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04. Will Drafting, Tax Planning & 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 and for some lifetime transfers has been £325,000 since 2010/11.  In addition, should you have owned a house in which you resided as your residence since 2015 in certain circumstances you may also be entitled to a principal residence tax relief of £175,000.

  • 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.

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. 

  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 your relationship to the donee); and

  4. You may provide for gifts which are normal expenditures 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 fully 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 spouse's 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. In some circumstance the residential property nil rate band exemption is also transferable if unused by the first spouse to die.

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 increased powers to counter tax avoidance and the will to do so. There is an element of risk here that you must accept.

Pampas Grass

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.

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