Inheritance tax – Clever Splitter http://cleversplitter.com/ Wed, 23 Nov 2022 18:19:27 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://cleversplitter.com/wp-content/uploads/2021/07/icon-2021-07-28T170948.334-150x150.png Inheritance tax – Clever Splitter http://cleversplitter.com/ 32 32 Inheritance tax and siblings: reform proposal – Capital gains tax https://cleversplitter.com/inheritance-tax-and-siblings-reform-proposal-capital-gains-tax/ Wed, 23 Nov 2022 06:57:00 +0000 https://cleversplitter.com/inheritance-tax-and-siblings-reform-proposal-capital-gains-tax/ The position of siblings under UK Inheritance Tax (IHT) law has once again become a topical issue in relation to the tax regime while living and after death with the introduction of the Bill on Lord Lexden’s private members in the House of Lords earlier this year. Ultimately The Inheritance Tax (Amendment) Bill 1984 (Siblings) […]]]>

The position of siblings under UK Inheritance Tax (IHT) law has once again become a topical issue in relation to the tax regime while living and after death with the introduction of the Bill on Lord Lexden’s private members in the House of Lords earlier this year. Ultimately The Inheritance Tax (Amendment) Bill 1984 (Siblings) [HL] provides that in certain circumstances siblings could leave their estate free of IHT to the surviving sibling, which differs from the current situation where siblings may end up with large inheritance tax bills, which which highlighted the need for change.

The current position

In several countries that still impose death and lifetime taxes, there are forms of consanguinity relief, meaning that family relationships such as siblings, nephews and nieces are exempt from the IHT. This is in addition to reliefs granted to spouses and civil partners whereby the tax rates imposed depend on the relationship between the deceased and the beneficiaries.

In the UK, Section 18 of the Inheritance Tax Act 1984 confirms that a transfer made to a surviving spouse (amended in 2005 to include civil partners) is exempt for IHT purposes. In other words, property can pass between spouses and civil partners without being subject to IHT. If the deceased is domiciled in the UK and the surviving spouse or civil partner is not, the exemption is limited to the standard zero rate bracket which is currently £325,000.00. The same exemption is granted to couples who divorce or dissolve their partnership until the absolute or final decree has been finalized.

Unlike many other countries, consanguinity relief is not given to siblings in the UK, so when siblings die, their entire estate beyond the installment of zero rate is potentially subject to IHT at the rate of 40%. It is obvious that the absence of such IHT relief granted to spouses and civil partners may expose the deceased’s estate to IHT. Essentially, this could mean the difference between paying large sums of IHT or none at all.

Proposed Changes: Relief for Siblings

Inheritance (Amendment) Bill 1984 (Siblings) [HL] was introduced earlier this year by Lord Lexden to alleviate the IHT obligations which are currently granted to the estates of siblings on death.

For a surviving brother or sister to benefit from this exemption, they must have reached the age of 30 before the date of the transfer of assets and have resided in the same household as the transferor for a continuous period of seven years taking end on the date of death. For the purposes of this bill, siblings are defined as sisters, brothers, half-sisters and half-brothers.

What to do while waiting, while waiting for the reform

If Lord Lexden’s Bill is not passed into law, there are estate planning methods that can be used to mitigate the amount of IHT paid on the deceased’s estate.

One example is to review current wills and implement wills that incorporate IHT planning mechanisms, such as a discretionary trust naming the surviving sibling from among a class of beneficiaries. Assets held in the trust would not be included in the survivor’s estate and therefore would not be considered for IHT purposes upon their subsequent death.

There are of course other tax points that may need to be considered during the lifetime of the surviving sibling(s), such as birthday and exit fees for IHT and tax on capital gains. However, a discretionary trust is an example of how siblings can effectively reduce overall IHT liability and pre-plan the payment of tax upon the death of the first sibling.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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Inheritance tax frozen for two more years – 7 ways to cross the threshold | Personal finance | Finance https://cleversplitter.com/inheritance-tax-frozen-for-two-more-years-7-ways-to-cross-the-threshold-personal-finance-finance/ Sun, 20 Nov 2022 17:14:26 +0000 https://cleversplitter.com/inheritance-tax-frozen-for-two-more-years-7-ways-to-cross-the-threshold-personal-finance-finance/ Give regular gifts People can also make regular donations from their income – of any amount – as long as they can show that their standard of living has not been affected. These gifts are immediately IHT-free and there is no seven-year rule. Verity Kirby, private client partner at the law firm Shakespeare Martineau, said: […]]]>

Give regular gifts

People can also make regular donations from their income – of any amount – as long as they can show that their standard of living has not been affected. These gifts are immediately IHT-free and there is no seven-year rule.

