Inheritance Tax Planning - Death Duty In Scotland
Advice from a Scottish Legal Professional:
Before you make a will you should consult with an experienced Scottish solicitor about inheritance tax (death duty) in Scotland. If you prepare your will without the inheritance tax in mind, you might wind up handing the bulk of your estate over to the taxman rather than your loved ones. Any assets you leave behind over the threshold may be taxed at a rate of 40%. Not only is the IHT charged on the value of your estate, it might also be applicable to gifts made during your lifetime. Note that using your will to create a trust can help reduce inheritance tax liability in Scotland.
Valuing Your Assets:
Valuing your assets is the first step in the Scottish tax planning process. You have to know exactly what you're worth in order to estimate your potential inheritance tax liability in Scotland. Be sure to include assets such as company benefits and death in service benefits. In addition to valuing your assets you should also think about where and to whom you would like your assets to go so that you can determine whether it is in your best interest to make those gifts during your lifetime.
No Gift Tax in the UK:
Currently the United Kingdom including Scotland has no gift tax. Despite that fact, it is actually possible for the inheritance tax to apply to a gift made during your lifetime. You must live for at least seven years after you give someone a gift or else the inheritance tax will become payable. This rule was enacted to prevent people from circumventing the IHT by making large deathbed gifts. The easiest way to avoid this issue is to simply make gifts of your assets to family members earlier on in life. You can also take advantage of the annual gift allowance or a tax free marriage gift to avoid the inheritance tax.
Tax Benefits for Married Couples:
Many married couples don't realize just how much they can save on taxes by taking advantage of the two nil rate inheritance tax bands available to them. No tax is due upon the death of the testator if the assets are simply being transferred to a surviving spouse. Another option is for the testator to place the money in a Nil Rate Band Discretionary Trust for the benefit of the surviving spouse. With this type of trust, the surviving spouse is able to take advantage of both the fund and the tax advantages. Once the surviving spouse dies, a second allowance of the same amount can then be claimed. Special tax planning issues should be considered when married couples are preparing wills, such as jointly owned assets and property.
Deed of Variation:
If you are planning to leave all of your assets to your surviving spouse, then a deed of variation can be an effective tool for reducing your tax liabilities. A deed of variation, sometimes called a deed of family arrangement, is a way to reduce the inheritance taxes payable after the death of a spouse. With the deed of variation, your surviving spouse will have two years during which to reallocate the assets you leave behind in a more tax efficient way.
Our panel solicitors can provide tax planning advice and they are also qualified to handle cases of contested wills or challenges from someone not included in the will as a beneficiary. Call our helpline or complete the contact form on this website for free initial legal advice from one of our panel solicitors.