How does an Pension Trust help me?

How does an Pension Trust help me?

Trusts carry out a number of different functions. One of the main benefits is ensuring the control of assets remain in the family bloodline, which we call bloodline protection.

There are a number of issues that could mean assets are passed outside of the family when that was never the original intention of passing assets to children and grandchildren.



Remarriage after the death of a bloodline relative

These and other issues are covered in our video – Is Estate planning more important than Inheritance tax planning.

Pension protection trusts are mainly set up to provide this bloodline protection.

If you die before age 75 under current rules, the beneficiaries of your pension fund would be entitled to the value of the pension fund free of income tax. It is taxable for income tax on the beneficiary if you die after age 75.

Similarly, money passed from a person’s pension death benefits if they died pre 75 can be passed to the beneficiaries free of income tax. If however they were just passed to a widow and that widow dies post 75 the benefits will be taxable and so a Pension Trust could be beneficial.

Normally people allocate the money from their pension to their spouse and children on death. However, it may be more tax-efficient to pass the money to the children rather than the spouse and in some case the grandchildren thus using non taxpayers annual tax allowances. This may not be possible in such a flexible manner using a standard death benefits Trust from a pension.

With a Pension Trust it is possible for a surviving spouse to borrow money interest free from the trust which is repayable on death thus reducing their estate for IHT purposes.

The whole area of pension death benefits into Trusts are very complex and so experienced advice is essential.

If you have a pension plan valued in excess of £200,000, this planning would be beneficial, so please call us for a free no obligation consultation.

Read More

How does an Asset Protection Trust help me?

How does an Asset Protection Trust help me?

Trusts carry out a number of different functions. One of the main benefits is ensuring the control of assets remain in the family bloodline, which we call bloodline protection.

There are a number of issues that could mean assets are passed outside of the family when that was never the original intention of passing assets to children and grandchildren.



Remarriage after the death of a bloodline relative

These and other issues are covered in our video – Is Estate planning more important than Inheritance tax planning.

Assets can be gifted into Trusts during lifetime or on death.An asset protection trust can protect the gift and retain it within the family bloodline.

An asset protection trust is useful for bloodline protection, but only if those assets are intended to be given away directly.

This could be a property, although capital gains tax will apply if the property in question is not the main residence. There are other significant taxation issues which arise on the rented property being held in an Asset Protection Trust, which means experienced advice is essential.

The assets could also be cash intended to help children onto the property ladder or other reasons. In this event, a deed of assignment places the funds into the Trust, and a Deed of Loan lends the money interest-free to the relevant beneficiary. In the event of a potential claim on those assets by a non-bloodline person, the loan is recalled into the Trust and can be reloaned back again later. For example, after a divorce is settled.

This works because there are multiple beneficiaries of the Trust ( my children and grandchildren) some who may not be born yet and so a divorce court cannot stipulate the asset belongs to the beneficiary to who it has been loaned.

If you are considering making significant gifts with a value in excess of £50,000 this planning would be useful so please call us for a free no obligation consultation.

Read More

Are you putting the cart before the horse?

Are you putting the cart before the horse?

Many people are keen to ensure they reduce their Estate’s future liability to Inheritance Tax planning by engaging in tax planning to reduce or mitigate their tax bill. The tax planning is a very important aspect, but it is just that – an aspect.

In reality, it is important to think about Estate planning first (the horse) with tax planning second (the cart). The two are symbiotic, but should be led by Estate planning.

How does Estate planning differ from Inheritance Tax planning, and how can you go about making sure you find the best solution for your situation?

Estate planning is about taking steps to protect your Estate for future generations, not just about reducing tax. For example, many people want to ensure their wealth and assets are protected for their bloodline. They want to protect against their children inheriting part of their wealth and then in the future being subjected to a divorce or bankruptcy meaning that the wealth could disappear to the benefits of the Ex-Spouse. In case of bankruptcy, this will be for the benefit of creditors.

Making plans today to ensure wealth and assets remain in the bloodline, and future inheritors are themselves protected, is an example of Estate planning. Any Inheritance Tax planning becomes part of the wider Estate planning exercise. For many, this requires a delicate balance between the needs of the individual couple today, and the future wellbeing of their beneficiaries.