Verity Kirby, private client partner at the law firm Shakespeare Martineau, said: “Usual donations, paid for from any excess income, without adversely affecting the standard of living of the person making the donation, are also tax exempt. succession.

“This method of donation must be carefully recorded as evidence will need to be provided to HMRC to prove that donations were actually made from surplus income, in case the recipient dies within seven years.”

Give to charity

According to Davies, if a person leaves at least 10% of their net worth to charity or a few other organizations, they can get a discount on the IHT rate. He could reduce the tax to 36% instead of 40% – on the rest of the estate.

Use retirement allowance

Pensions are generally not subject to IHT for those under 75 – they can be passed on efficiently and in some cases even tax free.

Stevie Heafford, partner at accounting firm HW Fisher, said: “While ISAs provide the opportunity for tax-free growth and income, they are still a taxable estate on death and subject to tax liability. inheritance tax at this stage.

“So if you have a retirement pot but also other investments, it makes sense to use the other investments to cover expenses during your lifetime (or even to make lifetime donations) and let the pension be passed on in tax-free at death.”

However, she notes: “There may be other tax burdens associated with passing on pensions depending on the type of pension it is, how you receive the pension and the age of the deceased. .

“For example, if you receive a lump sum payment and the pensioner was under the age of 75 when they died, you will generally pay no tax. If you receive a lump sum but the pensioner was over 75 at the time of death, you will generally be subject to income tax which will be deducted by the provider.

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Inheritance tax freezes this winter until 2028 and hits more people with an IHT bill https://cleversplitter.com/inheritance-tax-freezes-this-winter-until-2028-and-hits-more-people-with-an-iht-bill/ Thu, 17 Nov 2022 16:06:24 +0000 https://cleversplitter.com/inheritance-tax-freezes-this-winter-until-2028-and-hits-more-people-with-an-iht-bill/ By Legal futures Partner Tower Street Finance Following the recent announcement of the Autumn Statement that the Inheritance Tax Threshold will be frozen until 2028, we are looking at whether this is a positive or negative for the average person. Although this is not a blanket tax increase, it definitely bears the hallmark of a […]]]>

By Legal futures Partner Tower Street Finance

Following the recent announcement of the Autumn Statement that the Inheritance Tax Threshold will be frozen until 2028, we are looking at whether this is a positive or negative for the average person.

Although this is not a blanket tax increase, it definitely bears the hallmark of a stealth tax. Freezing the threshold may sound like a positive, but in practice it means many more people who don’t consider themselves wealthy will face an IHT bill.

Inheritance tax freeze will affect more people

Inheritance tax is considered a tax on the wealthy, but after years of continuously rising property prices, many more people now find themselves hitting the IHT threshold. Clearly, the super-rich are likely to already be caught in some form of IHT liability, so any modest change in the threshold will have minimal effect for them.

While the allowance can be as high as £1million if there is a couple and the house is left to direct descendants and the zero rate bracket of the property is used up, the majority of estates are starting to incur the IHT at lower amounts.

With average property prices having risen from £157,000 in 2009 to £292,000 in 2022 (and the rise in share prices – the FTSE100 Share Index rising from around 4,000 to over 7,000 on the same period), the longer allocation freeze will include more properties in the IHT network.

About 25,000 estates underwent IHT per year before Covid. This represented approximately just over 4% of all estates seeking probate. Covid pushed that number up to 30,000, or 5% of estates, as people were unable to plan ahead to avoid IHT.

The average inheritance tax bill continues to rise

In terms of IHT bill size, the average IHT bill was around £165,000 in 2010, it has now increased by nearly £50,000 to around £215,000. With the freeze in place, the average bill is expected to reach around £280,000 by 2028, a further increase of around £65,000.

Dicky Davies: Director of Business Development and Co-Founder of Tower Street Finance said:

“While historically the IHT was only payable on large estates, the continued freeze in allowances, coupled with rising property and stock prices, means that more than one in 10 estates is likely to incur IHT in the future.With an average IHT bill of around £200,000 and rising, this means that many executors are going to struggle to find the money to pay the IHT due to them required to obtain the probate grant”.

Contact Tower Street Finance if you want more information about probate loans and the range of solutions at www.towerstreetfinance.co.uk.

