Estate Planning

A brief introduction to Estate Planning Services

Why Plan?

"Inheritance Tax is, broadly speaking a voluntary levy paid by those who distrust their heirs more than they did dislike the Inland Revenue"
Lord Jenkins of Hillhead.

The beneficiaries are taxed on the legacy and all transfer of assets out of the deceased estate during the last 7 years. Although in some cases transfers over 7yrs can be taken into consideration.

The tax is payable by the beneficiaries prior to receiving there inheritance.

Transfers of assets during the last 7 yrs of the deceased life are known as potentially exempt transfers (PETS), and for the calculation of the IHT a taper relief is used over the 7yr period.

This individual Nil Rate Band Allowance entitlement which increases each year ,and that part of the eatate including any transfer out in the last 7 years above the N R B is liable to tax at 40 % tax, payable by the beneficiaries.

The calculation for the tax liability is quite simple if you follow the example of Fred (below). For those estates where trust(s) have been set up in the last 7yrs and the donor, or trusteeshave paid some IHT then the final calculation becomes a little complicated. If a trust was set up in the previous 7yrs the revenue could, in theory, go back 14yrs.


1. Transfers between husband and wife during lifetime and on death. If both UK domiciled.

2. Annual exemption, £3,000 in any tax year, £6,000 if no gift in previous tax year. If you make a gift of only £1,500 in a tax year you are allowed to carry over the remaining £1,500 to the following year and add it to the allowance, but only once.

3. Small Gifts - outright gifts of £250 in any tax year to any number of recipients. It cannot be part of a larger gift.

4. Normal expenditure - a transfer is exempt if it is shown to be regular, out of normal income, without affecting the donor's standard of living, i.e. where the donor(s) have taken out a life policy in trust for there beneficiaries, and the premium may be in excess of normal annual exemptions.

5. Gift on Marriage - £5,000 if donor is a parent, £2,500 if donor is a relative, £2,500 if the donor is the groom or bride, £1,000 if the donor is any other person.

6. Gifts to charities, political parties and during lifetime on death of the donor - we presume not on the death of the political party!

7. Gifts for education and maintenance - the transfer of assets from the donor(parent) for the training, education and maintenance until their child reaches the age of 18yrs. Also the provision of care & maintenance of an aged relative.

8. Gifts for the national benefit - i.e. museums, National Trust, universities and libraries.

9. Death on active service - the estate of members of the armed services is tax-free if death is due by wounds received or by disease contracted on active service.

Trusts - why use them?

" Trust me I am a solicitor"
Robson Green (the actor) one of his lines in a recent play.

In simple terms they allow you to place money or assets outside your estate for an intended purpose or a group of individuals.

To create a trust 3 things must happen:

1. Certainty of intention - you the settler use words that indicate an intention to set up a trust.
2. Certainty of subject matter - it must be clear what property (cash / asset) is held in the trust.
3. Certainty of object - it must be clear for whom the trust is being created.

The three main trusts that are commonly used in planning tax avoidance (NOT EVASION) are:

A. Discretionary - the settler (the person with the money/asset) names a class of beneficiary (their children), but no beneficiary has a right to income or capital. Simply this means that the beneficiary would have to seek permission from the trustees (the guys looking after the money) to have some of it.
B. Accumulation and maintenance - this is a special kind trust which must fulfil certain criteria. It is a useful tool to use by grandparents who want to help their grandchildren for school fees etc.
C. Interest in possession - basically this means you, the person with the cash / asset, put it into trust so that your kids can benefit. In turn on their death the asset would pass to their children, keeping it in the family!

In doing some simple planning initially you should equalise your estate so that both spouses use the nil rate band, which may mean changing the ownership of your home.


Not bothered? - want to die intestate! (Sounds painful?)

When you make a will or have it reviewed remember that people, events and circumstances change. Have you thought of an Enduring Power of Attorney to help control your affairs when you are not capable yourself.

Deed of Variation

This is best illustrated with an example:

Our client's late husband left everything to her, which increased the value of her estate to well in excess of the NRB (Nil Rate Band). On her behalf, we instigated a deed of variation with her solicitors. The will was varied, on the agreement of the beneficiaries, and the assets distributed accordingly, which utilised the late husband's NRB. The end result was that both estates were below the NRB, the widow was comfortably provided for, and the children would have no tax to pay.

Warning - you have 2 years to instigate this variation.


The intention was not to bore the pants off you, but to give you some simple and useful guides as how to avoid, where possible, paying tax on assets that you either inherited, or created through a life time of toil.

Further advice can be sought by emailing us.