxable estate with one of the best ways being leaving your estate to your spouse or civil partner.

When do you pay inheritance tax?

Inheritance tax must be paid within six months of the end of the month in which the person died. If an estate is made up of property, it can be paid in instalments, for example over a 10-year period. This is something to speak to an accountant about to clarify the terms and conditions, as paying off in instalments will incur interest charges.

If you need any help understand inheritance tax or require advice on making sure you pay the right amount, then speak to one of the team here. While there is no way to avoid inheritance tax there are ways that you can reduce the amount, and this is something that we can help and advise you on.

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