Our latest blog series explores the complexities of Estate Planning in order to provide you with a concise overview of the fundamentals. Following our previous blog ‘Your Money not the Taxman’, we break the subject down further.
Why do you need a Will?
It is so important to be proactive in creating a Will, to ensure your money, property, and possessions are distributed to the places and people you want it to. Having a Will in place is imperative for your own peace of mind, and also for your family’s future.
Failing to have a Will in place, the UK Intestacy Rules apply, whereby the surviving children/grandchildren/great grandchildren, spouse or civil partner will inherit:
All the personal possessions.
The first £250,000 of the estate, plus half of the remaining estate.
Example: Lucy was married to David, and Betty was their daughter. Lucy died without leaving a Will. Her estate is worth £450,000. David will inherit his share of £250,000, leaving £200,000 left. David will take his half of £100,000, and Betty will receive the remaining £100,000.
For many, this may not be an ideal situation, so creating a Will means that you will make the decision, not the UK Government. There are multiple types of Wills available; one that suits a particular family may not suit yours, therefore it is beneficial to explore these avenues to achieve the best outcome for your circumstances.
Allowances that are currently available:
Every individual has a Nil Rate Band (NRB) of £325,000 which they can leave inheritance tax (IHT) free.
This allowance is transferrable from widow/er if all assets are passed to the spouse on death, increasing the allowance to £650,000.
Now, there has been an introduction of a Residence Nil Rate Band (RNRB) per individual - £175,000 by 2020/21.
This means a potential total NRB for couples up to £1m in 2020/21. Larger states, however, valued at >£2m have their RNRB eroded at £1 for every £2 over. So, an estate of £2.7m will only benefit from the NRB up to £650,000.
Each year, you could gift away £3,000 which will not be subject to IHT, whilst you’re also allowed to give £250 to any number of people each year. Parents can give £5,000 to each child as a wedding gift. Grandparents can give £2,500.
Gifts of any size to charities or political parties are tax free. If you give at least 10% of the estate to a UK registered charity, the remaining estate is taxable at 36% as opposed to 40%.
If a gift is regular, it comes out of your income, and does not affect your standard of living, any amount can be given away and ignored for IHT.
Make sure you're proactive in organising your Will. See how we can help create the best financial plan for you and your family here.