Legal Eagles: Where there's a Will

Sep 29 2008 By W Davies Solicitors

Legal Eagles is produced by W Davies Solicitors of Woking. This week the team discuss wills and inheritance tax.

There are various ways to protect your family and estate on your death or in the event that you became mentally incapacitated.

You can afford your family emotional and financial protection by ensuring you have well written wills and a lasting power of attorney in place.

If you do not have a Will or an up to date one, there is a possibility that your estate may pass to those you would not want to benefit and may even pass to the Crown. If you do not have a will, then it is the government which directs who shall benefit from your estate and this is referred to as Intestacy.

If you are married or within a civil partnership and do not have a will, do not assume that your spouse or partner will inherit all of your estate as this is not necessarily the case.

If you are unmarried and cohabiting with someone, then a will would be necessary to ensure that your partner will inherit the property or at the least has the right to continue living in the property for a certain period of time.

This is extremely important in the event you are the sole owner of the property or if you and your partner own your property as tenants in common.

A person’s estate is liable to Inheritance Tax on net assets over and above the Nil Rate Band, at a rate of 40%.

The Nil Rate Band (NRB) means there will be nil inheritance tax liability for assets with a net value equivalent to or below the threshold at the date of death or for the first tranche of assets up to that value for larger estates. The NRB differs each year, but at present is £312,000.

Your estate may be liable for inheritance tax. There are various avenues and reliefs available in order to reduce the inheritance tax liability on your estate. A few of those avenues will be briefly identified.

You are entitled to an annual exemption of £3,000 per year and this can be backdated for one year also, providing that you have not utilised the exemption for the previous year.

You can make wedding gifts of £5,000 to each of your children, £2,500 to each of your grandchildren or £1000 for any other person.

Gifts to spouses within a marriage or civil partnership will be free from inheritance tax liability, providing you and your spouse or civil partner are deemed domiciled in the UK.

Any gifts to charities, political parties, heritage property and for public benefit are free from inheritance tax.

Gifts to any other individuals of any amount providing that you survive the gift by seven years should be free from inheritance tax. Any transfer of property made during your lifetime is a potentially exempt transfer (PET), providing you do not retain a benefit in the gift.

The gift could utilise or reduce the NRB if you do not survive the seven years. Please note that there is a sliding scale relief available where there is a tax liability (i.e. over and above the NRB) if you survive between three to seven years after the gift was made.

There may also be relief available on business or agricultural property, however this is a very detailed area and full advice would need to be taken if this was applicable to your situation.

You may also be aware of the ‘transferable NRB’ policy introduced by the Finance Act 2008. This policy potentially allows two nil rate bands for a couple to be claimed on the death of the surviving spouse or partner. Only a maximum of two nil rate bands can be claimed.

The nature, effect and implications of the Finance Act 2008 will be discussed in a later article.

Having a Will prepared by a Solicitor should ensure that the will is declared valid on death, your loved ones are suitably provided for and may also reduce any inheritance tax liability your estate may have.

At W Davies Solicitors we recommend that you review your will regularly to ensure that it is fully up to date and in accordance with your wishes.

Disclaimer: This information is for guidance and should not be regarded as a substitute for taking full legal advice.