The Inheritance Guide

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Glossary

There is no denying that Probate can be tough, long winded and lack transparency. There is a lot of forms to fill, a lot of questions to answer, a lot of factors to consider, and all at a time when you have a lot on your mind.

At the Inheritance Guide, our vision is to create a comprehensive range of online content and resources simplifying and unlocking the professional secrets of Probate, inheritance and estate administration.


A

Account (Estate).

account prepared by the Executor or Administrator of an estate.


Administrator/ administratrix

In England, Wales and Northern Ireland, a court appointed person to administer a deceased person’s estate. This is necessary for estates without a Will, when there is no named executor in the Will or the executor fails to comply. Administrator refers to a man conducting this role and adminstratix refers to a woman.


Affidavit

sworn statement of written facts. This is conducted under oath and is administered by a person authorised by law to do so.


Asset

possession that belonged to the deceased, which holds a quantitative financial value.


B

Beneficiary

A person or organisation, for example a charity, who receives assets or profits from a Will, intestacy or trust.


Beneficiary minor

A person who is aged under 18, or under 25 if stated within a Will.


Business

To qualify for business relief, a business is understood to be any work which is considered a profession or vocation.


Business property

See relevant business property


Business relief

Relief from Inheritance Tax, on appropriate assets, that is either given at 50% or 100% depending on the asset. See also relevant business property.


C

Caveat

In terms of probate, a Caveat is employed in order to prevent someone applying for a Grant of Administration. It is lodged at the Probate Registry and stops the distribution of the estate. This is usually the case when there are concerns about the validity of the Will.


Chargeable gift

A gift which is not covered by Inheritance Tax exemptions when given to the trustees of a relevant property trust or to a company. This does not include gifts from one individual to another or to a disabled person's trust, as these are potentially exempt transfers.


Chargeable transfer

A transfer of value made by an individual which is potentially not exempt from tax.


Chargeable value

This is the amount of the estate which Inheritance Tax must be paid on. It is made up of, at the time of death, the total value of assets and then liabilities, exempt gifts and capital reliefs are deducted from this.


Charity

In terms of Inheritance Tax, a charity is a UK registered charity or qualifying body such as a hospice or orphanage.


Charity exemption

A transfer made to a charity or other qualifying body will be exempt from Inheritance Tax.


Chattels

Personal property that is moveable. Household goods would fall under this category for example; furniture, jewellery, antiques and art, private collections and vehicles.


Civil partner

A person who has entered into a civil partnership with someone else.


Civil partnership

The legal union registered between two civil partners in accordance with the Civil Partnership Act 2004.


Clearance certificate

This certifies that the taxpayer has paid all the Inheritance Tax that is due. The personal representative can apply for a clearance certificate using a IHT30 form. Once this clearance is given it discharges the taxpayer from further liability to tax on the property.


Close company

A company whose controlling interest is held between five or fewer participators. Or if all of its participants (regardless of their number) are also directors.


Control

The person who holds a majority share in a company and voting power is deemed to have a controlling interest.


D

Deed of Variation

A legal document which allows the Will or rules of intestacy to be altered when signed by all of the beneficiaries.


Deemed domicile

In terms of Inheritance Tax, at the time of transfer, a person is deemed domiciled in the UK, if they were domiciled in the UK in the last 3 years, or have lived for 17 of the last 20 years in the UK.


Dependant (Pensions)

A dependant of a registered pension scheme is someone whose relationship with the deceased at the time of death was either: • the spouse or civil partner or; • a child of the member who was under 23 or; • A person who is deemed financially dependent on the member or had a financial relationship of mutual dependence with a member, or a person who was deemed to be dependent on the member because of physical or mental impairment.


Direct payment scheme

This scheme allows the payment of Inheritance Tax to be transferred straight from the deceased’s assets such as a bank account.

Disabled person

For Inheritance Tax purposes, this is understood to be someone with a mental or physical disorder, as a result of which, they are unable to manage their affairs or estate. Or a recipient of attendance or disability allowance in which their care needs are deemed to be at the higher or middle rate.

