Tax Issues

The laws governing inheritance tax can seem complex. This is also true for the apparently never-ending reams of legislation that concerns the disbursement of estates the legality of a will, the intestacy process, and so on. The bulk of the information that is easily available on these topics, however, relates solely to English and Welsh regulations. While Scotland shares much of this law, there are a number of important Scottish-centric issues regarding taxation that should not be overlooked.

Procedural Differences

In many cases, the differences are purely procedural. One of the key procedural differences regarding inheritance tax relates to the forms that must be completed after the death of an individual. If the deceased lived in England then two separate forms must be filled in: a probate application form and IHT205, which is an Inheritance Tax (IHT) account form. If, however, the deceased individual lived in Scotland and the estate is likely to be ‘accepted’ (that is, it is unlikely to be subject to Inheritance Tax), then it is only required that form C1 be filled in. This form is then sent to HMRC in Edinburgh where it will be kept. If Inheritance Tax is required to be paid on the estate then this office will inform the individual who filled in the form. If this does not happen within 60 days then IHT is not applicable by default. It should be noted, however, that if it seems likely that IHT will be payable on the estate then two forms must be forwarded. The first of these is C1, as outlined above; however, form IHT200 must also be completed. Both can be downloaded from the DirectGov website, along with supporting notes that give guidance on how to fill in the forms accurately.

Business Partnerships

There are a number of other issues that need to be considered depending upon your business status. In Scotland, a business partnership is considered to exist in the same way that an individual person does, and can therefore legally own property. This obviously has Inheritance Tax repercussions for those who are in such a partnership. In order to understand these repercussions it is necessary to understand the distinction between ‘movable’ property and ‘heritable’ property. In basic terms, the latter term describes buildings and property, while everything else falls into the former category. A share in a business partnership is, therefore, counted as movable property. If the partnership owned heritable property then this will therefore be treated as movable for the purposes of inheritance. When combined with the fact that it is very difficult to dis-inherit children under Scottish law, this can pose problems for those who own a share in a partnership but who wish for that share to pass to their business partner. Similarly, it can make passing heritable portions of business partnerships onto one but not all of an individual’s children impossibly expensive for the inheritor, as all of the other children could conceivably make a claim to equal portions of the inheritance. As a result, many individuals in Scottish business partnerships may consider moving their portion of the partnership’s assets into other vehicles in order to avoid such problems.

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