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Planning and donating in 2022 – Inheritance tax https://cleversplitter.com/planning-and-donating-in-2022-inheritance-tax/ Thu, 17 Nov 2022 03:26:36 +0000 https://cleversplitter.com/planning-and-donating-in-2022-inheritance-tax/ November 17, 2022 McLane Middleton, professional association To print this article, all you need to do is be registered or log in to Mondaq.com. Posted: Union Leader November 15, 2022 Q: While the 2022 midterm election results are still being finalized, I’ve seen various articles and comments about whether people should donate or […]]]>

To print this article, all you need to do is be registered or log in to Mondaq.com.

Posted: Union Leader

November 15, 2022

Q: While the 2022 midterm election results are still being finalized, I’ve seen various articles and comments about whether people should donate or engage in estate tax planning before the end of the year. How do I know if it’s something that affects me?

A: There have been comments this year about whether (depending on the results of the midterm elections) there will be action in Congress to reduce the applicable disqualification amount before 2025. As a reminder, the Federal law provides that an individual can transfer assets for free. inheritance and gift tax as long as the transfers are below a certain amount. In 2022, this amount is $12,060,000 per person. The applicable exclusion amount is indexed annually for inflation and the IRS has confirmed that in 2023 the amount will be $12,920,000 per person. Additionally, the rules allow for “portability,” meaning a married couple can combine their individual applicable exclusion amounts. Only assets in excess of the applicable exclusion amount in effect at the time of a person’s death are subject to federal estate tax, which is currently set at 40%.

However, the currently applicable exclusion amount will end in 2025 and will automatically be reduced to $5,000,000 per person, indexed to inflation. Legislation introduced last September would have accelerated the sunset so that the exclusion amount would have been reduced effective January 1, 2022. The legislation (as introduced) was not passed, but it brought people to check whether similar legislation could be introduced again. While the results of the midterm election are still being finalized, it does not appear that these tax issues are a priority for Congress this year.

If you are concerned about having an estate taxable under the lower exclusion amount after 2025, you might consider making gifts sooner rather than later. Notably, the IRS issued anti-recovery regulations stating that gifts made while the current exclusion amount is in effect will still be honored and not “clawed back” into the estate if a person dies when the amount is lower. There are many donation strategies that can be used to maximize flexibility while donating fully and using your applicable disqualification amount. This analysis is unique to each individual and each family and should be undertaken taking into account your estate planning objectives and key capital needs.

(Please note that this answer only pertains to federal estate and gift tax laws. New Hampshire does not have an estate or gift tax, but other states in New Hampshire England have them (Massachusetts, for example, imposes a state estate tax on estates over $1 million.)

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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Can I reduce my family’s inheritance tax bill? https://cleversplitter.com/can-i-reduce-my-familys-inheritance-tax-bill/ Fri, 11 Nov 2022 12:56:15 +0000 https://cleversplitter.com/can-i-reduce-my-familys-inheritance-tax-bill/ By Sarah Tallentire, Financial Planning Consultant, Armstrong Watson, Penrith Of all the different taxes levied in the UK, inheritance tax is one of the most peculiar. The IHT is often described as the UK’s most hated tax. Former Chancellor Lord Jenkins once called inheritance tax “a voluntary levy paid by those who distrust their heirs […]]]>

By Sarah Tallentire, Financial Planning Consultant, Armstrong Watson, Penrith

Of all the different taxes levied in the UK, inheritance tax is one of the most peculiar.

The IHT is often described as the UK’s most hated tax. Former Chancellor Lord Jenkins once called inheritance tax “a voluntary levy paid by those who distrust their heirs more than they love the taxman”.

However, the amount of tax it generates for the Exchequer is small: it represents about 1% of the total generated by the three main taxes: income tax, national insurance and VAT.

The vast majority of estates pay no inheritance tax. For married couples and civil partners who are landlords with children, inheritance tax is generally not an issue as long as their estate does not exceed £1million.

HMRC statistics show that in 2019/20 only 3.76% of estates suffered the tax. In practice, almost half of inheritances will escape inheritance tax simply because there is generally no tax on transfers between married couples and civil partners. However, this exemption does not apply to unmarried couples because, with inheritance tax, the notion of de facto spouse does not exist and the number of inheritances now liable is increasing.

Why do more families have to pay inheritance tax?

