We will assist you with inheritance tax mitigation within your will process and also have Independent Financial Advisers we can refer you to for further information on other vehicles to mitigate inheritance tax.
For more information please use the contact form on the Contact Us page or call 0333 212 0309.
There is some information below that will help you understand a little more about how you can make savings especially by giving to charity.
Giving to charity to reduce an Inheritance Tax bill
An estate can pay Inheritance Tax at a reduced rate of 36% on some assets (instead of 40%) if 10% or more of the 'net value' of their estate is left to charity.
The net value of an estate is the total value of all the assets after deducting:
- debts and liabilities
- exemptions, eg anything left to a husband, wife or civil partner
- anything below the Inheritance Tax threshold of £325,000 (known as the 'nil rate band')
An estate doesn't have to pay Inheritance Tax on any gifts given to charities, museums, universities or community amateur sports clubs.
Which charities you can leave assets to?
To pay the reduced rate, the assets must be left to:
- charities with an HM Revenue and Customs (HMRC) charity reference number
- community amateur sports clubs (CASCs)
Work out if the estate qualifies for the reduced rate
Use the reduced rate calculator to work out whether the estate qualifies for the reduced rate of Inheritance Tax.
Before you start
You'll need to know the value of different parts of the estate (known as 'components').
Components only qualify for the reduced rate if 10% or more of their value went to charity. Some components may qualify while others will be taxed at the full rate.
Some components must be added to others ('merged') to qualify.
Components of the estate
Components that can qualify without being merged are:
- assets the deceased owned or shares of assets they owned jointly and passed to others in their will (known as the 'general component')
- assets in trusts that the deceased person was a beneficiary of (known as the 'settled component')
Components that only qualify for the reduced rate if they're merged with other qualifying components are:
- gifts the deceased continued to benefit from, eg a home they gave away but still lived in (known as 'gifts with reservation of benefit')
- assets the deceased owned jointly that automatically passed to the other owners after death (known as the 'survivorship component')
You can change the will after a death so jointly owned assets don't pass automatically to the other owners.
Claim the Reduced Rate
If you're the executor of a will or administrator of an estate, fill in form IHT430 to claim the reduced rate.
Send your completed form with IHT400 to HMRC when you apply for probate (known as a 'grant of representation'). This is called 'confirmation' in Scotland.
Writing a Will
You can write a clause into your will to make sure that you'll leave 10% of your estate to charity.
Change a Will
The beneficiaries of an estate can change the will to make or increase a donation to a charity so the estate meets the 10% test.
Opt out of paying the reduced rate
If you're the executor of a will or administrator of an estate, you can choose to pay Inheritance Tax at 40% rather than the reduced rate - if the beneficiaries agree.
This can make it easier to deal with the estate, eg if the cost of getting some of the assets professionally valued would outweigh the benefits of paying the reduced rate.
- Previous Leaving assets to a spouse or civil partner
- Next When someone living outside the UK dies
Death and bereavement
- Pay your Inheritance Tax bill
- Valuing the estate of someone who's died
- Tax on property, money and shares you inherit
- Wills, probate and inheritance
- Intestacy - who inherits if someone dies without a will?
- What to do after someone dies
When someone living outside the UK dies
When someone living abroad dies, the rules for paying Inheritance Tax usually depend on:
- how long they lived abroad
- whether their assets (property, money and possessions) are in the UK or abroad
- if their assets in the UK are 'excluded assets'
- if their assets were put into a trust
How long the deceased lived abroad
For Inheritance Tax purposes HM Revenue and Customs (HMRC) can treat someone who had their permanent home ('domicile') abroad as if it was in the UK (known as 'deemed domicile') if they had either:
- had their permanent home in the UK at any time in the 3 years before they died
- been resident in the UK for at least 17 of the 20 Income Tax years up to their death
If the deceased is deemed domiciled in the UK, their estate has to pay UK Inheritance Tax on all their assets.
If they aren't deemed domiciled, their estate:
- has to pay Inheritance Tax on their assets in the UK - except excluded assets
- won't have to pay UK Inheritance Tax on their assets outside the UK
HMRC only recognises a change of domicile if there's strong evidence that someone has permanently left the UK and intends to live abroad indefinitely.
UK assets you don't pay Inheritance Tax on
The estate doesn't have to pay Inheritance Tax on some assets in the UK if the deceased was domiciled abroad. These are known as 'excluded assets'. They include:
- holdings in authorised unit trusts and open-ended investment companies (OEICs)
- foreign currency accounts with a bank or the Post Office
- UK government gilts which were issued 'free of tax to residents abroad'
- overseas pensions
- pay and possessions of members of visiting armed forces and staff of allied headquarters
Contact the probate and Inheritance Tax helpline if you're unsure whether an asset is excluded.
There's no Inheritance Tax on government gilts issued:
- before 30 April 1996 - and the deceased wasn't deemed domiciled or resident in the UK
- on or after 30 April 1996 - and the deceased wasn't resident in the UK
Contact the probate and Inheritance Tax helpline if you're not sure whether the gilts are free of tax to residents abroad.
Channel Islands and Isle of Man
National Savings Certificates or certain other forms of small savings are excluded from Inheritance Tax if the deceased was domiciled (not deemed domiciled) in the Channel Islands or the Isle of Man.
You may be able to avoid or reclaim tax through a double-taxation treaty if Inheritance Tax is charged on the same assets by the UK and the country where the deceased lived.
There are different rules if the deceased put assets outside the UK into a trust while they were domiciled in the UK.