In this world nothing is certain but death and taxes" said Benjamin Franklin – over two centuries later this holds as true.
Whether we approve of it or not, Inheritance Tax is here to stay for the foreseeable future but whereas in the past it only affected the estates of those at least moderately wealthy, now with UK average house prices at £200,000 and London average property prices at over £300,000, Inheritance Tax applies to the majority of homeowner’s estates.
As a general principle, if you want to pay Inheritance Tax, then don’t write a Will. It’s the best and fastest way to ensure that you make the maximum contribution to government coffers when you die. If, on the other hand, you would like to pass the maximum amount of your estate to family and friends, plan ahead and make a valid and up to date Will.
Nor can you rely on a Will made some years ago – tax legislation has been changing and increasing estate liabilities at a pace not seen since the modern legislative format and it is imperative that you review your Will regularly to avoid unnecessary tax traps.
What risks are you running by not making a Will?
Dying without a Will (Intestate) means that your estate will pass in accordance with the Administration of Estates Act 1925 – and that covers your property, your personal possessions and savings. Spouses and children do not automatically receive everything in the deceased’s estate.
There is a strict pecking order under the Act for deciding who gets what. Spouses get a rough treatment by the intestacy rules.
Examples:
The Deceased leaves a spouse but no children so the spouse receives:
- All the personal chattels - such a furniture, jewellery, car, pictures etc
- A legacy of £200,000 and one half of the balance outright
- The remaining balance then passes to various relatives according to who has survived; first to the deceased’s parents but if not surviving then equally to surviving brothers and sisters.
The Deceased leaves a spouse and children, the spouse receives:
- All the personal chattels
- A legacy of £125,000 and the income from one half of the balance
- The rest passes to the children when they reach 18
Now imagine how this can lead to problems, here are just a few of the major ones:
- If the matrimonial home is in the deceased spouse’s sole name it might need to be sold to satisfy the various family claims.
- Inheritance Tax may be due if the value of the estate passing to relatives other then the spouse is over the nil rate band of £300,000 (2007/8 limits).
- If there are two or more children they aren’t going to receive much unless the estate is worth at least some hundreds of thousand pounds.
- Children inherit their share at 18 – not necessarily the best age to give sums of capital.
- Where there aren’t any children, having a proportion left to an older generation or remoter relatives may not be just bad tax planning, it might be leaving money to relatives with which the deceased would otherwise have no connection, possibly intentionally.
- Beneficiaries will be the administrators of the estate – perhaps they aren’t suitable.
- Failure to make a Will can have disastrous consequences for the family wealth, relationships and liabilities. It leaves far too much to chance and the only likely smile will be on the face of the Chancellor of the Exchequer!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