Making large one-off gifts can be challenging for a number of reasons

Leaving a legacy which is not unnecessarily reduced by future taxation, is a desire many people have, but they don’t want to leave themselves short in their own lifetime. Outright and large gifts can be complicated by this contradictory position and major gifts also often require the donor living seven years. There may be reservations about when an individual is comfortable for their offspring or beneficiaries to receive the gift. We also have to factor in that future governments might introduce more stringent rules and tax rates.

It’s a complex position, but the good news is there are ways to plan for Inheritance Tax which can deal with most, possibly all, of these factors. You just need the right solution and suitable advice.

Inheritance Tax allowances

There are Inheritance Tax exemptions and allowances you should be aware of. Making sure these are properly used is a simple but highly effective step. There are gifts, which can be made on a regular basis, in a drip feed fashion. For example, every individual can make a gift of £3,000 per year, which is immediately outside of the tax loop.

There are investment schemes such as the Enterprise Investment Scheme (EIS) where the value of the invested sum is outside of an Estate for Inheritance Tax purposes, after just two years.

Which of these, or other possible tax saving options, work best for you will be dependent on your circumstances and wider Estate planning. How you use these will be subject to a skilled appraisal of your situation, aligned to your wishes.

The key is to make sure the Estate planning and Inheritance Tax planning are coordinated into a plan, which meets all your requirements, both short and long term.

Like all matters related to Estate Planning and Inheritance Tax, experienced advice is essential.

Call us if you require any help.

Read More

The Main Problems with Having a Basic Will

The Main Problems with Having a Basic Will

This blog explains all the problems involved in having a basic Will. If done properly, and you choose the right people, then the correct people will get the correct assets. However, there is no protection for the assets and this poses a big problem. If you pass the money directly through your Will from your estate to your beneficiaries, then they will have full ownership. This is fine for people with assets under £100,000. However, if you own over £100,000 (and particularly for people with assets over £1.5 million) then only having a basic Will is not a sensible strategy.

Problems with a Basic Will

There are six main problems associated with a basic Will:

  1. Divorce – you lose potentially half of your money.
  2. Bankruptcy – Your money could go to direct creditors if one of your children or your spouse becomes bankrupt.
  3. Remarriage – This can disinherit your grandchildren if your child’s spouse remarries.
  4. Children/grandchildren inherit too early – the premature death of your children can leave large amounts to 18-year-old grandchildren, which can be dangerous. 
  5. 64% tax – The same money can be taxed twice if going to a grandchild.

How can you avoid these problems?

To avoid these problems, instead of setting up a basic Will, you should set up a Will with an embedded Lifetime Trust. The number of childrenyou have determines the number of trusts you need (for tax and flexibility purposes). This means that each child should have their own Trust to manage independently. 

It is important that you don’t just adjust old Wills. You should also use the same set of lawyers to set up your Trusts and provide legal advice to reduce any confusion. Don’t get hung up on saving, as this isn’t worthwhile in the long run.

The Process

When you die, all of your assets get given to the Trusts that you have set up. Assets are then loaned out to the beneficiaries by the trustees for added protection. A separate agreement is drawn up that classes the money as an interest-free loan, repayable on demand for the rest of their lives. It is only repayable should the trustees demand it – for example in the event of a divorce. There is also a possible tax saving for some people with large estates where their house value exceeds £650,000.

In Summary…

Basic Wills only direct the assets to the people that you want them to go to. If they are made correctly, with the proper clauses, then they work. However, if your assets are likely to exceed £100,000, then you should consider Wills with embedded Trusts. Even if there is no Inheritance Tax saving, they still provide protection.

Like all matters related to Estate Planning and Inheritance Tax, experienced advice is essential.

Call us if you require any help.

Read More

Disadvantages of Will Trusts

Disadvantages of Will Trusts

This blog explains why everybody should have their Wills drawn up by a professional.  It will also cover why those people with higher levels of assets should consider having Trusts placed into their Wills.  However, there is an inherent problem with Will Trusts that this blog will explain so that you can better understand the alternatives.

Why set up a Will Trust in the first place?

Some people are faced with situations whereby they want to set up a Trust for perhaps a disabled child, or person in care. Or maybe they have children from previous marriages that they want to leave assets to meaning that they may not want their assets to be distributed evenly. Some people may want a spouse to live in a property, which they own, but want to pass that property on entirely to their own children when that new spouse dies.

Another reason for setting up a Will Trust centres around wanting to make sure that if you die before your children are old enough to look after money, that they don’t get access to too much money in the early years and up to the age of around 25.  A normal Will wouldn’t allow you to do that.

