Making the most of your Estate
Making a Will can help to ensure that your estate pays as little Inheritance Tax as possible as well as ensuring that your estate passes to those beneficiaries that you choose and not those dictated by the Intestacy Rules.
Recent changes to Inheritance Tax mean that married couples with larger estates can benefit from the unused proportion of the nil rate band of the first spouse to being passed on to the second estate. The proportion of the nil rate band which is unused on the first death can be claimed on the death of the second spouse at the rate in force at the date of the second death. Simple Wills which pass the estate directly to the spouse may now be tax efficient, however it does mean that the first spouse has no control over the ultimate destination of their assets. This can be overcome by giving the surviving spouse a life interest in the assets which provides a degree of control and protection. There are similar provisions for partners in a civil partnership.
In order to take advantage of a second nil rate band the Executors have to apply within two years of the second death for the transfer of the nil rate band and provide the Inland Revenue with death and marriage certificates along with the earlier grant of probate and Inheritance Tax return. It is therefore extremely important that you keep this paperwork safe so that your Executors can locate it easily.
To find out if Inheritance Tax is due on an estate, all assets which make up that estate need to be valued and all debts deducted from that total to give the value of the estate. It is important to note that certain gifts that the deceased made during their lifetime may also need to be taken into account as they may now be liable for Inheritance Tax, for example, any gifts made during the last 7 years prior to the death.
In certain circumstances, some gifts may be exempt from Inheritance Tax, some examples of this are as follows:
- Each year you are allowed to make one or more gifts totalling up to £3,000 in one year.
- All gifts under £250 to individuals.
- On a sliding scale dependant upon your relationship to the parties involved, you can make an exempt gift to a couple who are getting married or entering into a civil partnership.
- For gifts of larger amounts if you survive 7 years after you have made a gift, no Inheritance Tax is payable. This is known as a potentially exempt transfer. Furthermore, there is a sliding scale on the amount of tax payable dependant on how many years that you survive after the gift was made.
- Any gifts made to a UK registered charity, either during your lifetime or in your Will; and
- For gifts of certain business and agricultural related gifts reliefs from Inheritance Tax may be available.
Tax efficient Wills
Rising affluence in recent years, particularly from property, means that there is genuine threat of paying significant taxes upon a person’s death; Inheritance Tax at a rate of 40% means the size of the potential tax bill can be a real worry but, fortunately, with some astute planning, it is possible to produce a Will that still conforms to the deceased’s wishes but mitigates or amends the amount of tax payable.
The objectives of a tax efficient Will
Wanting to avoid tax is a rather obvious objective, but because a tax efficient Will can bring about other changes to the status of the survivor and possibly their family, it is as well to state other key objectives:
- Retain full ownership and control of your capital during your lifetime
- After the first death, to allow the survivor to have access to these funds
- To allow the survivor to retain maximum benefit from all assets (such as continuing to live in the family home)
- Preserve assets within the Will Trust for future generations
Please note the rates for thresholds and allowances referenced in this article were correct at the date of publication (September 2021). But should not be relied upon or applied to specific situations without taking expert advice.
Please note this article is provided for general information purposes only to clients and friends of Atkins Dellow LLP. It is not intended to impart legal advice on any matter. Specialist advice should be taken in relation to specific circumstances. Whilst we endeavour to ensure that the information in this article is correct, no warranty, express or implied, is given as to its accuracy, and Atkins Dellow LLP does not accept any liability for error or omission.
© Atkins Dellow LLP 2021
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