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How To Avoid Extra Inheritance Tax When You’ve Been Left A Legacy

How To Avoid Extra Inheritance Tax When You’ve Been Left A Legacy

With people living longer these days inheriting money or property at a later stage in life is more likely than previously. This often means that people are more financially secure and less likely to ‘need’ it by the time they are left something. 

If you are currently considering your inheritance tax position, please bear in mind that any current or future legacies you may receive from a Will can complicate things. If you decide you will not use a legacy and intend to therefore pass on a gift or asset to the next generation, you run the risk of 40% tax being paid on it twice.

Will I need to use the legacy I have been left?

If you know you will be using the legacy you have been left there is no need to do anything. It will have already been taxed and you can enjoy it. However if you’re not sure or you already know you would like to pass it on as part of your estate, you should make sure you are set up correctly to avoid it being double taxed.

We can help you work out whether you should keep it for a rainy day if you are not sure. However, you will need to act within two years of the death of the person who left you the legacy (the Testator) if you decide to pass it on.

How do I avoid paying tax twice on a legacy?

A deed of variation means that the original gift or asset can pass on to whomever you would like it to under the terms you wish. If you don’t wish for money to be accessible immediately, for example if you are leaving it to a grandchild, it's a good idea to consider setting up a trust.

Just remember that the deed of variation needs to be done within two years of the Testator’s death and the gift or asset can only be varied once. It is important to do it in such a way as to not incur inheritance tax or to give rise to capital gains tax implications.

Getting the right advice

If you have been left a legacy or expect to receive one and would like to know more about how we can help you minimise your inheritance tax exposure, please get in touch. You may also be interested in our blogs relating to Inheritance Tax Thresholds.