There are also some circumstances where sometimes people can’t be trusted to look after money. As an example, if a client had a son or daughter who had a problem with alcohol and therefore didn’t want them to be a trustee. In this instance, we could provide a professional trustee, and they made sure that the assets and income were distributed to them as required as opposed to having access to it to any time.

Disadvantages of Will Trusts

There are, however, some disadvantages with Will Trusts, and this is centres mainly around the complex area of tax on Trusts and the legislation surrounding Trusts.

You can set up any number of Trusts that you like, but if they are not settled, in other words, something doesn’t go into the Trust,then they don’t actually exist. So, whilst you can set up a Trust, until the settlement occurs, no Trust exists.

If you depend upon a Will Trust, all of the assets fall into one or a number of Trusts on your death. It is important to realise in this case that the tax office treats those as one Trust, meaning that certain tax implications arise. This means that if the value of all of those Trusts together exceeds the Nil Rate Band allowance (which at the moment is £325,000) at the 10 year anniversary, there’s something called a periodic charge applied.  At the moment this is charge is 6% and is applied to the excess value over the Nil Rate Band at the time. This is applied at every 10th anniversary.

For people leaving large estates, that is a problem because it can create the 6% tax charge at every 10-year anniversary potentially for up to 50 years.  This is because the Trust will last, not only through to your children but also to your grandchildren.

Will Trusts are not necessarily the most sensible route to use for people with larger estates, because they’re only actually put into place on death.  Therefore, for most people, and for our clients who have assets in excess of £1 million, we would look to set up a Lifetime Trust. 

Lifetime Trust

In this instance, rather than put a Trust into the Will, we would set up the Trusts during lifetime. The Trusts are written alongside the Will because you would want the same lawyers to write the Wills and the Trusts, so that is no differentiation. This also avoids a situation arising where one firm of lawyers blames another if something goes wrong.

The Wills and Trusts are written together with the Wills instructing that the money goes to the Trust.  As the Trust is set up during lifetime, we place the settlement as soon as the Trust is set up.  This can be as low as £10. We can actually Sellotape a physical £10 note to the Trust document signifying that the Trust exists and can be registered with the HMRC.

One of the benefits of setting up this type of Trust is that you can set up a Trust on one day and then another the following day. This means you can have different Trusts for your separate children so that eventually when your assets fall into them, whether gifted during lifetime or on death, each one of your children could control their own money. This also allows each child much more flexibility as one may want to leave money in Trust, and another may want to extract it. Therefore, one Trust per child, and sometimes a Trust for grandchildren, is a sensible route.

Lifetime Trust – Gifting money during lifetime

One of the other benefits of a Lifetime Trust is that you can gift money during lifetime. For example, you may want to give your children some money to buy a house.  In this instance, you would place  for example £50,000 into the Trust, and that money is then loaned out to your children immediately. As that money has come to them as a loan from the Trust, should they ever find themselves in a situation such as a divorce, that loan can be recalled to the Trust at any time.  This means that the money is safeguarded within the Trust.

You can find more on this in our blog – Is Estate Planning more important than Inheritance Tax Planning

Another benefit is that you can use your NIL Rate Band to gift money into Trust.  This means that you could put £325,000 into the Trust, wait seven years and then gift another £325,000 into the same Trust. This also helps reduce the estate for Inheritance Tax purposes.

Lifetime Trust – Protection from legislation

As the Trust exists (because the settlement has been made), this means that it is potentially much better protected from legislation in the future. It’s very rare for the HMRC to apply any new legislation retrospectively.  This means that as your Trust will have already been set up, it is unlikely that any changes in legislation will affect them.

This wouldn’t apply in the case of a Will Trust because the settlement is not placed until death and therefore, the Trust doesn’t actually exist meaning that any changes to Trust legislation would apply. Setting up the Trust early in this way means that you know what the costs are upfront and you can determine that it’s good value for money. It also gives you peace of mind to know that these matters are taken care of so that when you die, your children will simply just need to act as the beneficiaries.

In summary

Will Trusts are worthwhile having for most people as even if you’re only going to leave £100,000 to your children, protecting those assets is a worthwhile endeavour. However, we believe thatLifetime Trusts have more substantial advantages, especially for those people with higher value estates:

  • You can set up a number of Trusts– one for each child and grandchildren
  • The settlement can be as little as £10
  • You know the cost when setting them up
  • You can use them more than once
  • Less likely to be changed by future legislation
  • Less administration issues on eventual death

Like all matters related to Estate Planning and Inheritance Tax, experienced advice is essential.

