Inheritance tax is unfortunately a fact of life but the good news is you can take steps to minimise the amount your loved ones have to pay after you die.

Inheritance tax (IHT) and Wills go hand in hand and you should use your Will to keep the amount of IHT owed on your estate to the smallest possible sum – as well as to look after loved ones when you’re no longer around.

Inheritance Tax Facts

According to the Office for Budget Responsibility (OBR), approximately 6.5% of estates will face the 40% IHT rate by 2026 – which is a lot more than the 3.7% of estates facing the higher rate in 2020.

So, what is causing this sharp increase in estates facing the higher IHT rate?

According to the OBR, it’s a combination of:

• Huge rises in property prices
• Extra deaths caused by the Covid-19 pandemic

The IHT threshold has remained at £325,000 since 2009. This means that no tax is paid on estates worth less than this amount. There is an extra £175,000 allowance for the family home provided it passes to direct descendants, and this will stay frozen until 2026.

The good news for married couples and civil partners is that any IHT allowance unused can be passed onto a spouse or civil partner, meaning they can effectively leave an estate worth £1million in total without their family having to pay any inheritance tax.

What Are The Implications Of More Estates Facing 40% IHT Rate?

It is likely that more and more people will want to minimise or avoid IHT being payable by sharing their wealth during their lifetime rather than leaving it to loved ones in their Wills.

Lifetime giving can be challenging, though, and you should be wary of:

• Undue influence
  This is when someone is pressured into making a big gift of money or property, when perhaps they don’t want to. This so-called undue influence can be hard to identify and establish either during the lifetime of the victim or after their death, but it’s not impossible. Even when someone appears willing to transfer across their property, they can still be found to have done so under undue influence.
• Predators
  With wealthy elderly relatives, you need to be watchful of greedy family members but also stranger predators. There are individuals who will try to groom vulnerable elderly victims into marriage – it’s scary how few safeguards are actually in place to prevent a marriage involving an elderly person lacking mental capacity. As marriage cancels an existing Will, a victim’s ‘spouse’ inherits the estate, and benefits from the IHT spouse allowance too.
• Gift with reservation of benefits

These are gift where the ownership of an asset is transferred to someone else but the person making the gift retains the benefit of the asset.  For example, gifting your own to your children but you remain living in the property.  HMRC will treat that asset as still belonging to you and its value will be taken into account for IHT purposes.

What Can You Do To Keep Safe?

If you have doubts about someone – either someone who you think may be pressuring a family member or putting too much pressure on yourself – seek legal advice as soon as possible. You may be able to put safeguards in place and take steps to ensure your wishes and those of a loved one are respected.

How We Can Help You

Our specialist Wills and probate solicitors are here to help and advise you on every aspect of inheritance, including IHT and Wills disputes and what to do if you suspect someone is trying to take advantage of a family member or influence your decision making.

We will listen to you to ensure we fully understand your circumstances before providing tailored advice and support to help you make the right decisions for you and your loved ones.

To discuss inheritance tax or Wills with one of our solicitors, contact us on 01244 311 633 or email advice@bartletts.co.uk

Research by wealth management company Charles Stanley provides some interesting insights into British attitudes towards making wills and receiving bequests. Slightly more than two thirds (68%) of UK adults intended to divide their assets evenly among their children, however, 16% said they would not do so, while a further 16% remained undecided. Reasons given for not splitting wealth equally included the differing personal circumstances of children, and how close relations were between parents and children later in life.

The research also revealed the family problems and distress that result when an inheritance is not split equally between children. Roughly half of the baby boomer generation (those born between 1946 and 1964) said they would be upset by an uneven split, and more than a third of all UK adults felt the same.

British people are surprisingly shy about discussing inheritances, with only one in five respondents stating that they had talked openly about the subject with their family. This means that the majority of UK families are failing to plan ahead, which can have a negative financial impact and lead to family disputes that are often only resolved after lengthy and expensive court proceedings.

If a person dies without making a will they will have died intestate, and their estate will be divided according to the rules of intestacy, which are arbitrary and may not reflect the wishes of the deceased. To avoid family conflicts and ensure that the intended beneficiaries receive the correct share of an estate, the testator (the person making a will) should carefully consider their legacy and seek legal advice from a law firm like Bartletts Solicitors.

 

Co-habiting partners don’t have the same legal rights as married couples or those in a civil partnership when it comes to inheritance – so it is vital you make a Will if you’re living with your partner.

To ensure your estate or that of your partner’s is distributed according to your wishes after you or your partner die, you need to stipulate what should happen to your assets in a Will. This is because the deceased’s estate will be distributed according to a Will or the rules of intestacy if there is no Will – and co-habiting couples are not recognised under intestacy rules.

Rules Of Intestacy

The rules of intestacy decide how an estate is distributed when there is no legally valid Will, and state that distribution starts with spouses or civil partners before moving on to children and more distant family members.

Co-habiting partners receive nothing under intestacy rules. In order to benefit, the surviving partner would need to undertake expensive and stressful legal action.

What About Joint Assets?

Some assets may pass to the surviving partner but it depends on the circumstances.

When it comes to property, if you live with your partner and are joint tenants of the property you own, then you as the surviving partner will automatically inherit the whole property.

However, if you live together in a property you co-own as tenants in common, then your deceased partner’s share of the property forms part of their estate and does not automatically pass to you as the surviving co-owner.

Why Make A Will?

