Many people are now familiar with the basic principles and workings of inheritance tax on death. Broadly, the first £325,000 (“the Nil Rate Band”) of a deceased’s assets (known as their “Estate”) is taxed at 0% and the balance above that is taxed at 40%, unless certain reliefs or exemptions apply. The Nil Rate Band can be increased to £650,000, if that deceased had a spouse or civil partner who died before them, leaving an unused Nil Rate Band that can be transferred.

The Conservative Party pledged in their election manifesto to increase the allowance in respect of inheritance tax, so as to benefit families wanting to pass on a property down to their children. A new allowance known as the “Residence Nil Rate Band” is being introduced for deaths occurring on or after the 6th April 2017 and will be in addition to the “Nil Rate Band” allowance.

However, the new relief will not be available in all cases and the rules governing which estates will benefit from this new additional allowance are complex. In brief, for an estate to qualify, the following will need to apply:-

• The estate will need to include a residence or interest in a residence (i.e. a property in which the deceased resided) unless the complex downsizing provisions apply. Hence, a holiday home can qualify as a residence, provided that the deceased had resided there at some point in his/her lifetime, whereas a buy-to-let property would not qualify.

• The residence must be inherited by a “direct descendant”. The legislation provides a fairly wide definition of “direct descendant”. Hence, the definition is not restricted just to direct blood descendants but includes step-children, adopted and foster children, as well as the spouses and civil partners of such descendants.

• The value of the deceased’s assets will need to be within a permitted range of values.

The exempt allowance will be up to £100,000 from April 2017 rising to £175,000 in the tax year 2020/2021.

Whilst any additional inheritance tax allowance is good news, this does make the calculation of inheritance tax on a deceased person’s assets far more complicated, resulting in increased responsibility and risk for many Executors/Personal Representatives.

If you are an Executor or Personal Representative requiring assistance through the Probate or Inheritance Tax calculation process, then please speak to one of our specialist Solicitors Adam Bruce, Ceri Davies or Luned Voyle on telephone number 01267 237441.

Most people know very little about trusts and very often they are perceived to be either some form of dodgy tax-saving device or an outdated legal concept.

However trusts can be very useful tool in protecting assets (for instance against potential claims on divorce or financial meltdown or the like). They also provide a useful way of holding onto assets for people who cannot look after such assets themselves e.g. because they are too young or because they do not have the mental ability to make their own decisions and to manage their own finances.

Unfortunately, it is not only the general public who do not understand trusts. Unfortunately there are many professionals who dabble with them, not fully understanding what they are doing or the risks involved. Here are a few examples:-

1. People will set up trusts over their homes, believing that this will protect them against having to pay local authority care charges. They do not realise that this may not work, it can have inheritance tax consequences and can mean having to prepare inheritance tax paperwork on death which would not otherwise be required.
2. Flexible trusts put into Wills for good inheritance tax saving motives are often ignored altogether or not properly dealt with when it comes to the time of implementing the trust arrangements, creating potential problems for the future, particularly with the Revenue.
3. Trusts are not run properly. The Trustees never (or hardly ever) meet and their decisions and actions are not recorded in writing, putting the trust at risk of being regarded by the Revenue or by claimants as a sham, so that the trust can be ignored.

When used properly, trusts can be very useful, particularly in protecting assets and planning for the future. If, on the other hand, they are used by people who do not really understand them, they can be dangerous and lead to problems in the future.

If you wish to find out more about making a trust or reviewing an existing one, make sure you take proper professional advice. You should consult someone who has in-depth specific knowledge about trusts and this is likely to mean that at very least they should be a member of the Society of Trust and Estate Practitioners and that they can demonstrate a detailed knowledge of the subject. Adam Bruce here at UTK has been a member of STEP for over twenty years (he is currently the Chair of the Wales Branch) and has been working as a solicitor with trusts for over thirty years. Please contact us on 01267-237441 (selecting option 2) if you would like to meet with Adam to discuss an existing or a new trust. We can offer a free 30 minute consultation for general advice on trusts. Please also contact us if you would like to have a copy of the STEP booklet on making trusts.