New figures from HMRC show that in 2021/22 inheritance tax revenue rose by almost 14%, the average inheritance tax bill faced by this small minority of valued taxpayers. just over £250,000. One of the reasons for the increase is the fact that the zero rate band is frozen.

Currently, everyone benefits from a £325,000 inheritance tax relief, known as the Nil-Rate Band. The standard rate of inheritance tax is 40% of your estate over the £325,000 threshold.

The freeze started in 2009 and its duration has been regularly extended – the “thaw” is now only expected in April 2026, i.e. 17 years! With inflation soaring, more than three years of freezes will result in more estates falling into the inheritance tax net.

What can I do to protect myself against any inheritance tax bills?

If you are concerned about inheritance tax, there are several ways to reduce its impact on what your children or grandchildren will inherit.

You won’t be surprised to learn that with such a misunderstood tax, the starting point is professional advice.

A good independent financial adviser will often work in conjunction with a lawyer. They will ensure that a client’s estate planning is properly established, based on their wishes and goals, and regularly reviewed, especially as the law may change.

For the majority of people, there are various approaches that can be taken to mitigate a future estate tax.

Of course, you can choose to ignore it. If there are taxes to pay for your family later, so be it. On the other hand, you could choose to spend enough money during your lifetime that there is little or nothing left in your estate. However, this approach may be easier said than done!

If any of these approaches are not right for you, there are other steps to consider and we discuss these in Our Guide to Inheritance Tax and Estate Planning which can be downloaded from our website. – www.armstrongwatson.info/IHT

At Armstrong Watson, our quest is to help our customers achieve prosperity, a secure future and peace of mind. We provide bespoke tax planning, financial planning and wealth management all under one roof. Please note that advice on inheritance tax matters can be provided by a mix of our financial planning and tax specialists.

Sarah Talentire

For further information please contact Sarah Tallentire on 01768 222042 or email sarah.tallentire@armstrongwatson.co.uk

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Inheritance tax warning as couples face shocking IHT bill due to ‘common myth’ | Personal finance | Finance https://cleversplitter.com/inheritance-tax-warning-as-couples-face-shocking-iht-bill-due-to-common-myth-personal-finance-finance/ Wed, 09 Nov 2022 16:24:00 +0000 https://cleversplitter.com/inheritance-tax-warning-as-couples-face-shocking-iht-bill-due-to-common-myth-personal-finance-finance/ A new study has shown that 51% of Britons surveyed have the wrong notion of “common-law marriage”, according to Stowe Family Law. That is, couples who live together after a certain number of years have the same legal rights as a married couple. But sadly, that’s not true, and with more couples cohabiting than ever […]]]>

A new study has shown that 51% of Britons surveyed have the wrong notion of “common-law marriage”, according to Stowe Family Law. That is, couples who live together after a certain number of years have the same legal rights as a married couple.

But sadly, that’s not true, and with more couples cohabiting than ever before, it could create problems down the road.

The government recently rejected calls to reform cohabitation laws, according to a report by the Women and Equalities Committee.

The committee had called for better protection for cohabiting couples and their children against financial hardship in the event of separation.

However, the government has also addressed another issue where cohabiting couples could break free: inheritance rights.

READ MORE: Rishi Sunak faces ‘huge risk’ over triple state pension lockdown

However, the same does not apply to cohabiting couples, as the rules do not apply to them in the same way.

The same goes for the transmission of housing, because only married people and civil partnerships can do so without an IHT invoice.

Claire Chisnall, an attorney at Stowe Family Law, addressed the issue and some of the complications that can arise from it.

She said: “There is still a belief that if you have been in a cohabiting relationship, especially over a long period of time, you would have the same legal rights as if you had been married. This is a myth and has no legal basis.

“This leads many cohabiting couples to think they don’t need to look for other ways to protect themselves financially, when in fact they do.”

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However, cohabiting couples are not entirely helpless in this situation, and there may be alternatives they might wish to consider.

One is a cohabitation agreement, allowing unmarried couples to state their intentions when they first move in together.

This could include what would happen to any property if they separated, or arrangements regarding shared children.

Ms Chisnall continued: “These agreements can be persuasive in property disputes in the future if properly prepared.

“They can assist in a request for an inheritance document in the event of a party’s death, if the agreement clearly sets out what the parties’ intentions in life were and the financial arrangements available to them.”

Above all, cohabiting couples are strongly encouraged to obtain a last will and will.

This document clearly states a person’s wishes at the time of their death and can be helpful in dealing with the estate.

