Unwanted inheritances do occasionally occur, particularly when the person receiving the inheritance knows that when they die their estate will be charged inheritance tax.
Inheritance tax is charged at 40% on everything in a person’s estate over £325,000. This includes cash savings and property etc. For a married couple, who leave everything to each other on first death, there is nothing to pay on 1st death and the remaining spouse gets a transferable allowance which means that they have a £650,000 allowance. Additionally anyone who resides in their own property and leaves everything to their children when they die now gets a Residential Nil Rate Band allowance giving them an addition £100,000 tax free allowance, and this is set to rise over the next few years to £175,000.
You could of course give the inheritance you have just received to someone else, your children for example, but unfortunately it is still fully counted in your Inheritance tax calculations for 3 full years after you gave it away and it is not technically fully out of your estate for seven years, this is known as the seven year rule.
Let’s just look then at someone who owns their own home worth say £500,000 and has savings of £500,000. And let’s assume they have a transferable allowance from a deceased spouse and are leaving everything to their children. They currently have allowances of 850,000 and their heirs will have to pay 40% of £150,000 to the government from their inheritance i.e. £60,000- Inheritance tax bill.
However if the unwanted Inheritance was say £250,000 and they created a Deed of Variation within two years of the death of the person who left them their inheritance, the inheritance is technically out of their estate straight away without having to wait seven years.
For further information and a free consultation contact David Richardson at South West Asset Protection on 0800 014 8031. South West Asset Protection are a friendly local firm, fully Insured and regulated.