Death and Taxes
DEATH AND TAXES
As Benjamin Franklin said in 1789 “Nothing is certain except death and taxes.” And that is as true today as it was then.
It is a very modern taboo but we are all going to die so why is it that so few of us have a Will.
If you die without leaving a Will you are said to have died Intestate, and your Estate (that is your property, money and possessions) will be distributed in accordance with the Intestacy Rules. The Intestacy Rules are a set of strict legal rules which dictate who will benefit from your Estate, how much they receive and who can administer your Estate.
If you make a valid Will however you can choose who will benefit from you Estate. The English law of succession is based on the principle of “testamentary freedom”. Put simply, this means that you can choose to leave your Estate to anyone you like.
However, there are exceptions. The Inheritance Act (Provision for Family and Dependents) 1975 allows certain people to make a claim against an estate if they have not been adequately provided for. The most common example is that of a dependent child. Where a child has been cut out of their parent’s Will, the child (or someone acting on their behalf) can raise a claim asking for the court to make an award for “reasonable financial provision” from the Estate. Although adult children financially independent from their parents can also make a claim in the recent case of Ilott -v- Blue Cross and others the Supreme Court confirmed that we are in general free to choose who will inherit our property when we die and that your wishes matter and that if you record those wishes in a will, they will be listened to. If this is a matter of concern to you then you should take legal advice.
… And Taxes
Inheritance Tax (IHT) is a tax which is paid out of your estate on your death. The standard IHT rate is 40% and it’s only charged on the part of your Estate that’s above the £325,000 threshold (the nil-rate band).
There’s normally no Inheritance Tax to pay if either the value of your Estate is below the £325,000 threshold or you leave everything to your spouse or civil partner, a charity or a community amateur sports club.
From April this year if your Estate includes a main residence and your Estate is above the nil-rate band it will be possible to claim an additional nil-rate band as long as your main residence is passed on death to a direct descendant. This will be:
- £100,000 in 2017 to 2018
- £125,000 in 2018 to 2019
- £150,000 in 2019 to 2020
- £175,000 in 2020 to 2021
The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.
Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.
IHT is a complex area and you may wish to take legal advice.
Funds from your Estate are used to pay IHT to HM Revenue and Customs (HMRC). This is done by the person dealing with your Estate, the “executor” if you left a Will or the “administrator” in the case of an intestacy.
The executor and administrator may also need to apply for a Grant of Probate or Letters of Administration if your Estate includes a house or flat although you don’t normally need a Grant if the Estate either passes automatically to the surviving spouse or civil partner because it was held as joint tenants or if the Estate consist only of a small amount of money. If a Grant is needed then a probate fee must be paid at the same time as sending your application form to the Probate Registry. Current probate fees are £215, or £155 for those applying through a solicitor. But the Government is increasing the fees from May as follows:
|Value of Estate – £||Probate Fee – £|
|Less than £50,000||Nil|
|50,001 – 300,000||300|
|300,001 – 500.000||1,000|
|500,001 – 1,000,000||4,000|
|1,000,001 – 1,600,000||8,000|
|1,600,001 – 2,000,000||12,000|
Because both IHT and Probate Fees are payable before funds in the Estate are available you may wish to consider insurance policies or other financial arrangements to ensure the money can be accessed when it is needed.
If you would like advice on any of the issues raised in this article please contact Henrietta Brett at Fairhurst Menuhin & Co Solicitors on 01440 761200 or firstname.lastname@example.org