Disabled person's interest

A trust which is set up in order to benefit a disabled person. This could either be: a trust in which at least 50% of the assets are left to a disabled person. Or a person with a condition that will lead to them becoming disabled, may set up a trust to benefit themselves.


Discretionary trust

A trust in which the deceased has given a trustee the discretion to decide who will receive the capital or income from the trust. Therefore, no beneficiary has the right to an interest in possession. See also relevant property trusts.


Disposition

A disposal or transfer of an asset, inclusive of both the creation and the release of any debt or right. There is high degree of prescriptive legislation which includes certain types of transfers.


Domicile

Where a person lives and is regarded as their fixed and permanent residence.


Domicile of choice

When a person leaves their original domicile, to live permanently in another country.


Domicile of dependency

Children under 16 share the same domicile with the person to whom they are legally dependant.


Domicile of origin

This is determined at birth, not by the country in which the child is born, but rather the parent’s domicile at the time of birth.


Donor

A person who makes a gift.


Donee

A person who receives a gift.


Due date

Date when the Inheritance Tax is owed.

E

Enduring power of attorney

A legally authorised person who acts on someone else’s behalf. This is not invalid if the person granting the power later becomes mentally incapacitated.


Estate

A person's estate is made up of; sole assets and shares in jointly owned assets, any interest in assets held in trusts, any nominated assets, gifts with reservation, gifts made within 7 years with a chargeable value and benefits derived as a dependent from the remains of an alternatively secured pension of an original scheme member.


Excepted asset

An asset on which business relief cannot be applied. In order to qualify for business relief the asset must be used mainly for the purpose of business throughout the two years before the transfer.


Excepted estate

There are instances where an estate does not require a grant of Probate/ letters of representation: low value estates, exempt estates, foreign domicilaries


Excluded property

This is property (subject to criteria being met) that is exempt from Inheritance Tax. This includes property outside the UK which is left to a beneficiary who is not domiciled in the UK, reversionary interests or the settler was foreign domiciled at the time of the settlement.


Executor/ Executrix

A person who is named within the Will and is responsible for the administration of the deceased’s estate in England, Wales and Northern Ireland.


Exempt estate

An excepted estate is an estate which is not liable for Inheritance Tax. This is the case when the value of the estate is less than £1,000,000 and it does not exceed the Inheritance Tax threshold of £325,000. If the value of the estate does exceed this threshold, it can still be an exempt estate if everything above the £325,000 is exempt transfers. For example transfers to a spouse, civil partner or charity are all exempt from Inheritance Tax.


Exempt transfer

Are transfers free from Inheritance Tax. For instance, an individual can give a gift of up to £3000 from their estate every tax year are known as ‘exempt transfers.’


Exemptions

Gifts which are free from Inheritance tax, which include donations made to charity, gifts to a spouse or civil partner, gifts up to £3000 in a tax year and transfers or gifts that the deceased did not retain a benefit from and made seven years before the deceased death.


F

Foreign domiciliary

This is a type of excepted estate. A person is classed as a foreign domiciliary if they never domiciled in the UK and their assets in the UK is in the form of cash or shares below £100,000.


Former civil partner

When a civil partnership is legally ended, the civil partner is no longer eligible for spouse or civil partner exemption from Inheritance Tax.


G

Gift in consideration of marriage or civil partnership

When someone is marrying or forming a civil partnership with someone else, they are entitled to Inheritance Tax exemption on their gifts. This can be up to the following amounts: £5000 from the person’s parent, £2500 from the person’s grandparent and £1000 from anyone else.


Gift with reservation

See gift with reservation of benefit.


Gift with reservation of benefit

A gift which has terms attached to it. The donee is not free to do with it as they please, but must adhere to these rules which the donor has attached.


Goodwill

This is the intangible value of a business. When making this valuation, the physical assets are not considered, but rather the value of the business’ reputation or skills of its employees. This can mean that a business is worth considerably more than its net assets.


