Family provision claims—settlement and taxation
Produced in partnership with Richard Dew of Ten Old Square
Family provision claims—settlement and taxation

The following Wills & Probate practice note Produced in partnership with Richard Dew of Ten Old Square provides comprehensive and up to date legal information covering:

  • Family provision claims—settlement and taxation
  • The taxation of estates
  • The effect of orders made under the Inheritance (Provision for Family and Dependants) Act 1975
  • Mechanics of compromise
  • Maximising exemptions (agricultural property relief and business property relief)
  • Exempt beneficiaries (spouses and charities)
  • The use of trusts
  • The use of temporary or terminable life interests
  • The residence nil rate band
  • Points to consider

The taxation of the estate is often a significant consideration in the compromise of claims under the Inheritance (Provision for Family and Dependants) Act 1975 (I(PFD)A 1975).

The taxation of estates

Inheritance tax (IHT) imposes a charge upon a deemed transfer of assets taking place on death. Up to the nil rate band (NRB) (currently £325,000), the rate of taxation is 0%, after that, all assets are charged at 40% (subject to exemptions and reliefs). This is complicated by unused NRB being transferable to a person’s spouse and by the recent creation of a residence NRB (RNRB). Transfers to (domiciled) spouses and to charities are exempt from taxation and certain property (agricultural property and business property) is exempt from charge. Settlements are subject to their own taxation regime.

For more information, see: Estates—inheritance tax—overview.

Capital gains tax (CGT) is a charge on the increase in the value of assets since their purchase. When a person dies, all of their gains are ‘wiped off’. Gains since the date of death are chargeable by the estate at the trustee rate. An executor has effectively only three tax years of annual exemptions after which all gains are chargeable. However, if an asset is transferred in specie to a beneficiary, they receive it without charge but with the gains accruing since death. Beneficiaries may pay tax at a lower rate and/or have

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