With so many changes afoot with inheritance tax and the rules of succession, now more than ever it is time to consider whether you have made efficient provision to look after your loved ones after your death.
Passing on the family home
A welcome announcement at the Summer budget was the introduction of a main residence nil rate band for passing on the family home. For estates worth less than £2 million, this relief will be available for offset against the main residence, when this is left to direct descendants.
From April 2017, it is proposed that the standard nil rate band (the amount of your estate which can be passed on to family and friends free of inheritance tax), will be enhanced by the residential amount, which starts at £100,000. The allowance rises in each subsequent year, until April 2020 when it reaches £175,000.
In a similar way to the current nil rate band, the residential enhancement will be transferrable between spouses and civil partners. This means that by April 2020 a married couple can shelter up to £1 million from inheritance tax on their combined estate.
Changes to the intestacy rules
If a person dies without making a valid Will, the laws of intestacy spell out who is entitled to what. Unmarried partners, close friends and carers have no righto inherit (unless property is jointly owned in a certain way), even if that was the intention of the deceased.
Under the new rules, the entire estate passes to the surviving spouse or civil partner, if there are no children or grandchildren, or if the estate is worth less than £250,000. Note that a surviving spouse who is separated but not divorced is still entitled to benefit. If there are children in addition to a surviving spouse, the children inherit half the estate over £250,000, with everything else going to the spouse.
Deed of Variation under attack
At present, if a person dies intestate, or if the beneficiaries want to change the Will, it is possible to enter into a legal Deed of variation, provided all the affected beneficiaries agree. If the Deed is worded correctly, it has the effect that the legacies are deemed to be made by the deceased for inheritance tax purposes. It is therefore possible to vary a tax inefficient Will post death, and still achieve inheritance tax savings.
HMRC has launched a consultation into the use of Deeds of Variation for tax purposes, so their continued use for inheritance tax planning may be short lived.
A less widely known change to EU succession law came into force in August 2015. Individuals resident or with assets in EU member states that have adopted the rules are now able to choose whether their foreign assets are governed by local succession rules or those in their home country.
These new rules are a welcome change and mean that British people with assets in EU participating countries, will no longer be subject to forced heirship rules (which specify how assets are to be distributed, giving no consideration to the wishes of the deceased). But for the rules to apply, it is imperative that the Will makes clear the succession laws of choice.
What do I do now?
Whatever your stage in life, what is clear from the above changes is it now even more important that you consider your succession plans, and have a valid Will in place. Otherwise your hard earned wealth may not pass in the way you intend. Here at Burgis & Bullock we are here to help with your inheritance tax planning needs and provide advice on passing on wealth tax efficiently, please contact us for more information or call 0845 177 5500.