Call us if you require any help.

Read More

8 Free Ways to Avoid Inheritance Tax

8 Free Ways to Avoid Inheritance Tax

This blog is all about what you can do to avoid Inheritance Tax without having to pay.


The first thing that you can do is SKI (Spending the Kid’s Inheritance). It is your money to choose to do what you want with it. Especially as you grow older and this can be a great way of improving your lifestyle as well as reducing the amount of Inheritance Tax that you pay.

Small Gifts

An example of a small gift would be giving £3,000 per year. How this affects you depends on your estate. However, for most people, this would not be too significant an amount and could really benefit the beneficiaries. Over time, this money will add up and will remain out of your estate, which will save a lot of money, especially if you are on a 40% Inheritance Tax rate.

You can also give away £2,500 on the marriage of your grandchildren and £5,000 on the marriage of your children. These financial gifts are for one individual (so in a marriage you could give £10,000 in total) but they have to be gifted before the marriage takes place.

You also have to option to give small gifts of up to £250 to unlimited amounts of people.


GNI stands for Gifts out of Normal Income. This is areally useful and generally underutilisedallowance. However, it does require having sufficient income as the gift cannot come from capital. Anything that you would be taxed for income tax purposes on your tax return is then usable via this allowance. The gifts have to be regular, and it would be advisable for them to be documented.

Large Direct Gifts

Generally speaking, a gift that is over £3,000 a year would be classed as a large gift. This is also called a Potentially Exempt Transfer (PET) that abides by the 7-year rule. That is, that after seven years there is no Inheritance Tax to pay on it.

There are also Taper Relief gifts. However, this only applies to gifts in excess of the Nil Rate Band band allowance (currently £325,000).

Gifts Into Trusts

This is known as a Chargeable Lifetime Transfer. It isn’t technically limited, but if you make a gift which exceeds £325,000, then you pay an immediate Inheritance Tax charge of 20%. As there are different types of Trusts, you would need sound financial advice. You must always take care to make Chargeable Lifetime Transfers into Trusts before you make any Potentially Exempt Transfers. You must get financial advice here too, to avoid being caught out by complicated tax rules such as the 14-year rule.

£175,000 RNRB (Residential Nil Rate Band)

This is a relatively new allowance. Each person that owns their home on death or has registered it when he/she goes into care effectively get a £175,000 allowance. But it is only usable provided that he/she gifts that amount of money as part of the property directly to his/her direct descendants.

Quite often, you may find a property where either the husband or the wife owns the property. If you don’t have the property split, then one person may not get to use that allowance which may be detrimental to the tax planning.

£325,000 NRB (Nil Rate Band)

Every UK domiciled person is entitled to this automatically, and it is transferable between spouses and civil partners. If you are a widow or a widower who has got remarried, you would then have a transferable allowance with your new spouse as well as (potentially) from your previous spouse.

Exempt Assets

Exempt assets are assets that you can buy which, after two years, are out of your estate. An example of this would be if you brought part of a farm or trading company. The only fee would be if you chose to go through a financial advisor.

Read More

Why Set up a Lifetime Trust?

Why Set up a Lifetime Trust?

This blog explains why it is so beneficial to have a Lifetime Trust instead of a Will Trust.

Why do Solicitors Usually recommend a Will Trust?

Usually, a Will Trust is set up and created by a Will and is usually a Discretionary Trust. The benefit of this is that it means the person’s entire assets fall into the Trust as opposed to going directly to their beneficiaries on death. The Trust will typically last 125 years from inception. Here, the Trust can make loans from the Trust to the beneficiary. This will protect the assets, for example, in the event that your child gets divorced.

What is the Difference Between Will Trusts and Lifetime Trusts?

Both types of Trusts are Discretionary Trusts. However, the main difference is that a Will Trust is set up on death and the Settlement (items that go into the Trust) are the assets that are left on death. By contrast, Lifetime Trusts are set up during lifetime, and the Settlement occurs immediately. The Settlement can be as little as £10, and the rest of the assets pass into the Trust upon death.

A Lifetime Trust allows you to gift assets during your lifetime. Rather than giving money directly to your children, which contains the risk of losing half the money in a divorce scenario, the Trust will lend the money to your children which means that the assets are protected.

