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Receiving your inheritance in the UK

A person passes away – what’s going to happen to his property in the UK?

All assets left after a person’s death and located in the UK are subject to the inheritance tax (IHT). These include real estate, money in the bank accounts, securities, precious metals and other property, including personal belongings. All of the above form the so called Estate of a deceased person.

If the Estate belonged to an ordinary tax resident or deemed domiciled, i.e. a person who lived in the country more than 15 years out of the last 20 years, it will include all the global assets. If the Estate belonged to a non-domicile, i.e. the one who was born outside the UK and lived in the country less than 15 years out of the last 20 years, it will include only UK assets. Once an Estate is put together, it is distributed among beneficiaries according to a will, if any, or under the rules of intestacy.

What if I jointly owned assets with the person who died?

If the person who died jointly owned some assets with a surviving beneficiary, the following inheritance rules shall apply,

  • All the money in joint bank accounts will be automatically transferred to the surviving partner tax-free.
  • If the partners were beneficial joint tenants at the time of the death, the surviving partner will automatically inherit the other partner’s share of the property tax-free.
  • If the partners are tenants in common, the share of the person who died will go to whoever will inherit it according to the will or the rules of intestacy.

What if a person dies without leaving a will?

If there is no valid will, the estate must be shared out according to certain rules. These are called the rules of intestacy.

If the estate is valued at less than £250,000, the whole of it goes to the surviving spouse.

If the estate is valued at more than £250,000, it shall be inherited as follows,

  1. If there are no surviving children, grandchildren or great grandchildren, the estate goes to the surviving partner.
  2. If there are surviving children, but no partner, the children will inherit equally.
  3. If there are surviving children and a partner, the partner will inherit all the personal property and belongings of the person who died, the first £250,000 of the estate and half of the remaining estate £250,000.
  4. If there are no surviving partners or children, the estate is inherited by grandchildren or great grandchildren; in absence of the latter, the estate passes to the Crown.

Children equally inherit only if the estate is valued at over £250,000 and only half of it. If one of the children died already, their beneficiaries shall inherit.

It’s important to remember that under the inheritance rules partners are only those that are actually married or in a civil partnership. Cohabiting or common-law partners can claim their share in court. However, it’s a long and difficult procedure that will barely bare any fruits. If you want your unmarried partner, extended family, friends or other people to inherit your estate, a will is a must.

Inheritance procedure

At the time of death all assets of the deceased that make up the estate are blocked. Executors (someone named in the will to deal with the estate, beneficiaries themselves or their representatives) or administrators (someone who is responsible for dealing with an estate under certain circumstances, for example, if there is no will or the named executors aren’t willing to act) may have to apply for a special legal authority before they can deal with the estate, called probate or letters of administration.

Once the legal authority is granted, executors or administrators prepare all required inheritance documents, a detailed list of the estate and its initial evaluation, as well as a tax return. Only after all debts and IHT are paid, can the estate be shared out to beneficiaries. The process can take up to several months depending on the total value of the estate, its nature and quantity. If beneficiaries are in urgent need of money, for funeral or other things, many banks are willing to cash some money from the account to cover the costs.

Inheritance tax

The standard Inheritance Tax rate is 40% of the value of the estate at the time of death. It is paid from the estate before it’s shared out to beneficiaries. There are exceptions to this rule:

  • A spouse or civil partner get their inheritance tax-free. All other beneficiaries are liable to 40% tax.
  • To calculate tax, first a tax-free threshold needs to be deducted from the estate which is £325,000, plus another £100,000 from the value of real estate. If you’re married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die. This means their threshold, for the benefit of their children, can be as much as £850,000.

Gifts over £3,000 received from the deceased during the last seven years come under a special rule:

  • 40% rate on gifts given in the three years before death;
  • 32% rate on gifts given in the three to four years before death, 24% rate on gifts given in the four to five years before death, etc. on the sliding scale to 16%, 8% and 0%;
  • Gifts are not counted towards the value of your estate after 7 years.

Many people are unwilling and reluctant to discuss inheritance issues. However, it’s advisable to think about it in advance to protect your family and relatives from unnecessary turmoil and hassle when it’s already hard for them.

If you want your estate to pass to those you choose and with minimum taxes, consult with an expert. Our specialists at Imperial & Legal will help you solve any issue from planning your estate for tax optimisation and properly drafting your will to preparing required documents and sharing out the estate to beneficiaries.

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