Grant

There are different types of grant of representation. However, the term grant is used to refer to all of them.


Grant of administration de bonis non

This is a type of Grant of Representation. This is used when the administration of the estate has not been completed. This is usually as a result of the Personal Representative dying without completing the task.


Grant of representation

This is obtained from the Probate Registry, it grants the Personal Representative the legal authority to administer the estate. There are many different types of Grants of Representation.


Grant of letters of administration

This is a type of Grant of Representation. This gives the Personal Representative the legal authority to administer the estate, it is the type of Grant of Representation employed when there is no Will or the Will is invalid.


Grant of probate

This is a type of Grant of Representation. This gives the Executor the legal authority to deal with the estate. This is issued when there is a Will and there is a named Executor.


Gross value of the estate

The total value of the assets that make up the estate before deducting the deceased’s debts.


H

Household goods

See chattels.


IHT

Inheritance Tax


I

Inheritance Tax

This is the tax which must be paid on a person estate if it is worth more than the nil rate band of £325,000. Gifts made in the last seven years of the deceased’s life are also subject to Inheritance Tax.


Inheritance tax threshold

The value of the deceased’s estate is calculated, including any gifts given in the last 7 years. Anything above the threshold of £325,000 is subject to inheritance tax.


Intestate

When someone has died without leaving a Will. In these cases the laws of intestacy (Administration of Estates Act 1925) are employed in order to determine the distribution of the Will.


Intestacy

An estate where the person died intestate.


J

Joint assets

See joint property


Joint property

A property which is owned by two or more tenants, either as a ‘joint tenancy’ or ‘tenants in common’.


Joint tenancy

A joint ownership of a property where all investors have an equal share. When one owner dies their interest will go to the surviving investors.


K

L

Lessee

A person to whom a lease is granted.


Lessor

A person who grants a lease.


Life interest

When someone has an interest in possession in settled property. This interest lasts for the rest of their lives.


Life tenant

A person which has a life interest in settled property.


Low value estates

This is an estate which falls below the Inheritance Tax threshold of £325,000. It must take into account the deceased’s share of jointly owned assets, any specified transfers and specified exempt transfers, and still fall below this threshold to qualify as an exempt estate.


M

N

Nil-rate band

The value of assets which the deceased can leave to beneficiaries without having to pay inheritance tax on it. If the value of the estate falls below £325,000 including any assets in trusts or gifts made in the last seven years then it will be inheritance tax free. Anything above this amount is charged inheritance tax at 40%.


O

Open market value

This is an estimated price of how much an asset would sell for on the open market, at the time of transfer.


Outright gift

An asset which the beneficiary enjoys full rights and profit from, as the donor has handed over full ownership of the asset.


P

Pecuniary legacy

A sum of money which is left as part of a Will.


Permanent home

This is the country where a person decides to live the remainder of their life. Therefore this country’s laws will be employed in relation to the Will, in particular its validity or if there is no Will how the estate will be distributed.


Personal applicant

A person who has adopted a do-it-yourself approach when applying for a grant of representation. They are not using a solicitor or other agent in this process.


Personal representative

This terms applies to a person who administers the deceased’s estate. If there is a Will with someone named to conduct this role then the personal representative is known as an executor. If there is no Will, or the executor is unwilling or unable to comply then the personal representative in known as an administrator.


Power of attorney

This is the power to act on behalf of another person. This responsibility is given by the person to act on their behalf in their absence.


Probate

The executor’s management of the deceased’s estate as per the instructions of the Will. Can also be used in order to describe the process of obtaining a grant of representation.


Property

This refers to any of the deceased’s assets. This includes cash, stocks, shares, land and buildings


Q

Quoted Shares

Listed Shares in a company whose value is quoted on any recognised stock exchange around the world.


R

Reduced rate of Inheritance Tax

New legislation introduced in April 2012 states that if 10% or more of the estate is left to charity, then benefactors will enjoy a reduced rate of inheritance tax from 40% to 36%.


