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Henrietta Brett

Death and Taxes

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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.

Death

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
Over 2,000,000 20,000

 

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 henrietta.brett@fmc-solicitors.com

What to do when someone dies

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 When someone dies there are many things to sort out. When we are grieving for the loss of someone we loved, this can seem overwhelming.

 The first thing to do

If a person dies at home you should call their GP who will give you a medical certificate showing the cause of death and informing you how to register the death. If a person dies in hospital the medical certificate will be issued by the hospital. If the death was unexpected or a GP has not seen the person within the 14 days before their death, then the death has to be reported to the coroner who may order a post-mortem or an inquest, in which case the funeral may have to be delayed.

Register the death

You must register the death with the Registrar of Births, Marriages and Deaths for the district in which the death took place.

The Registrar will need:

The medical certificate, full name of the deceased, the date and place of death, the address of the deceased, the date and place of deceased’s birth, the deceased’s last occupation, the name, date of birth and occupation of the deceased’s spouse or civil partner.

The Registrar will give you:

A certificate for burial or cremation, a certificate of registration of death which you should complete and return to the deceased’s local social security office and a Death Certificate. It is worth getting more than one copy as they are needed for the probate application and for any pension providers, life insurance companies, banks and building societies.

Arranging the Funeral

It is worth checking the deceased’s Will to see if it includes any instructions about their funeral.

The person who arranges the funeral will be responsible for ensuring that it is paid for. You should check to see if the deceased had a funeral plan, if not it may be possible for funds in a current account to be released. This may not be possible until probate is granted, in which case you may have to pay the costs yourself and wait to be reimbursed.

Informing the authorities about the death

You should tell HM Revenue and Customs, the deceased’s bank and building society, insurance company, utility providers, dentist and optician. Their driving licence should be returned to the DVLA and their passport to the Passport Office.

Dealing with the estate of the deceased

If there is a Will this will name executors who will be responsible for dealing with the deceased’s estate. If there is no Will then the Intestacy Rules set out who will be responsible for dealing with the estate. These rules are complex and you may need legal advice. It isn’t always necessary to apply for a Grant of Probate if the estate is very small.

Inheritance Tax

Before Probate is granted any Inheritance Tax must be paid. At present Inheritance Tax is payable at 40% on an estate worth more than £325,000, unless the estate passes to the deceased’s estate or to charity. Any Inheritance Tax payable is due within 6 months of the date of death. The rules relating to Inheritance Tax are complex and you may want to get legal advice.

Henrietta1

Henrietta Brett looks after the Wills & Probate team at FM&C Solicitors. She may be contacted on +44 (0)7453 624 619 or +44 (0)1799 526 849.

Email: henrietta.brett@fmc-solicitors.com