Downsizing Your Home

You could decide to downsize your house so that you would have money in your late seventies to gift out to your children. Here, with a Lifetime Trust, if you were to live for seven years after making a gift into Trust, you could then use your nil-rate band allowance more than once.

Deathbed Planning

Lifetime Trusts also have another advantage which is particularly useful for the wealthy. Imagine that your spouse has already died and you are suddenly taken very ill. As the Trust already exists, you can gift some money into the Trust immediately. If, as a result of this, the estate value drops below £2 million, that means that the residential nil-rate band is fully available. This would up to £140,000 in Inheritance Tax. So although that death bed gift would fail as gift into a Trust for Inheritance Tax purposes, it would still reinstate the residential nil-rate band, thus saving Inheritance tax.


The main advantage of using a Lifetime Trust is that it uses the existing rules. This means that you know and understand what the rules are when you place your £10 in. This also means that if you create a Trust during your lifetime, you have a much higher level of certainty on the rules applied than one created upon your death which could be 20 years later (allowing time for the rules to change).

Like all matters related to Estate Planning and Inheritance Tax, experienced advice is essential.

Call us if you require any help.

Read More

How Does the 7 Year Inheritance Tax Rule Work?

How Does the 7 Year Inheritance Tax Rule Work?

This blog explains some of the complicated rules around Inheritance Tax, including Taper Relief and the seven-year rule. It’s very important that you understand these rules and how they work because if you get them wrong, it could cost you a lot of money.

The Seven Year Rule

This rule only applies to gifts that are made in excess of £3000. If the gifts that you make exceed £3000 in any given year, then it will become a Potentially Exempt Transfer (PET) or a Chargeable Lifetime Transfer (CLT). PETs apply to direct gifts to people that exceed £3000 whereas CLTs are gifts into Trusts.

Potentially Exempt Transfers

PETs have no limit. If you wanted to give away £10 million, you could, and if you live for seven years after this, then this will fall outside of your estate. However, you need to be careful. If you gift large amounts to your children directly and they go bankrupt or get divorced, you would have no control over the gifted money, and as a result, it could leave the family bloodline.

Chargeable Lifetime Transfers.

CLTs are gifts into Trust, and they too have no limit. Yet, if you gift more than the Nil Rate Band (currently £325,000) then the excess will be charged at 20% immediately.

Taper Relief

If you make a gift into a PET, then Taper Relief might apply. Taper Relief is a tax reducer. It doesn’t reduce the amount of capital transfer for Inheritance Tax, it reduces the tax payable. It is important to know that Taper Relief only applies to the excess of gifts which exceed over £325,000. For example, if you gift £525,000, then Taper Relief would only apply to the excess £200,000.

The below ‘Taper Relief: Sliding Scales’ is a handy diagram showing the differing tax rates that apply. For example, the diagram illustrates how Taper Relief only starts after three years. You can use the diagram to see how the amount of excess that you’re gifting corresponds to the Taper Relief rules.

Time between date of
gift and date of donor’s
Taper relief applied to tax dueEffective rate on gift
0 to 3 Years0%40%
3 to 4 Years20%32%
4 to 5 Years40%24%
5 to 6 Years60%16%
6 to 7 Years80%8%

The Seven Year Rule and Fourteen Year Rule in More Detail

Let’s say that you make a PET in year one and you lived over seven years. Here, the money would be out of your estate after the seven years, and you would pay no tax. Now imagine you make another gift in year six and you lived for over seven years after that. Even though the two gifts overlap, there would be no issue as each PET is accounted for individually for tax purposes.

However, the rules are different for CLTs. If you made a CLT in year one and lived past the seven-year mark, again, there would be no issue as the money would be out of your estate. However, if you were to make another CLT in year 6 and then only lived another 6 years then the second gift would be a failed CLT and, as the CLTs overlapped, the money would be dragged back into your estate. You would, however, still get Taper Relief (depending on how many years you lived).

Therefore, after you have made a gift into a Trust, do not make any other giftsover £3000 in the seven years that follow.

Like all matters related to Estate Planning and Inheritance Tax, experienced advice is essential.

Call us if you require any help.

Read More

Easy guide to probate

What is probate?

Everything a person owns; their possessions, money and property make up their estate. When this person dies, the estate must be distributed according to their Will, if it exists. Applying for the legal right to perform the distribution is called probate.

