Inheritance tax and Nursing home fees are a major concern for many of those considering making a will. Huw Worthington advises on these important issues.
For many of those who are considering making a will there are two important issues to consider:
Huw Worthington, Senior Partner of Worthingtons Solicitors specialising in Wills and Estates and Property law, advises on the issues facing parents who want to ensure their children don't lose out to the taxman.
Firstly, Inheritance Tax. In simple terms, Inheritance tax ('IHT') is a tax on money or possessions you leave behind when you die and on some gifts you have made during your lifetime. Everyone has a tax-free allowance known as the ‘nil rate band’ or the Inheritance tax threshold which currently stands at £325,000 (2013 – 2014 tax year). Married couples and civil partners are allowed to pass assets to each other tax-free and since October 2007 the surviving partner is allowed to use both tax-free allowances up to a maximum of £650,000.
There are some important inheritance tax exemptions that allow you to make gifts to others and not have to pay Inheritance tax on them when you die.
It is important to consider that you may have to pay tax out of your estate if you die within 7 years of making a gift, to your children for example. This is known as a PET (potential exempt transfer).
Secondly, Nursing Home Fees. 'Means testing' of assets means that for many care home fees are self funding.
Setting up a family trust is one way of transferring the ownership of your home or other assets to someone else whilst you are still alive in order to protect it. In this scenario you can still live in the house. Alternatively, on the death of your spouse, transferring a half share of the family home into a Trust can protect the family home from being included in care home fee assessment.
Transferring the family home to your children during your lifetime also protects the home from being assessed but this is not without risk. Your home could be available to your children’s debtors if they got into financial difficulties and matters could be complicated if your children die before you, or if they get into matrimonial difficulties. In addition there is no time limit as to how far back a Trust can go to find out if you have given away assets deliberately to avoid paying your care fees! Moreover you will have to pay a market rent to prove that the gifting of the house to your children is ‘at arms length’ and not a ‘gift with reservation.’
It is important to seek specialist legal advice at an early stage if you are concerned about any of the issues raised in this article; Inheritance tax advice, advice on family trusts, or avoiding unnecessary inheritance tax costs.
Huw Worthington is Senior Partner of Worthingtons Solicitors Belfast, Bangor and Newtownards is the head of the Estates department and is happy to provide legal advice and assistance in all matters relating to drafting Wills and Administering estates, as well as in matters of contentious probate.