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Wills, Tax, Mitigation

Making a Will

Making a Will is one of the most important things that you can do. It not only ensures to the best of your ability that your wishes with regard to the distribution of your estate are carried out properly, but also enables you to make the best provision for your family and friends.

Although successive governments have laid down provisions for what will happen to your estate in the event of you dying without a Will, these provisions inevitably are unlikely to be exactly the same as your wishes.

By making a Will you may:
• appoint the Executors who administer your estate
• choose the Children who will inherit your estate
• decide the age at which younger beneficiaries will inherit
• appoint the Guardians who will bring up your children
• consider tax mitigation; and
• include wider administrative powers to assist your Executors

Despite popular belief, if you die without a Will it is unlikely that your estate would pass to the state, however it is quite possible that only part of your estate will pass to your husband or wife.

Accordingly if you know the effect of the intestacy legislation on your estate in the event of your death and are satisfied that this meets with your wishes then you may not need a Will. However if you do not know the effect of intestacy on your estate or are not happy with this and would like further advice please complete and return to us the Will Questionnaire. Alternatively please telephone us and ask to speak to Nick Pinks. The cost of making a Will may be less than you imagine and you will have the satisfaction of making the best provision possible for your family.

Inheritance Tax Summary

The nil rate sum for transfers on death for the tax year 2011/2012 is £325,000. This is occasionally increased in the budget and detailed below are the rates for the tax years since 2006/07.

2010/2011

£325,000

2009/2010 £325,000
2008/2009 £312,000
2007/2008 £300,000
2006/2007 £285,000


The Nil-Rate Sum available for use in your Will will be limited if you have made chargeable gifts within seven years of your death.

For instance, if you have given £50,000 to your children a year before you die, the available Nil Rate Sum available for use in your Will will be £275,000 in 20011/2012. Gifts made during your lifetime will be chargeable unless they are or become exempt. Detailed below are the exemptions which apply to lifetime gifts.

In addition if you are entitled to receive income from a Trust you may be classed as a beneficiary of a life interest Trust. The nil rate sum would be shared between your estate and the Trust as the capital of the Trust might be valued as part of your estate for Inheritance Tax purposes even though you are not entitled to receive any of the capital funds yourself. The Inheritance Tax is then apportioned between the Trust and your estate and that attributable to the Trust is payable out of the Trust fund. The impact however is that any nil rate band available is utilised partly by the Trust and not wholly by your estate.

The main exemptions applying to lifetime gifts only are:-

  1. You may give the annual exemption of £3,000 in total in any tax year; this may be backdated for one year if you have not previously utilised your exemption for the prior tax year. Accordingly the sum of £6,000 could be given if you had not made a gift in 2010/2011 and 2011/2012.

  2. You may give small gifts of £250 per beneficiary per tax year;

  3. In addition to small gifts, you may make gifts in consideration of marriage of £5,000, £2,500 or £1,000 (depending on the your relationship to the donee); and

  4. You may provide for gifts which are normal expenditure out of income - a valuable exemption, which has some important conditions

The main exemptions applying to both lifetime gifts and gifts on death are:-

  1. gifts to your husband/wife ("the spouse exemption") if you are both domiciled in England and Wales and

  2. Gifts to charity or political parties.


There is no maximum to these two exemptions. Spouse exemption still applies but to a very limited extent (currently £55,000) if the spouse to whom the assets are given is domiciled abroad.

If you have survived your spouse and he or she did not utilise their nil rate band in full on their death (for example if they left all their estate to you), then your estate will benefit from the balance of your spouses nil rate band in addition to your own. Thus for example if your spouse left his or her entire estate to you, you will benefit from two nil rate bands on your death. There is however no guarantee that the transferrable nil rate band will continue.

This summary is based on the current law relating to Inheritance Tax, but changes to the tax may be announced at any time. The nil rate sum may at some stage be reduced but you should also consider the possibility of an increase in the nil rate sum by more than the inflation rate at some stage in the future. Accordingly, you should consider carefully the effect of any gifts which are calculated in accordance with the value of the nil rate band from time to time, each time there is a change in the nil rate band.

Our advice, when relating to tax or where it has a tax consequence, will be based upon the law as generally understood and takes into account accepted Inland Revenue practice, interpretation, press releases and practice statements. These can be changed by the Inland Revenue without prior warning. Furthermore, where arrangements lead to a reduction in tax, such arrangements may be challenged by the Inland Revenue and for this purpose it has increasing powers to counter tax avoidance and the will to do so. There is an element of risk here which you must accept.

It is very important to keep your Will, and the value of your respective assets, under review both at regular intervals of at least every 5 years and with any significant change of circumstances.

 


Elgee Pinks Solicitors, Wolfelands, High Street, Westerham, Kent, TN16 1RQ tel: 01959 568100 fax: 01959 568110 email: info@elgeepinks.com