Making a Will ensures your specific wishes are carried out after you die and enables you to look after loved ones when you’re no longer around to do so in person.

If you live with your partner but aren’t married or in a civil partnership, it is even more important to make a Will as you don’t have the same legal rights when it comes to inheritance.

By making a Will, you will be able to:

• Protect each other’s financial security for the future
• State who should inherit your assets
• Appoint guardians for your children
• Stipulate a plan for what happens after you die
• Minimise inheritance tax – there is no equivalent of the spouse allowance for co-habiting partners so you need a Will to ensure assets aren’t taxed twice, on your and your partner’s deaths

How We Can Help You With Your Will

If you co-habit with your partner and want to ensure you look after one another after you die, then you need to make a Will. This will enable you to financially protect your partner as well as provide emotional security when it comes to any children you have and peace of mind that your partner will inherit when you die.

Our specialist solicitors have experience of assisting with every part of estate planning including Wills, and are here to help you draft a Will that is right for you and your individual circumstances.

To discuss making a Will with one of our solicitors, contact us on freephone 0800 988 3674 or Chester Tel: 01244 311 633 or email advice@bartletts.co.uk

The inheritance tax (IHT) threshold has been frozen until 2026 but it is still important to plan ahead if you want to leave your estate to loved ones after you die – and don’t want your beneficiaries to have to pay up to 40% tax.

It’s vital to consider IHT in your end-of-life financial planning in order to minimise the amount of tax loved ones will have to pay after you die, and to ensure as much of your estate as possible goes to your chosen beneficiaries.

What Are The IHT Rules?

There is a tax-free inheritance allowance called the nil-rate band that applies to us all. Thanks to this band, your loved ones can inherit up to £325,000 of your estate without having to pay IHT. Anything above this amount will be subject to the standard 40% inheritance tax rate.

With regard to property, there is also a residence nil-rate band which can mean an extra tax-free allowance of £175,000 to use if you leave a direct descendant a property you’ve lived in.

When Do The Nil Rate Bands Increase?

The nil-rate band has remained the same since 2011. However, the residence nil-rate band normally rises annually with inflation and was due to increase in April 2021 but it was announced the IHT threshold will be frozen until 2026.

Why Do I Still Need To Plan With The IHT Freeze?

Without careful planning, a large proportion of your assets could be lost and not reach your intended recipients due to inheritance tax being applied to them. Preparing for your end-of-life financial planning means making the most of your assets and ensuring as much as possible reaches your loved ones.

IHT Planning Options

Inheritance tax is complex so it’s always advisable to speak to a professional first about your financial plans for loved ones after you die.

The good news is that there are ways to minimise the amount of inheritance tax loved ones have to pay on inherited assets from your estate, with careful planning and through using the right option for you.

Gift your assets early

By gifting money or another asset to a loved one before you die, you can cut the amount of IHT due on your estate. However, timing is key as the gift needs to be made 7 or more years before your death for the recipient not to pay any IHT on it. If you die within 7 years of gifting the money or asset then IHT can be applied, depending on the value and type of gift.

Team up with your partner

One option is to pool your nil-rate band allowance with your spouse or partner. Normally, spouses and civil partners inherit tax-free from their deceased partner which means you can make use of the allowance to which your partner was entitled to, too.

If you’ve been left their entire estate, you could apply your own allowance together with your partner’s when passing on your estate. This effectively would double what you can leave for your beneficiaries without incurring any liability to inheritance tax. If your partner used some of their allowance for IHT then another option open to you is to use the percentage of the allowance that they didn’t use and add this to your allowance.

Give to charity

Assets left to a qualifying charity are exempt from IHT. Furthermore, if you leave at least 10% of your estate’s value to charity and this surpasses the nil-rate band to charity, you can cut the IHT due on the rest of your estate from 40% to 36%.

How We Can Help You With Your Inheritance Tax Planning

If you intend to leave money or property or assets to family or friends after you die then you need to consider IHT and how it will likely impact upon your decisions.  Our specialist inheritance tax planning team are here to help you understand how IHT is applied and the options open to you to minimise the amount of tax your beneficiaries will have to pay.

Even with the IHT thresholds frozen until 2026, now is the perfect time to plan for inheritance tax and to make sure as much of your estate as possible reaches loved ones.

To speak to one of our specialist solicitors about inheritance tax planning, contact us on freephone 0800 988 3674 or Chester Tel: 01244 311 633 or email advice@bartletts.co.uk

Financial institutions are the main cause of delay in at least 25% of probate cases, according to two-thirds of the legal professionals recently surveyed for the Bereavement Index published by Today’s Wills & Probate. The delay in receiving financial information concerning the estate of a deceased person from institutions takes at least four weeks according to the majority of practitioners.

While the average probate case takes around three months to complete, delays of up to a year may result from solicitors encountering delays in obtaining the necessary information regarding an estate and its assets, with the report suggesting this applied to one in 14 probate cases. The average delay caused by individuals failing to leave their affairs in order prior to their passing is around two months.

The surveyed legal professionals also expressed their frustrations with the probate process, with 88% labelling it ‘slow and complicated’, and 51% stating that recent probate cases they had been involved in took longer than expected. Three-quarters (75%) believe that the probate process can be improved, indicating that reform of the system is both necessary and likely in the near future.

Bartletts Solicitors is an expert probate law firm, with Louise Nelson having assisted clients with probate matters for 39 years. We offer our clients a winning team with real experience in probate and genuine expertise in this often complex area of law.

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