Ms Chisnall added that this can be vital as cohabiting couples do not have the same life and death rights as married couples.

She added: “Without a will, a cohabitant can claim under the Inheritance (Family and Dependent Provision) Act 1975, if they have been in a relationship for at least two years until the death of her partner, and that they lived in the same household as if they were a married couple.

It should be noted that these claims are complicated and expensive to advance, and therefore any outcome is difficult to predict.

The expert concluded: “While the law needs to change in line with the growing cohabitation trend, the government’s response to the report reinforces that it is unlikely to happen soon.

“Therefore, people need to take steps to protect themselves financially, and a cohabitation agreement and Will are two ways to do that.”

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New inheritance tax grab will trap ‘10,000 more families’ https://cleversplitter.com/new-inheritance-tax-grab-will-trap-10000-more-families/ Tue, 08 Nov 2022 08:09:00 +0000 https://cleversplitter.com/new-inheritance-tax-grab-will-trap-10000-more-families/ Bereaved families will be forced to pay an additional £1billion in inheritance tax if Rishi Sunak extends the freeze on inheritance tax thresholds by two years, according to analysis by The Telegraph. The Prime Minister has frozen IHT thresholds until 2025-26 when he was chancellor, and it is now understood he will continue his stealth […]]]>

Bereaved families will be forced to pay an additional £1billion in inheritance tax if Rishi Sunak extends the freeze on inheritance tax thresholds by two years, according to analysis by The Telegraph.

The Prime Minister has frozen IHT thresholds until 2025-26 when he was chancellor, and it is now understood he will continue his stealth tax raid to plug a £50billion fiscal black hole .

Families currently have to pay 40% inheritance tax on the value of an estate over £325,000.

This will see grieving families collectively pay an additional £1bn in IHT in 2026-27 and 2027-28, according to calculations by wealth manager Quilter.

This is due to a phenomenon known as the “tax drag,” where inflation and rising incomes push more taxpayers into higher tax brackets.

This means the average IHT bill will also rise from £216,000 in 2019-20 to £297,793 in 2025-26 and then again to £336,605 for 2027-28 due to the impact of the frozen thresholds combined on the rise inflation, according to the Wealth Club investment service.

Alex Davies of the Wealth Club said: “Freezing the inheritance tax threshold for two more years – until 2027-28 – is a tax hike on the sly. It won’t appear on a list of tax increases, but it won’t be long before its impact is felt on unsuspecting families. And it won’t just be about the super-rich. It will be the thousands of hard-working families caught in the crosshairs of high property prices and frozen IHT benefits.

Separate calculations by tax firm RSM show that an additional 10,000 families could end up paying IHT in those two years due to the thresholds not increasing with inflation.

The zero rate band – the amount that can be passed on before IHT is due on the estate – has been stuck at £325,000 since April 2009, so extending the freeze to 2027-28 means the rate band no one will be unchanged for nearly 20 years. years, despite soaring house prices pushing many areas above the threshold.

Tim Stovold, of accountancy firm Moore Kingston Smith, said the relief available had not kept pace with the growth of a family’s main asset, their home.

Average house prices have risen by £140,000 between 2009 and 2022, according to Land Registry data.

The zero-rate residential band, introduced in 2017 to account for house prices increasing the size of properties, was also frozen at £175,000.

Quilter estimates that, if increased in line with inflation, the zero-rate bracket would be worth £351,520 in 2027-28, while the residence zero-rate bracket would be worth £189,280, meaning fewer families would be taken to pay the IHT because an average couple would have £80,000 more in compensation.

In 2009, only 2.7% of estates paid inheritance tax, but in recent years the proportion has remained consistently close to 4%. In 2019-20, the last year for which data exists, 23,000 families paid inheritance tax.

Andrew Tully, of financial services provider Canada Life, said: “Although the IHT has always been a tax on the very wealthy, that is clearly no longer the case. With most personal tax allowances, including the standard and residency zero rate bracket, frozen until at least April 2026, this is now a concern for wider sections of society as the IHT tax net widens.

The revenue the government generates from the IHT has soared in recent years to a record £6.1bn for 2021-22, up 14% year-on-year, and the latest statistics suggest that this year IHT’s receipts could once again break records.

Although house prices are expected to fall, Shaun Moore of Quilter said he did not expect this to have an impact on the number of properties caught in the IHT net. “While house prices could soon fall due to the endless list of financial problems facing the UK, such as inflation, energy prices and an unpredictable European war, there is little likely to relieve IHT bills for a while.”

