Many people delay creating or updating their Wills. We are unsure why, but we mortals do not like discussing our own mortality. We encounter this situation often. But maybe now is the time to make a new will or review an old one.
It’s really important that you review your Will regularly because certain personal circumstances change. Our children become young adults, the value of investments and properties may have grown, and so on.
If you are thinking about relying on the statutory intestacy rules, these might not be enough!
According to the laws of intestacy in England, for deaths occurring on or after 26 July 2023:
- the surviving spouse would inherit a statutory legacy of £322,000 and all of the personal effects, plus 50% of the remainder (see below)
- The surviving children would split the remaining half (above £322K) of the estate equally with the surviving spouse.
- If those descendants are under 18, their inheritance is kept back for them until they turn 18.
- Note that intestacy rules are different in Scotland, Wales, and Northern Ireland.
However, things get a lot more complicated if there isn’t a surviving spouse and if there aren’t any children. Failing to make a will means you don’t get a say in how your wealth is distributed. So why not take the time to make a Will or renew it?
Passing your family home
When drafting your Will, it’s important to consider that the inheritance tax (IHT) nil rate band remains fixed at £325,000. There is an extra nil rate band of up to £175,000 for transferring the family home to direct descendants upon death.
Of course, there is much talk about what will happen in the next Budget regarding IHT.
Will we see some changes to the IHT rates? There may be some tinkering with the rules for how we are Gifting for Inheritance Tax to take full advantage of all the allowances and exemptions. Or could we see some changes to the nil rate band? We don’t know. None of which should really stop you from making a Will.
Leaving money in your Will to Charity
If you leave at least 10% of your estate to charity, the rate of inheritance tax on the amount chargeable is reduced from 40% over the nil rate bands to 36%. However, this would reduce the amount passing to other beneficiaries, so it needs to be carefully considered.
Making a Will ensures you’ve spent some time thinking about this and maybe discussing it with your accountant or solicitor. It may also allow you to leave something to a charitable cause that you are passionate about.
Pension contributions for your loved ones
One way to help future generations is to start paying into a pension plan.
An individual’s contributions to a pension scheme are typically limited to their relevant earnings in a given tax year. However, there is an exception when the contributions are less than £3,600.
As parents and grandparents, you can make a meaningful impact by contributing on behalf of your children and grandchildren.
If you contribute £2,880 a year, the government provides a 25% uplift, potentially resulting in a substantial amount by the time the child reaches retirement age (currently age 55, but increasing to 57 in 2028).
By setting up a standing order for no more than £240 a month, a parent or grandparent may be able to demonstrate that the payments qualify for the regular gifts out of income exemption from inheritance tax mentioned earlier. Click the Gifting for Inheritance Tax blog mentioned above.
Pensions could be affected by the next Budget, so watch out for updates that may change this recommendation.
Next Steps
October is a Free Wills Month.
This program is made possible through the generous support of national and local Charities. Anyone aged 55 or over can participate, and the Charities hope to receive a donation in return.
Visit the Free Wills Month website, and you will be asked a series of questions and signposted to a solicitor near you.
However, remember that the free service is for a simple Will. We strongly recommend seeking professional advice if your assets are worth more than the IHT allowance.
Please email your normal manager at Myers Clark, or if you are not yet working with us, see how we can help you feel calm and confident about your tax. While we are unable to draft your Will, we can confidently discuss its tax implications and provide recommendations for local solicitors we collaborate with.
Making a Will that allows you to plan is always a good move, but it is often forgotten. According to Money Week, IHT tax receipts went up by 9% in the first four months of this tax year. So, even if we don’t see any change in the rules in the coming budget, there is still plenty to consider.