Barring those who have dedicated their careers to following and studying the nuances of inheritance law, many of us remain largely in the dark over laws and practices that will, inevitably, impact us directly in the future. Read more below.
- The Nil Rate Band
Inheritance tax is currently charged at two rates. The first £325,000 is taxed at 0% and is known as the nil rate band. Everything in excess of £325,000 is taxed at 40%.
From April 2017 an additional relief from inheritance tax was introduced. This is the residence nil rate band and applies where a “qualifying main residence”, generally the house where the deceased lived, is “closely inherited”, i.e. passes to children, grandchildren and other specific descendants. If the value of the estate is in excess of £2m then the residence nil rate band starts to taper away until, if the estate is worth more than £2.2m, it is lost completely.
This is a complicated area and it is recommended that you take expert advice.
- The Rules of Intestacy
Some people elect not to create a will and, instead, to simply allow their assets to pass onto their spouse or children. This can work out just fine but it can prove to be a highly detrimental decision.
When someone dies without a will, their assets are dealt with according to the rules of intestacy, which create a very rigid framework for the distribution of an individual’s finances, property, and possessions. This can lead to many close friends, family members, and even life partners feeling overlooked and, potentially, uncared for.
- Certain Life Changes Will Invalidate Your Will
While many of us would prefer to draw up a will and forget about it for the next fifty years, doing so will almost inevitably prove highly detrimental. Over time, many aspects of our life change; we might have children, get married, take on step-children or other dependents, get divorced, make new investments into property or other significant assets, or lose contact with someone we were once very close to.
Whatever happens, we must ensure that we keep our wills up to date. If, for instance, we get married, then any will we created prior to that date will automatically be revoked, and must be replaced by something that reflects our current circumstances.
- Common Law Partners Have No Automatic Rights
These days, more and more people are electing to share their lives, homes, and finances together without being legally married. At the same time, however, many people remain unaware of the fact that, in the absence of a legally binding will that specifically names their partner as a beneficiary, they hold no automatic, legal right to inherit from them.
Of course, in instances of joint ownership, the outcome will be a little different. Any assets that belong solely to you, however, will not automatically pass to your partner unless you specify otherwise within your will.
If this happens, they will be forced to reach out to contesting a will solicitors in order to dispute the natural course of events – a process which can be lengthy and, at times, highly disruptive.
- Charitable Donations Can Mitigate Tax
Many of us are concerned by the prospect of passing a substantial tax bill onto our loved ones when they inherit from us. We have all heard horror stories of inheritance tax and, as such, want to pursue any possible avenue that will lessen the burden for them.
In spite of this, many of us remain ignorant of the fact that charitable donations can and do reduce the amount of inheritance tax due on your estate. If you donate a minimum of 10% of your estate toward registered charities, for instance, then you can reduce your inheritance tax by around 4%.