Changes to Inheritance Tax and Probate Fees law means families may lose out if they don’t review Wills
New rules coming in next month may spell good news for homeowners by removing millions from Inheritance Tax liability.
Despite this, though, many stand to miss out on all or some of the extra allowance unless they take urgent action to review their Wills.
From April 6, the government’s new rule means there is a potential to extend the Inheritance Tax allowance by using what is to be known as the residence nil rate band (RNRB) from the current tax-free threshold of £325,000 to £425,000 for an individual, and from £650,000 to £850,000 for a married couple and those in a civil partnership.
The 2015 budget introduced the new provision allowing individuals and married couples to pass on their main home with a smaller tax liability. This will be worth £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21.
The new changes mean many risk losing out unless they update their Wills to reflect the new legislation. By making simple adjustments, Blanchards Bailey can secure the extra allowance for clients – ensuring their estate does not pay more Inheritance Tax than is necessary.
“It is essential for people who think they will benefit from the extra allowance to review their Wills immediately as otherwise they may face losing out,” Jerome Dodge, Blanchards Bailey Principal and Head of Department for Wills and Estate Planning, said.
“While the new allowance could save people significant sums of money, the fact the legislation is full of strange anomalies combined with the reality most Wills were drafted before the changes were introduced may mean they will not benefit unless their Wills are updated.
“In some cases it will be possible for the Will to be varied after a person’s death to ensure the estate qualifies for the allowance but even if it can then this will almost certainly result in more expense and uncertainty than amending it now.”
Complications exist with the extra allowance only being available where a residence is inherited by a “lineal” descendant, such as a child, step-child, adopted child or foster child of the deceased person and their own lineal descendants.
In terms of trusts, the new rules are complex and require expert guidance to ensure people get what they deserve. So, for example, if an estate is left to a grandchild on them reaching age 18, the estate will qualify for the extra allowance. However, if it is left to a grandchild on them reaching age 19 or older, the extra allowance will be lost – which is worryingly how many Wills are set up.
The government will also be introducing “downsizing” provisions with the intention to prevent loss of the RNRB where someone sells their house or downsizes before their death. The new legislation also means that where the first of a married couple dies to leave their estate to their spouse, the inheritance nil rate band can effectively be “passed on” to the surviving spouse.
Not everyone, though, will qualify for the new allowance with it not available to those without children or to estates worth more than £2m.
“It’s a common perception that the inheritance tax allowance is automatically increased for everyone – this is not the case and it can easily be lost without careful planning,” Jerome continued. “There are ways to avoid these problems, but we would strongly recommend any individual who has assets of more than £325,000, or any couple who have assets of more than £650,000, to review their Wills as soon as possible.”
There are ways to reduce what you have to pay the taxman when it comes to Inheritance Tax, such as by making a gift, giving to family or friends, putting assets and money in a trust or leaving some of your estate to charity.
Jerome and new recruit Ian Campbell, Senior Associate, Wills and Estate Planning, can advise you on the best way to maximise what you are entitled to. Ian also specialises in Powers of Attorney, Court of Protection matters, Administration of Estates and advising on Care Fee Planning, while Jerome has been acknowledged for his outstanding efforts under the Personal Tax, Trusts and Probate category of The Legal 500.
The government has also confirmed new legislation where there will be large rises in fees payable after death, affecting millions of people from May this year.
At the moment the fee is chargeable on any estate worth more than £5,000 but this will increase to £50,000, meaning that 57% of estates will soon pay nothing.
Currently, probate fees are fixed at either £155 or £215 but The Ministry of Justice’s announcement means anyone with an estate worth more than £50,000 will pay £300.
People with an estate value between £500,000 to £1m will soon have to pay £4,000 while fees rise to a maximum of £20,000 for estates worth more than £2m.
“The changes to probate fees mean there is a considerable jump for those with an estate valued at £500,000 or more,” Jerome said. “But there are ways we can structure people’s assets to reduce the fees as it is only assets that pass through Wills or the intestacy provisions that are subject to the fees. We can advise people on the best way forward to reduce these fees.”
To review your Will and make sure you do not miss out then contact Blanchards Bailey on 01258 483616 or email Jerome now on email@example.com