Wills, IHT planning and what the current Intestacy rules could mean for those left behind

In these times of uncertainty, having an valid, well considered Will is more important than ever, and, if like many of us, you are finding that you have a little more time on your hands than usual, now could be a could be the perfect opportunity to consider writing your Will or updating your existing one, and to think about the Inheritance Tax (IHT) planning that might be available.

Intestacy

Without a Will (or a valid Will), the assets in your Estate will be distributed in accordance with the Intestacy Rules – please see here for our visual guide to this. These rules are designed to ensure that members of your immediate family are taken care of, but ignore unmarried partners, and, usually any tax planning that may have been available.

This could leave some love ones with nothing, or, in other cases, a higher IHT liability than was necessary. At a rate of 40% where assets are not covered by the nil rate band or other reliefs, IHT is a very expensive tax. With sensible planning before your write your Will, this could be reduced significantly, whilst ensuring your wishes are carried out.

The effect of intestacy varies depending on your circumstances.

Married couples

For married couples, if there are no children, your surviving spouse will inherit everything. This is will not lead to an immediate IHT liability but does not provide for anyone else in your family and could waste some reliefs.

Where there are also children, if your Estate is more than £250,000, they will inherit a share too. If your estate is large, that could lead to an IHT bill which might otherwise have been avoided by having some simple planning in place. More worryingly, if your children are minors, the assets will be held on trust, but only until they reach 18. After that, they would be absolutely entitled, which may not be desirable from an asset protection point of view.

Unmarried couples

For unmarried couples, the surviving partner is entitled to nothing.

Any children you may have would inherit everything (on trust until 18 as above) but no other family member or your partner would be provided for.

Where there are no children, assets pass may back up the generations before passing down – i.e. if your parents survive you, they would inherit ahead of any siblings or other family members.  From a tax planning perspective, this could be a disaster and possibly lead the a much larger IHT bill for the family in the long term (although there are provisions for Quick Succession Relief (QSR) where someone does not survive at least 5 years from the date of an inheritance).

Where there are no surviving family members, your Estate could ultimately pass to the Crown.

While it is possible to vary an intestacy in a similar way to varying a Will post death, it is more complicated (and expensive) and virtually impossible to do this where minor children are involved, even if it is just to ensure that they are protected beyond 18. The rules also do not take into consideration the complicated family set ups, which are quite common today. Therefore, considering the options and making your intentions clear at the outset is vital.

Reliefs

Intestacy rules are not designed to make the most of valuable tax reliefs. By doing nothing, you will not get access to these. Even where there is a Will, if this has not been revisited recently, it too could miss out on the available reliefs. With some basic tax planning, it may be possible to save significant amounts of tax and ensure that your Estate maximises its use of not only interspousal relief, but also the Residential Nil Rate Band, Business Property Relief (BPR) and the IHT rate reductions associated with charitable giving. You may also be able to consider more complex lifetime planning, perhaps using trusts, to save IHT not only on your Estate but on those of future generations.

How can CBW help?

There are lots to consider when it comes to IHT planning, but simple steps taken now could ultimately give your family more flexibility in future and potentially save on an expected IHT bill.

CBW’s Private Client Tax team have a wealth of experience in helping clients to plan for this and to make things a little easier for those left behind, working with solicitors across London and the rest of the UK to make sure your Will is structured to achieve that. We would be happy to discuss the tax consequences of your existing Will or help you to understand what tax planning you could do before writing a new one.