James Ward, of Kingsley Napley LLP, said: “IHT is seen by some as double taxation as people already pay income tax during their lifetime and is often described as one of the most hated taxes.”

In a recent YouGov poll of 1,700 people conducted by the law firm, nearly half (48%) thought the IHT should be abolished altogether.

A Treasury spokesman said: ‘We do not comment on speculation about tax changes.

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You can reduce inheritance tax with a gift of any amount – but there’s a catch | Personal finance | Finance https://cleversplitter.com/you-can-reduce-inheritance-tax-with-a-gift-of-any-amount-but-theres-a-catch-personal-finance-finance/ Thu, 03 Nov 2022 14:50:00 +0000 https://cleversplitter.com/you-can-reduce-inheritance-tax-with-a-gift-of-any-amount-but-theres-a-catch-personal-finance-finance/ Inheritance tax is a 40% tax that must be paid on the total assets a person inherits, which are worth more than £325,000 from an individual or £650,000 from a couple – although it possible to further increase the threshold. A person can give up to £3,000 per year divided among any number of people […]]]>

Inheritance tax is a 40% tax that must be paid on the total assets a person inherits, which are worth more than £325,000 from an individual or £650,000 from a couple – although it possible to further increase the threshold. A person can give up to £3,000 per year divided among any number of people and also give any number of gifts up to £250 per year, to different people.

There is also the possibility of giving a larger amount of money to a friend or relative, but in this case there is an important rule that people should know.

The person must live seven years after the donation to avoid tax, although the rate of tax decreases as the years progress towards the seventh year.

Here is how the tax rate evolves according to the years between the donation and the death of the person:

Three to four years – 32%

Four to five years – 24%

Five to six years – 16%

Six to seven years – 8%

Seven years or more – 0%.

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Donations can include a sum of money, household and personal property, property or land, or stocks and shares.

Gifts between spouses or civil partners avoid tax as long as the person receiving the gift lives in the UK.

People can also avoid tax by donating money to charities or political parties, as there is no tax to pay in this case.

There is also the possibility of giving gifts to someone who is getting married or enters into a civil partnership.

A person can give up to £5,000 to a child, up to £2,500 to a grandchild or great-grandchild or £1,000 to anyone else, and avoid the tax.

People can also reduce their liability by 40% to 36% if they leave something to charity in their will.

This applies if a person leaves at least 10% of their net estate to a charitable group or multiple charities.

Property is deemed to be “donated to charity” if it becomes “owned by charity or held in trust for charitable purposes only”.

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Other advice is to make sure you make a will, setting out how a person wants their estate to be distributed, to avoid being taxed unnecessarily.

Pension plans often provide allowances that avoid inheritance tax, and funds can be inherited upon a person’s death.

Setting up a trust to manage someone’s assets after they die is another way to avoid paying tax, although trusts can be complicated to set up, so it may be a good idea to seek legal advice.

Brits can also avoid tax by investing their funds in a business that has commercial property relief.

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The Duty of an Executor Regarding Pennsylvania Estate Tax [Opinion] https://cleversplitter.com/the-duty-of-an-executor-regarding-pennsylvania-estate-tax-opinion/ Wed, 02 Nov 2022 09:33:24 +0000 https://cleversplitter.com/the-duty-of-an-executor-regarding-pennsylvania-estate-tax-opinion/ For someone who has never probated an estate, the homework can seem endless and confusing. Whether you decide, as the executor of an estate, to retain the services of a lawyer specializing in elder law or estates experienced in the field, which is recommended, or rather to manage on your own , there are some […]]]>

For someone who has never probated an estate, the homework can seem endless and confusing. Whether you decide, as the executor of an estate, to retain the services of a lawyer specializing in elder law or estates experienced in the field, which is recommended, or rather to manage on your own , there are some things you need to know. In Pennsylvania, specifically, the primary duty is filing a Rev-1500, Pennsylvania Estate Tax Return, and paying estate tax.

Inheritance tax is not an income tax. One of the first things to consider is that inheritance tax is in a class of its own. Generally speaking, it can be and often is paid out of estate assets before distribution to beneficiaries. Beneficiaries receiving bequests do not pay federal or Pennsylvania income tax on their receipt.

