Everything you leave when you die, less anything you owe, is called your ‘estate’. A will sets out what is to happen to your estate. It is a legal document which, although it can be changed after your death in some circumstances, will normally be followed as written.
Dying without a will (called dying intestate) can cause unnecessary hardship for your survivors:
· Delays would be incurred in trying to find out whether or not you did in fact leave a will, and in tracing your possessions.
· Delays would occur in the necessary formalities required before your estate can be distributed.
· Your next of kin will usually be appointed to sort out your estate, and he or she might not be the best person to do the job.
· The law dictates who will inherit your estate and in what proportions depending on whether you were married and /or have any children or grandchildren.
The rules do not recognise unmarried partners (although a partner may be able to make a claim on your estate):
· The law may require legally binding trusts to be set up. These may be unnecessarily restrictive and expensive, especially where only small sums are involved.
· There may be inheritance tax on the estate which could have been avoided.
Another very important reason for making a will is so that you can decide who you want to look after your children if you have a young family.
If you do not make a will, your possessions will not necessarily be passed on in the way you would choose. This is a particular risk if you live with an unmarried partner.
(Inheritance Provision for Family and Dependants) Act 1975.
It should be noted that the information contained in this section relates to our current understanding of the law of England & Wales which is subject to change. Laws in other parts of the UK will differ.
The government levies tax on the value of persons estate, if their estate is worth more than the Nil Rate Band. The IHT ‘Nil Rate Band’ (NRB) is currently £325,000 (2018/2019) and many people are still getting caught in the trap of property inheritance tax as the threshold has not kept pace with the inflation of property prices, and so is affecting more and more people.
There is also an additional ‘main residence’ allowance (‘Property Nil Rate Band’ (PNRB)) which applies if a person’s home is given to their children (including adopted, foster or stepchildren) or grandchildren. This is set at £125,000 (2018/2019) and is added to the IHT threshold providing a total allowance of £450,000 (2018/2019).
When a relative dies and leaves an estate worth more than £325,000 (2018/2019) or £450,000 (2018/2019) if the ‘main residence’ allowance applies, families are required to pay tax on the amount in excess of the NRB (and PNRB is applicable) within six months. After that, they are charged interest at a rate of 3% (2018/2019).
However, there are ways to lessen the burden of property IHT.
When you die, it is likely that you would wish to leave as much as possible for your loved ones. Unfortunately this is often not as simple as you might believe. HM Revenue and Customs (HMRC) will apply 40% tax to the value of your estate over and above that of the NRB (and PNRB) that applies at the time of death.
No IHT is applicable ‘inter-spousal transfers’ (money/property/assets that is bequeathed by one spouse (or civil Partner) to the other.
Your estate could include more than you originally realise. It is often easy to dismiss IHT as something that may not affect you as your property may not be over, or much over, the IHT threshold. However with all your other assets, such as investments, life cover, bank accounts, as well as physical property such as cars, furniture and family heirlooms, many estates are considerably over the threshold without the individuals being aware of it.
For assets passed between spouses and civil partners, the nil rate band allowance will pass along with the assets. This gives a couple available allowances (nil rate bands) of up to £650,000 (2018/2019), which increases to £900,000 (2018/2019) with the addition of the ‘main residence’ allowance detailed above.
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