Probate is granted to the person(s) named the executor (s) in the Will, with authority from the court. An executor is a person the deceased wished to deal with the administration of their estate after their death. It is the executor’s responsibility to:

  • determine what property and other assets you owned, as well as your liabilities
  • arrange for current valuations of your personal possessions, property, investments, any pension or insurance entitlements due and also any debts and bills
  • arrange for the payment of your funeral
  • establish Income Tax, Capital Gains Tax and Inheritance Tax liabilities and complete the necessary tax returns to submit to the Revenue
  • complete and submit the necessary Probate Registry forms
  • arrange the clearance and sale of any property
  • collect assets and pay any debts
  • arrange for the distribution of legacies and gifts to your beneficiaries
  • compile detailed accounts to give to the main beneficiaries
  • in the case of minor children being beneficiaries, then your executor may act as Trustee for ongoing trusts, to hold their monies until they reach 18.

In Scotland, probate is known as Confirmation, however the process remains similar.

This guide aims to provide a basic understanding of what happens and what needs to be done if you are named an executor.

Do you need probate?

This depends on the deceased’s circumstances, but many people do not. Relevant factors include:

  • Whether any accounts or properties are jointly owned – if they are, then it usually just passes onto the surviving co-owner
  • The value of the estate – some institutions may let estates valued at less than £5000 pass on without sight of a Grant of Probate, however it is worth checking with the provider

If there is a property which is NOT jointly owned, then probate is always required.

HMRC will be able to advise on whether Probate is necessary

Who should apply, and for what?

Not everyone can apply for the legal right to handle the estate. The process depends on whether a certified Will has been produced, and if that Will names an executor to deal with the contents. The executor could be anyone over the age of 18 and is often a family member or a firm of Solicitors. It is not uncommon for an executor to be a beneficiary.

 There are three options depending on the situation:

  • If a Will exists AND names a competent executor, then that person must get a court-ordered ‘Grant of Probate’.*
  • If there is no Will, then they must apply for a ‘Letter of Administration’.
    • Only the Spouse (even if separated), civil partner or child may apply.
    • In this case, the rules of intestacy apply.
  • Sometimes a Will either does not deal with the full estate or name an executor. There may also be reasons such as health or mental competency that mean the named executor is unable to act. In a case like this administration is required again.

*The named executor is not obliged to act – it is possible to renounce the role or reserve power for future use, often when the situation is easier to manage (such as if the executor is abroad).

So long as you are able to apply and unless the estate is very complex, probate is absolutely a process which can be done alone. People waste large amounts of money getting solicitors to do it for them. It does take time and effort, but many people find it a welcome distraction from the situation that they find themselves in.

How long does it take?

It normally takes between one and two months to file for, and then receive a Grant of Probate. After this, it can take significantly longer to perform the actual distribution, particularly if the estate is large or complex. The main piece of advice we can give while applying is to be organised and prepared. So long as you keep good records at each stage, it will be an easy experience.

We can prepare the necessary paper within five working days of receiving the full information from the executor or Administrator. We are also able to obtain the grant in as few as ten working days.

You have been named executor, what should you do?

1.Register the death and find the Will

This needs to be done within five days of death and is usually performed by a family member. Locate your nearest registry office online and phone ahead in case you require an appointment.

  • You will need the correct documentation of a medical cause of death certificate and then other documentation such as a birth certificate.

It is wise to buy several copies (we suggest at least 5) of the death certificate as they are useful later and increase in price based on time after death. Initially, it costs between £8-12 per copy based on which one of the home nations the death occurs in. (£11 in England)

  • The certificates are needed for the assets such as bank or credit card accounts.

The location of the Will should have been made known by the deceased before death, e.g. with a solicitor or at their house.

  • If there is no Will, then the deceased has died ‘interstate’. At this point, certain rules apply.

2. Report the death

Using the death certificates, report the death to any of the asset holders such as banks or building societies.

This can often be done in one go using the Death notification service. You do not have to create an account, though it is advised as they can provide updates on the progress of the application.

  • Institutions are usually notified by 4 PM the next working day if you submit before 12 noon.

3. The funeral

Family members normally arrange this.

The Will may have set aside money to provide for the event, but if not, then the family and/or executor may find themselves paying BEFORE they are able to retrieve any assets.

4. Perform a valuation of all the assets and assess finances

This can be done alone, but some areas may require professional services based on the items that are being valued.

  • Examples could include art or jewellery.
  • Houses can be valued by the executor, but if the price begins to stray close to the Inheritance Tax (IHT) threshold of £325,000 then it is better to have it done professionally.