Inheritance tax is different from an inheritance tax. Pennsylvania, unlike many other states, has an estate tax, not an estate tax. Estate tax schedules often start for estates over a certain amount – probably over $1 million or more. Pennsylvania estate taxes from the first dollar and the tax rate depends on the relationship between the beneficiary and the deceased. Spouses, for example, are “taxed” at 0%, which means that in most cases probate is not required, especially where the assets are jointly titled and the spouse is the beneficiary of the remaining assets such as IRAs. Life insurance proceeds are not taxed at all, regardless of the relationship.

The children, grandchildren, great-grandchildren, etc. are called “straight line descendants” and their inheritances are taxed at a rate of 4.5%. The brothers and sisters of the deceased are taxed at 12% and the others at 15%. Remember that inheritance tax is often paid by the estate even before the beneficiary receives the distribution.

Inheritance rights are the responsibility of the deceased and not of the beneficiary. If the beneficiary of an estate resides outside of Pennsylvania but the deceased resided in Pennsylvania, the proceeds are taxed under Pennsylvania estate tax rules. There is an exception where the deceased nonresident owned real estate in Pennsylvania, it may be taxed for estate tax purposes.

Non-homologated goods are always taxed, unless otherwise excluded. Many taxpayers believe that property contained in a revocable living trust or property titled TOD (transfer on death) or POD (payable on death) is not taxed for Pennsylvania estate tax purposes. It’s not true. POD, TOD and the assets of a revocable living trust are all fully taxable for Pennsylvania estate tax. Assets held jointly are taxable at the proportionate share of the value (unless they are made joint within one year of the death of the deceased, in which case they could be fully taxable).

Out-of-state real estate is not taxed for estate tax purposes in Pennsylvania. If the deceased owned out-of-state property, such as land or vacation property anywhere outside of Pennsylvania, it is not taxed for Pennsylvania estate tax purposes. If the deceased’s vacation property is located in Pennsylvania, it is taxed for Pennsylvania estate tax purposes.

Although spouses are taxed at 0%, it is sometimes necessary to file an estate and file a Pennsylvania estate tax return. It may seem ironic to tell the government that you owe nothing when it should have seemed obvious just because you are claiming it as your spouse. In most cases, we don’t need to file an estate where the spouse is the sole beneficiary, but sometimes we do. This most often occurs when the deceased spouse had an account or other property titled only in their name or a refund check is made payable to the deceased spouse or the estate of the deceased spouse. Spouses still do not owe tax but must file the return to access the assets.

If you co-owned accounts with a deceased person, you may receive notice that you owe a certain amount. If so, this should be reviewed to determine if the information is correct. Upon the death of a co-owner of a bank account, the bank may release information to the government regarding the co-ownership. This information may be incorrect. You may have already filed an inheritance tax return and paid the tax or you may be notified at a rate of 15% when it should have been taxed at a lower rate. If you have any questions, ask for advice.

Janet Colliton, Esq. is a Certified Elder Law Attorney. His practice, Colliton Elder Law Associates, PC is limited to elder law, estate and retirement planning, life care, special needs, guardianship and administration, with offices at 790 East Market St., Ste. 250, West Chester, 610-436-6674, colliton@collitonlaw.com. She is a Fellow of the National Academy of Elder Law Attorneys and, with Jeffrey Jones CSA, co-founder of Life Transition Services LLC, a service for families with long-term care needs.

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Inheritance Tax: 4 Common Mistakes That Could Cost You Thousands | Personal finance | Finance https://cleversplitter.com/inheritance-tax-4-common-mistakes-that-could-cost-you-thousands-personal-finance-finance/ Sun, 30 Oct 2022 04:01:00 +0000 https://cleversplitter.com/inheritance-tax-4-common-mistakes-that-could-cost-you-thousands-personal-finance-finance/ As Inheritance Tax (IHT) revenues continue to rise, more and more families are caught in the net. Senior partner at national law firm Weightmans, Sally Cook spoke exclusively to Express.co.uk about the most common tax mistakes she sees clients make that can end up costing thousands of dollars. She explained that there are four main […]]]>

As Inheritance Tax (IHT) revenues continue to rise, more and more families are caught in the net. Senior partner at national law firm Weightmans, Sally Cook spoke exclusively to Express.co.uk about the most common tax mistakes she sees clients make that can end up costing thousands of dollars. She explained that there are four main areas that people often overlook when it comes to estate planning, which can lead to significant IHT issues down the line.

Ms Cook recommended people always seek the professional support and advice of a lawyer when it comes to each individual estate plan.

She said: “It will give you confidence that you are avoiding potential pitfalls and that you have plans that will get you what you want to happen to your money in the most tax-efficient way. .”

