The coronavirus outbreak and subsequent lockdown have had a dramatic impact on all aspects of everyday life and has undoubtedly led to a change of lifestyle for so many of us. Many of us now have much more time suddenly available to reflect on life and deal with things that we would otherwise put off for another day.
This extra time is probably why solicitors and will writers are reporting a surge in demand for wills. However, this is not without its challenges, as for a will to be valid, it must be signed in the presence of two independent witnesses, who also sign the will themselves. So if you notice your neighbour has two solicitors in their garden (with everyone standing 2 metres apart, of course), then this might be what they are doing! It was suggested the rules for witnessing a will were to change, but this has been scrapped.
Part and parcel of making a will, or amending an existing will, however, is to consider inheritance tax.
Inheritance tax (IHT) is payable at a rate of 40% on estates worth over £325,000 at the date of death. It can also become due on certain lifetime gifts of assets, at a reduced rate of 20%. There are planning opportunities available that can mitigate the tax due on your estate, which may include:
- Gifts of assets to family and friends, or charity
- The creation of a trust, or a Family Investment Company
- Life assurance products
- Tax-efficient investments which attract IHT relief
Generally speaking, it is never too early to plan for IHT – if you have an estate worth more than £325,000 (or £650,000 for married couples/civil partners), then it is worth exploring the options.
There are many advantages to considering IHT planning at the time of making or amending your will. For a married couple or civil partners, there is the ability to transfer the ‘nil rate band’ (currently £325,000 per person) from the first deceased to the second, and this may be factored into what happens to your assets in your will. Furthermore, there is now a ‘residence nil rate band’ which can extend the IHT threshold to £500,000 per person depending on several conditions, one of which is that the family home passes to direct descendants.
Should you decide to make gifts to family and friends during lifetime then generally there is a “7-year clock” after which no IHT would be payable on the transfer, meaning the sooner advice is taken, the better.
Where IHT is payable, it is generally charged on the value that has been transferred. This may make the current, very difficult economic times an opportune moment to make any gifts that were being considered as the ‘market value’ of many assets will be reduced.
Where something other than cash is being given away, then capital gains tax may be payable, which again may mean now is the opportune time to make that gift while market values are low.
An important part of IHT planning is to consider your own needs in the short to long-term, and ensure that your finances are secure before making any decisions.
Price Bailey has specialists in inheritance tax planning and will always be available to help you in this area, and where necessary work with you and your solicitor to ensure your IHT position is considered at the time of making or amending your will.
This blog was written by Michael Morter, a Senior Manager at Price Bailey. If you require any questions relating to inheritance tax planning, please contact Michael on the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.