Don’t risk your family’s fortune on DIY probate

GRIEVING families are needlessly throwing away their family’s wealth by making basic mistakes when calculating how much inheritance tax they owe.

Growing numbers are saving money by performing “DIY probate” online without seeking legal or financial advice, only to end up paying tens or even hundreds of thousands of pounds in unnecessary inheritance tax (IHT) as a result.

Last year, families handed over a record £5.2billion in death duties, with bills rocketing more than £400million in a single year.

Soaring house prices and a booming stock market were partly to blame, but so were avoidable errors by families doing DIY probate to save relatively small sums on solicitors’ fees.

Incredibly, five out of six taxpayers are neglecting to claim for their family home, despite the introduction of the new “main residence nil-rate band” designed to reduce the bill. THROWN AWAY The IHT allowance has been frozen at £325,000 since 2009, or £650,000 for married couples, with all assets above that level taxed at a punitive 40 per cent.

However, the main residence nil-rate band, introduced in April 2017, adds another £125,000, so couples can pool their allowances to pass on £900,000 to children or grandchildren free of IHT.

Sometimes called the “family home allowance”, it rises to £175,000 by April 2020, allowing couples to pass on up to £1million free of tax.

However, insurer NFU Mutual found that take-up so far has been “shockingly low” and many families are handing over more money than necessary.

Of the 24,000 estates that paid IHT last year, just 4,000 benefited from the flagship tax policy originally announced by George Osborne in 2015. MISSING OUT Chartered financial planner Sean McCann said low take-up of the new allowance was partly down to complex rules that block many from claiming: “The new residence nil-rate band is swathed in ‘ifs’, ‘buts’ and ‘maybes’. In some situations HM Revenue & Customs may be taking more than its fair share of people’s inheritances as a result.”

The allowance is only available to those leaving their home to “direct descendants”, penalising childless people who want to pass on their house to nieces, nephews, brothers or sisters.

Many business owners may also miss out if their total estate including their business exceeds £2million, he added.

McCann said growing numbers now use their new-found ability to carry out probate themselves online but fail to realise that the allowance is not automatic and instead has to be actively claimed: “The good news is that anyone who may have missed out can still claim retrospectively.” TOO COMPLEX Just 41 per cent of estates paying IHT claimed this and other reliefs last year, down from 54 per cent five years ago, according to figures from private client law firm Wilsons. It also said that DIY probate was part of the problem, encouraging more people to handle complex family estates without professional help.

Wilsons partner Alison Morris said probate is far more complex than many realise: “Beneficiaries could lose out if they rely on inexperienced executors who do not apply for all the possible tax breaks. DIY executors often think they are saving on legal costs, but many end up being taxed more.”

This also increases the likelihood of legal disputes. “DIY executors open themselves to being sued by beneficiaries who paid more tax than necessary on their inheritance,” Morris said. The main residence nil-rate band has made the IHT system more complex than ever, she added.

Chancellor Philip Hammond recently asked the Office of Tax Simplification to review IHT and John Bunker, succession taxes expert at the Chartered Institute of Taxation, said this was a real opportunity to make IHT simpler: “We hope it will offer genuine simplification, not just set the ground for a bonfire of taxpayer reliefs and exemptions.”