Gifts with profit reserve
Ms Cook said: ‘One of the most common problems that can arise is that people give lifetime gifts of property and/or assets in the hope of gaining value outside of their estate to IHT purposes by surviving the gift date for seven years, but they will either continue to benefit or later benefit from this asset in the future.

“This is treated as a ‘gift with reservation of benefit’ by HMRC and the value can still be aggregated with the estate of the deceased even if they no longer own the asset.”

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She gave an example where parents give their children a vacation or second home but continue to use the property, rent-free. Simply, the fact that they are still using the house without paying open market rent means that HMRC will treat them as having reserved an advantage in the property and the value will still be aggregated with their own estate if they die within seven years. following the gift with reservation.

She continued: “Failure to comply with retention of benefits rules may in fact mean that the asset may be ‘double taxed’. In the example above, if the children were to die while their parent(s) were alive, the value of the property would also be considered part of the children’s estate for estate tax purposes as well. than that of their parents.

“The bottom line here is that if you’re considering donating an asset, you need to be very careful about how you use and interact with that asset in the future to ensure you don’t violate IHT rules.”

Used Goods Tax (POAT)
She also mentioned cases where people try to give away certain types of assets — including land and personal property — to get the value of those assets from their estate. However, such persons are deemed to benefit or be able to benefit from these assets and must pay income tax accordingly.

DO NOT MISS

In her example, Ms Cook said: ‘Let’s say person A donated £350,000 in cash to person B, and person B then used the money to buy a house. If Person A then moves into that property – and lives there rent-free – they will be subject to what is known as “second-hand property tax” from the time they move in. The tax is charged against the income it would otherwise have received. if they had rented the property at market price in the first place.

“Again, you must be very careful how you interact with the money or assets you donate. The rules on POAT are complex and it is important that you seek qualified professional advice to avoid an obligation. involuntary tax”.

Acts of amendment

Deeds of amendment are “often overlooked” in general estate planning, even though they are an effective way to obtain significant value from an estate for IHT purposes, she explained.

It is possible for a person who has benefited from a will or an intestate from a deceased person to redirect all or part of this inheritance to the person(s) of their choice. If done by official deed within the relevant time frame (within two years of the death of the deceased), it is not necessary for the donor of the gift to survive seven years for this gift to be outside his own estate for the purposes of the IHT.

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She added: “The problem is that people forget to complete the required documents before it is too late. If you know it’s something you want to do, it’s important to do it before making the donation, within two years of the death, and to make sure it’s done by official deed that contains the relevant declarations. for inheritance tax and capital gains tax. .”

“The 14-Year-Old Shadow”
Many people are familiar with the “seven-year rule” for IHT – IHT is not payable on an outright gift to one or more individuals if the donor has not reserved an advantage in the donated asset and survives seven years after making the donation.

However, many people are unaware of the so-called “14-year-old shadow.” This is relevant where a deceased has made “paid lifetime transfers” as well as outright gifts to individuals. This can be seen in the example below.

Ms Cook explained that if someone wants to gift £150,000 to their family, but still wants control over how and when it is used, they can decide to place it in a trust.

This would be a billable lifetime transfer for IHT purposes. Six years later they decide to give another £300,000, but they don’t put it in a trust – they give it directly in cash this time. Four years later, they die.

Ms Cook said: ‘In terms of calculating the IHT, the cash gift they made was within seven years of their death, so the value of that gift is still in the deceased’s estate. even if the asset was sold four years before the death. .

“Every individual in England and Wales has a ‘zero rate band’, which is basically an amount they are allowed to give away, when and how they want, tax free. If the cumulative total of all donations made within seven years of their death is less than or equal to this amount, there is still no tax to pay.

The standard zero rate band for 2022/23 is £325,000 for a single person. To calculate the portion of the zero-rate bracket available to offset all donations made in the seven years prior to death, people must first subtract the value of any “billable lifetime transfers” made within seven years of death. first cash donation failed.

In Mrs. Cook’s example above, the £150,000 that was placed in trust reduces the zero rate bracket from £325,000 to £175,000, which does not cover the £300,000 that was offered in species. The recipient of this failed cash donation will be personally liable to IHT at 40% of £125,000, or £50,000.

She concluded: “It illustrates how complex this planning can be and the importance of ensuring you have taken advice on how the interaction between different types of lifetime giving could affect the tax position. Taking professional advice from a lawyer here is key. They can help you understand.”

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