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Wills and Tax Planning

Wills and lifetime giving

According to the financial advice website unbiased.co.uk, 58 per cent of adults do not have a Will. The most common reasons cited include ‘never getting round to it’ and ‘complicated family situation’, with one in ten also stating that the cost deterred them. However, preparing a professionally drawn Will now can avoid difficulties and expense in the future. The families of those who choose the DIY route often find that even small mistakes can lead to big problems in dealing with a deceased person’s estate.

  • Why make a Will?

      If you die without leaving a valid Will, then a set of provisions called “the Intestacy Rules” will apply. These determine who will get the assets in your estate. The Rules may not necessarily produce the results you would have wanted or meet with your family’s expectations. This is particularly true if you have not been wed or gone through a civil partnership ceremony – the Rules give nothing at all to unmarried couples. Even your surviving spouse/civil partner is only entitled outright to the first £250,000 if you have children. Given the high property prices in the south east, many spouses who die intestate may not be able to leave the whole family home to the survivor. Even worse, unmarried partners may be left with nothing at all. For all these reasons, the need for a valid Will has never been greater.

  • Common mistakes and misconceptions

      It is recommended that professional advice is sought before any steps are taken to prepare a Will or attempt to remove assets in order to reduce a potential Inheritance Tax liability.

      A few common examples include; failing to sign the Will or have it witnessed correctly; a beneficiary acting as witness; making invalid amendments to the Will; failing to clearly set out their intentions; and even placing it where nobody can find it.

      In all these examples money from your estate can be unnecessarily frittered away on legal expenses to reconcile these issues, which could have been avoided by having a simple Will made in the first instance.

  • Gifts

      There are simple methods of lifetime tax planning that are exempt from Inheritance Tax because of the type of gift or the reason for making it, and these include:

      • An annual exemption of £3,000 capital in each tax year can be made without being brought into account for Inheritance Tax purposes. This can also be brought forward for one year if unused.
      • Wedding gifts up to £5,000 depending on the relationship to the person getting married
      • Small gifts of up to £250 to as many people as you like in any one tax year (but you cannot give a larger sum or combine the gift with an annual allowance or wedding / civil partnership ceremony gift exemption).
      • “Regular expenditure out of normal income” gifts can be made free of inheritance tax if regular payments by way of gift can be shown to be paid from income without reducing the donor’s ability to maintain his or her usual standard of living.

      You can make larger gifts to individuals which will be exempt from Inheritance Tax if you live for seven years after you make the gift. You can set up a intrust, in your lifetime but specialist advice would need to be sought to avoid tax traps