You will need to contact a variety of institutions such as:

  • Banks for accounts and cash assets. Make sure that details of all accounts, investments and ISAs are included. Check whether the accounts are joint or single as this will affect the valuation.
  • Lenders in relation to mortgages, loans, or credit cards
  • Pension providers
  • Various government offices to check for outstanding tax payments (council, income ect…) which will have to be settled BEFORE anyone named can receive anything from the Will.

The institutions may require a death certificate to stop any payments and you should also check that any protection or insurance policies do not lapse after death.

When it comes to life insurance, you should also check for any policies that you can start the process of claiming on at this point.

  • Sensible management would have put these into Trust. If so, then they can be accessed without probate. Bluebond specialises in dealing with estate planning via the use of trusts.
  • If it has not been put into Trust then the policy forms part of the estate and must be included in the valuation.

5. Obtain the Grant of Probate (or Administration) and pay Inheritance Tax

Inheritance Tax forms 205 or 400 (IHT205/400)

Watch our video on Inheritance Tax to see how we can help!

Before you submit a Grant of Probate application, forms must be submitted to see if the deceased is liable to pay Inheritance Tax.

  • If there is any tax to pay, there is a 6-month window from the point of death to in which to pay.
  • A Grant of Probate will not be given if the tax is not paid.

There is a £325,000 allowance which is tax-exempt, alongside a possible further £175,000 allowance depending on the individual’s circumstances. Using the previously performed valuation, one of two forms needs to be filled out based on whether the estate falls above or below the taxable boundary:

  • Use form IHT205 if the valuation indicated an estate of LESS THAN £325,000
  • If it is valued at greater than the threshold then you must instead fill out form IHT400

Either form can be filled out on paper or online and should list:

  • All valued assets
  • Any gifts made by the deceased less than 7 years before their death (after 7 years these gifts become tax exempt)

Fill out the form EVEN IF THERE IS NO TAX TO PAY.

IHT must be paid in advance. This is easy if there is enough money in the deceased’s bank accounts – all the banks need is an IH423 form. It gets more complex if items such as property must be sold.

  • Often the executors may have to initially pay out of their own pocket or get a loan before they can recoup the money from the estate


Once any IHT issues have been sorted, the executor (s) must complete a Probate Application form (PA1P) which can be downloaded and submitted online. (Google: ‘apply for probate’ and select the first .gov option)

  • The executor will need an original copy, no photocopies, of the Will.
    • If multiple versions exist then only the most recent may be used, but previous versions should not be destroyed at least until probate is granted.
  • If there is more than one executor, then the group must work out who applies. Up to 4 executors can be named on an application.
  • For further help, the government operates a helpline on 0300 123 1072.

The process costs £155 with a solicitor, or £215 if applying by oneself, regardless of the size of the estate.

  • The fee is waived below £5,000
  • At least 5 extra copies should be ordered for £1.50 each, as they are vital to the process

The application will only be successful if the relevant Inheritance Tax forms have been submitted (see below) and any resulting tax is paid. Once successful, a notice should be placed in The Gazette to encourage other creditors to come forward, otherwise the beneficiaries may be liable.

In total, the following must be submitted to the Probate Registry/HMRC:

  • PA1P form
  • IHT205 or 400 form
  • An official death certificate
  • The original Will and three copies
  • The fee

6. Pay of any debts

If the deceased had any other debts besides IHT, then these must be paid off before the remaining estate can be distributed.

  • Only the estate is liable for these debts, not the family.
  • There is a complex order in which they must be paid which becomes relevant if the estate is not large enough to cover everything.

A notice should be placed in The Gazette to encourage other creditors to come forward, otherwise, the beneficiaries may be liable.

  • At least two months must pass before the estate is distributed before this rule takes effect

Debts in a joint name become the responsibility of the survivor of the pair.

7.Distribute the contents of the estate in accordance the Will

So long as you know the value of the remaining assets, they can now be divided in accordance with the Will.

Key words

Probate – the process of applying for the right to deal with someone’s estate after they die.

Executor – someone who is able to apply for probate, as they are named executor in the Will.

Estate – all a person’s available possessions and assets (money, property ect..)

