Where There’s a Will…

When you die, your executors or relatives need to sort out your affairs. This stressful task can be made easier if you leave a clear and up-to-date Will that has been drafted with tax in mind.

Your executors may need to pay inheritance tax (IHT) if the net value of your assets, including your home and any insurance policies that pay out to your estate on death, exceeds the nil rate band (NRB) of £325,000. This threshold has been frozen since 2009 and will remain at that level until at least April 2028.

IHT will be charged on the value of your estate above this threshold at 40%, or 36% if at least 10% of your estate (net of NRB) has been left to charity.

The NRB can be expanded by up to £175,000 if you leave the value of your home to one or more of your direct descendants. If that is your wish, your Will must be clear about who receives the value of your home.

There are other ways to reduce the IHT payable on death, such as:

• use your annual IHT allowance of £3,000 to make gifts from your capital or savings; if you didn’t use this allowance in 2021/2022 you can give away up to £6,000 in 2022/23
• make other gifts to individuals as early as possible, as they will fall out of the IHT calculation if you survive seven years after the date of the gift (but be careful not to trigger CGT charges on the gifts)
• make regular gifts out of your surplus income rather than out of accumulated income or capital – those lifetime gifts may escape IHT
• ensure that proceeds from your life assurance policies are written in trust for a beneficiary – if the money lands in your estate on your death, this could trigger an IHT charge
• inform your pension fund managers of whom you wish to receive any undrawn funds by way of a wishes letter – such funds can be free of IHT if you die aged under 75.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.

Photo by Melinda Gimpel on Unsplash