Relevant business property

Where business relief on IHT is available to a business on the transfer of relevant business assets at a rate of 50% and 100% • A business or an interest in a business - 100% • Unquoted securities which give control of an unquoted company - 100% • Unquoted shares - 100% • Quoted shares which give control of the company -50% • Land or buildings, machinery or plant used wholly or mainly for the purposes of the business carried on by a company or partnership - 50% • Land or buildings, machinery or plant available under a life interest and used in a business carried on by the individual - 50%


Remoter issue

Descendants of the deceased beyond children, so grandchildren, great-grandchildren (etc.)


Resident

A person is deemed a resident, if they are physically present in the UK for 183 days or more in the tax year.


Residue

Anything which is left of the estate after payments of debts, funeral expenses and specific and pecuniary legacies.


S

Small gifts

These are gifts that are free from Inheritance Tax. They must be £250 or less, but can be made to any number of people, in a tax year.


Specific gifts

A specific item left to a beneficiary in the Will. Examples of specific gifts are: sums of money or gifts of particular assets such as the deceased's residence, furniture, car, jewellery and other household and personal goods or business assets and shares in companies.


Specified exempt transfers

Any gifts which in the Will which are eligible for Inheritance Tax exemption. This includes gifts made to: the deceased's spouse or civil partner, charities, political parties, housing associations, maintenance funds for historic buildings and employee trusts. These are then deducted from the total value of the estate, to see if it falls within the £325,000 threshold to qualify as an excepted estate.


Specified transfers

Gifts of cash, personal goods such as jewellery, furniture, cars etc; quoted shares or securities. An outright gift of land or buildings to individuals, (not gifts into trust) would also be a specified transfer. Specified transfers made within 7 years of death cannot exceed £100,000, if an estate is to qualify as an excepted estate.


Spouse

A husband or wife, a person to whom one is legally married


Spouse or civil partner exemption

Gifts made between spouses or civil partners are exempt from inheritance tax. If the deceased (or giver) was living in the UK and their partner was living in another country at the time the gift was made, the exemption is limited to £55,000.


Surviving civil partner

When one civil partner dies, the other is the surviving civil partner..


Survivorship

Where property is owned jointly by persons having an identical interest in the property. When one of the joint tenants dies, the deceased's share of the joint property passes automatically to the surviving joint tenant(s). The property cannot be passed to anyone else whether or not a will has been made..


T

Taper relief

If the total chargeable value of all the gifts made between three and seven years before a death is more than the threshold at death, then taper relief is due. The relief reduces the amount of tax payable on a gift, not the value of the gift itself.


Tenancy in common/Tenants in common

A joint ownership of a property, in which the parties have separate shares. In the case of the death of one of the owners their shares will pass to the beneficiaries.


Testator

A man who has made a will.


Testatrix

A woman who has made a will.


Threshold

See inheritance tax threshold.


Transfer

A gift from one person to another, either during their lifetime or after their death. Inheritance Tax is charged on a transfer above a set value.


Transferee

A person who receives a transfer.


Transferor

A person who makes a transfer.


Trust

The trustee’s responsibility to manage the property for the benefit of another person; the beneficiary.


Trustee

The trustee is responsible for managing the property for the benefit of beneficiaries.


Trust for a bereaved minor

This is a trust in the name of a bereaved minor (a person under 18 who has lost one parent). It can be set up under: • a statutory trusts applying to minor children aged up to 18 on intestacy or • a trusts in similar terms created under the terms of a parent's will or by the Criminal Injuries Compensation Scheme.


Trusts for disabled people

A discretionary trust set up for the benefit of a disabled person . After 9 March 1991 these trust were treated as if the disabled person had an interest in possession in the property held in the trust. Any distributions from the trust to the disabled person are not taxable, but a charge to IHT will arise on their death and the trust fund will form part of their estate


U

V

W

Will

A legal document in which a person states their wished about the distribution of their estate after their death.


x

Y

Z

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