Beneficiary – a party (e.g. a relative) who will gain assets from the Will

Grant of Probate – the legal authority granted by a court, allowing an executor to settle and distribute the estate in accordance with the Will

Grant of Letters of Administration – the path taken by a relation if there is no Will, or it is incomplete

Death certificate – a signed and certified document proving the death of an individual

The Gazeette – the Government website of the official public record for announcing deaths

IHT – Inheritance Tax

PA1P – the form that must be filled out in order to apply for probate, along with the associated fee

IHT400 – the online form for declaring assets to HMRC to see if there is any IHT due

IHT423 – the form that can be sent to institutions such as banks to authorise payment to creditors and HMRC out of the deceased’s accounts

Read More

Why you should use a Family Investment Company to avoid Inheritance Tax on Large Estates

Why you should use a Family Investment Company to avoid Inheritance Tax on Large Estates

This article explains all the benefits that accompany using Family Investment Companies (FICs). An FIC may be a beneficial solution to your Inheritance Tax problem if your estate exceeds £2million in value.

What is an FIC?

An FIC is a company with bespoke Articles of Association and multiple share classes. They are usually limited, but can be unlimited if it is only investments that are held in the company and not property. FICs are set up by tax specialist tax consultants together with lawyers. They are most often used by people who have large property portfolios.

How Does the Process Work?

Usually, a registered partnership is set up between spouses (rather than you filing your tax returns individually). After three years, the partnership is incorporated, and properties are placed into the company using Incorporation Relief to avoid Capital Gains Tax (CGT). This method is also useful for clients withlarge investment portfolios with potential large CGT issues. Here, shares are gifted as fast as possible into the company to avoid CGT.

How is an FIC Set up?

The people gifting the money into the company will generally have A-class shares. When they gift the money into the company, it is offset on the balance sheet as a Director’s loan. The people setting it up become Directors and retain control. The Director’s loan is then repaid over the years income tax free as it is classed as a return of capital. It is the normal income from property portfolio thatrepays the Director’s loan. Corporation Tax is payable on profit, but at 19% it is lower than Income Tax.

Usually, when you reach the age of around 75-78, a Director’s loan is given up asa Potentially Exempt Transfer (PET) and therefore avoids Inheritance Tax if it survives the seven-year period. Corporation Tax is payable – but only at 19%. As it is a company, Section 24 on Buy To Let properties does not apply, and as a result, all interest is offset against profits (not just the 20%). You can also get paid an income as Directors.

You would only own the A shares. Usually, your children would have the B and C shares which would also grow in value in line with the company’s property or share portfolio. This stops the Inheritance Tax from getting worse.

Despite having shares, your children would not be Directors so you continue to control the company until old age. Here, there is an added benefit that only direct descendants can own shares which provides protection (for example, if one of your children was to get divorced).

FICs are particularly beneficial for people whose estates exceed £2million (or people with assets that exceed £1 million excluding their main residence). They are a good way of potentially eliminating Inheritance Tax on large estates. However, there is the risk of future attacks by changes to legislation HMRC,meaning that you should not solely rely on this mechanism. FICs should always be set up alongside Trusts as retrospective changes to Trust legislation is very unlikely.

What are the Main Benefits of FICs?

  • You can avoid CGT normally payable on passing a property portfolio into a company if done correctly.
  • It can generate very low levels of Income Tax.
  • It avoids Inheritance Tax on very large assets.
  • It retains complete control on assets and income streams.

What are the Negatives of This Strategy?

  • FICs do have the potential to be attacked in the future by HMRC. This is the main negative of using FICs.
  • If your income is based upon property income, then this can be inflexible.
  • You will have Accountancy fees that you need to manage annually.


It is very wise to not rely only on FICs. You should always consider the use of maximum investment into Trusts as well. Alternatively, you could invest some money into Business Relief plans.

You should always place the maximum amount possible into Trusts because this provides huge backup assets should you need them (for example if you went intocare). Also, this may be necessary if you find yourself giving away your property portfolio given that your main income from an FIC stops at age 78.

However, this can sometimes be a difficult concept for property landlords who feel comfortable having all their money in property. Your return may be lower, but it will have a higher level of certainty as you avoid IHT and you have capital/income back up.

In Summary

FICs are good for people with large estates as there are few other options. It alsooffers protection as large gifts to children could be lost in scenarios such as divorce. However, to give yourself the highest level of protection, you should always use maximum investments into Trust. Together, this means that you get certainty on IHT avoidance.

Like all matters related to Estate Planning and Inheritance Tax, experienced advice is essential.

Call us if you require any help.

Read More