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inheritance tax, beneficiaries, probate charges

While more of us now understand the importance of writing a will to prevent problems after our death there are some additional considerations which can also help beneficiaries.

Inheritance tax after death is a source of frustration for many hard working people who have paid tax throughout their lives but there are legitimate routes to reducing this burden for your beneficiaries.

A good starting point is to calculate what your total estate is worth before you write your will.  If you establish the value of your estate in entirety, deducting liabilities and debts,  it can help you make informed  decisions about how to share your estate out after your death. Options to reduce the tax burden for beneficiaries can include making gifts during your lifetime, charitable legacies or passing on your main residence to a direct descendant.

If your estate is worth over £325,000, inheritance tax will probably be due. The estate will have to pay 40% IHT on anything above this amount unless your main beneficiary is your spouse – so this is an ideal time to think about saving inheritance tax on your estate with gifts or charitable donations.

Any financial gifts that total £3,000 (in one year) are exempt from tax and will not be included in the total value of your estate.  If you make a larger financial gift and die within seven years the beneficiaries may have to pay inheritance tax on the gift but if you survive for longer than seven years no inheritance tax will be due regardless of the value of the estate or the gift. In addition if you leave 10 per cent of your estate to charity any inheritance tax due is paid at a reduced rate of 36 per cent.

From 6 April 2017 a new form of property inheritance tax relief, known as the Residence Nil Rate Band (RNRB), will be introduced. This new form of tax relief only applies to your main family residence and only if it is passed to a direct descendant such as your son, daughter or grandchild.  In 2017 the RNRB will be £100,000 for anyone who dies between 6 April 2017 and 5 April 2018 and this is on top of the existing nil band threshold of £325,000. The government currently plans to increase this RNRB rate year on year so this will go up to £125,000 from April 2018 but this particular form of tax relief is reduced for any estates worth in excess of £2,000,000.  In addition in May 2017 the government are abolishing the flat probate fee of £215 for lay executors and introducing probate fees on a sliding scale which will mean a dramatic rise in fees for the majority of estates. There is good news for those dealing with estates below £50,000 where there will be no probate fee but any estates above this value will see a rise – in fact estates worth £2m or more will have to pay £20,000 to execute the wishes of the deceased’s will.

To calculate what your estate might be worth you can download a sample personal finance spreadsheet from our document library at