Wills and Inheritance Tax

Wills

It is very important that everyone writes a will. Not only will it mean your assets will be distributed as you wish but will also prevent the cost in time, money, and stress that relatives have to go through if you do not. Dying without a will is called dying ‘intestate’ and when this happens certain rules apply. It is possible to write a will for a person that lacks mental capacity but this has to be approved through the Court of Protection.

If there are surviving children, grandchildren or great grandchildren of the person who died and the estate is valued at more than £250,000, the married partner or civil partner will inherit:

  • all the personal property and belongings of the person who has died, and
  • the first £250,000 of the estate, and
  • half of the remaining estate.
  • the children will inherit the remainder

Please note – unmarried partners cannot inherit under intestacy law.

A child whose parents are not married or have not registered a civil partnership can inherit from the estate of a parent who dies intestate. These children can also inherit from grandparents or great-grandparents who have died intestate.

Adopted children (including step-children who have been adopted by their step-parent) have rights to inherit under the rules of intestacy. But otherwise you have to be a biological child to inherit.
Children do not receive their inheritance immediately. They receive it when they:

  • reach the age of 18, or
  • marry or form a civil partnership under this age.

Until then, trustees manage the inheritance on their behalf.
If there are no surviving children, grandchildren or great-grandchildren, the partner will inherit:

  • all the personal property and belongings of the person who has died and
  • the whole of the estate with interest from the date of death.

Other relatives may have a right to inherit if the person who died intestate had no surviving married partner or civil partner, children, grandchildren, great grand-children, parents, brothers, sisters, nephews or nieces. The order of priority amongst other relatives is as follows:-

  • grandparents
  • uncles and aunts. A cousin can inherit instead if the uncle or aunt who would have inherited died before the intestate person
  • half-uncles and half-aunts. A half-cousin can inherit instead if the half-uncle or half-aunt who would have inherited died before the intestate person.

NB Jointly-owned property – If a property is jointly owned as joint tenants then it will be automatically inherited by the surviving partner. However if a property is owned jointly on a tenenats in common basis, the deceased person’s share will be distributed with the rest of the estate. Similarly joint bank accounts pass to the survivor on death.

If there are no surviving relatives who can inherit under the rules of intestacy, the estate passes to the Crown. This is known as bona vacantia. The Treasury Solicitor is then responsible for dealing with the estate. The Crown can make grants from the estate but does not have to agree to them.

Thus it is very important to make a valid will.

Inheritance Tax

When you die, the government assess how much your estate is worth; this includes the cash you have in the bank or in investments, and any property or business you own. If this exceeds the Inheritance Tax threshold set by the Chancellor (currently £325,000 per person £650,000 for married couples), you (or technically your estate) will pay tax on 40% of the excess over these figures when you die.

So if your joint estate is £750,000 for a married couple, £40,000 goes straight to the Government on death.

The above amounts do increase in April 2017 and subsequent years, where property is left to direct descendants.

Saving Inheritance Tax is one of the biggest single things you can do, as some simple actions can save you £100,000s. Yet sadly many people ignore it; either not wanting to consider the future or simply unable to broach it with relatives for fear of embarrassment or seeming grasping.

As Ben Franklin said, the only things that are certain in life are death and taxes, and this touches on both of them. So, whether you stand to inherit or leave the money, it’s time to sit down and tackle these issues with your family.

Planning

Money given away before you die is still usually counted as part of your estate, hence subject to Inheritance Tax, if you die within seven years of giving the gift.

Therefore one golden rule is to try and survive more than seven years – which means early planning of how to pass on your assets is important. Living longer is a good idea anyway!

If you make large lifetime gifts, the beneficiaries could take out life insurance against the potential Inheritance Tax bill. Most gifts into trust are now subject to Inheritance Tax even if made during your lifetime, but this is an area where you would need specialist advice.

However, even if you do die within seven years of making a gift, there are a range of other exemptions worth taking into account to help lessen the tax bill:

  • Annual Inheritance Tax Exemption. The first £3,000 given away each tax year is completely ignored as part of your estate and thus not subject to Inheritance Tax if you die. If you don’t use this in a year, you can carry it forward for one tax year (no more) and use it then as long as you use the current year’s £3,000 first.
  • Gifts to charities and political parties are Inheritance Tax free. Hence leaving money to that cats’ home is at least efficient tax planning.
  • Give £250 each year to everyone you know. Gifts of no more than £250 to any one recipient per tax year are excluded from Inheritance Tax. For example someone with 12 grandchildren could give each of them £250 annually as a birthday present and it wouldn’t be counted as part of the estate.
  • Gifts from income. Inheritance Tax is a tax on your assets. However if you have an income (employment, self employment, rents, pensions, interest and dividends can all count as income but some forms are not such as those that are return of capital such as income from investment bonds and the capital element from purchased life annuities) and you gift money regularly from that income, and you still have enough not to impact your lifestyle, then it is exempt.
  • Gifts on consideration of marriage. If you give a gift that is conditional on an agreement of marriage or civil partnership i.e. “marry my daughter and I will give you X thousand pounds” it is exempt. There are limits to this though: £5,000 for a gift from a parent, £2,500 from a grandparent, £1,000 from anyone else. However, remember this is not a simple wedding gift, that wouldn’t count. It must be conditional.
  • Woodland, Heritage, Farm and Business. If you own an agricultural property that’s part of a working farm then a percentage may be exempt from tax. Similarly if you own woodland, those who receive it in your will can apply for the timber on it, but not the land itself, to be deemed exempt. Do check what happens when the timber is sold though as Inheritance Tax may apply at that time.

A gift must be a genuine unconditional gift that you will not gain from; something given to someone without any reservation, no nods, winks or mutual back-scratching. The biggest asset most people have is their house, yet trying to give half of this to your descendants won’t work if you continue to live in it.

Many gifts are a valid way of reducing your Inheritance Tax bill. Yet if any are given conditionally, with the intention of receiving something in return, they could be ineffective so watch out.

Investing into trust is another way – you can retain control and even a right to income if you did not wish to make outright gifts.
There are also investments that can take money out of your estate after two years, whilst allowing you full control of the assets within them or trusts that allow you to take an income whilst gifting the capital.

If you need any help with making a will or advice regarding inheritance tax planning, please do not hesitate to contact us on 01403 888490 or email us on info@aptus-care.co.uk and we will be happy to help.

Tax, Wills and Estate Planning are not regulated by the Financial Conduct Authority before the ‘if you need help’

Aptus Care is a trading style of Aptus Wealth Limited which is registered in England and Wales. Company Registration No. 8165763. Registered Office: 2nd Floor, 5 Glynde Place, Horsham, West Sussex RH12 1NZ. Authorised and regulated by the Financial Conduct Authority