MAKE A WILL TO SAFEGUARD YOUR FAMILY FORTUNES
Want to preserve a lifetime’s store of hard- earned wealth for your family?
MOST adults in the UK do not have a will – and a leading beneficiary of this financial planning blindspot is the Government. Large slices of wealth that have not been efficiently allocated in life or in a will end up as tax handed to the Treasury.
Inheritance tax worth £4.8 billion was siphoned from estates of the deceased in the year to April 2017 – a rise of £ 167 million on t he year before.
Every year, thousands more people are falling into the threshold for paying this much-hated tax. The Office for Budget Responsibility forecasts that £5.4 billion of inheritance tax will be paid between now and the end of March 2019.
Although such a rise is not solely down to the absence of valid wills, having one can limit how much of your money goes into the pockets of Revenue & Customs – rather than your relatives.
Here, The Mail on Sunday explores the importance of writing a will and how it can reduce your tax bill. WHY WRITE A WILL? IT IS the only way to ensure your property, savings and possessions go to the people you want to benefit from them after you die.
Telling your family what you want does not count – it has to be formalised in a legally recognised document to be enforceable.
Dying without a will means your estate – the term describing your total combined assets – is carved up according to a set of legal rules rather than your wishes. It is known as dying ‘intestate’ and nobody, regardless of their status or riches, can avoid the consequences if there is no will in place.
Celebrities from singer Amy Winehouse to TV star Rik Mayall died without a will and would have been subject to the same set of rules and tax rates as anyone else.
James Antoniou, head of wills at Coop Legal Services, says: ‘The rules of intestacy mean the law decides who inherits your property, car, financial assets, possessions and even your pets.’
Though you will not be alive to see the outcome, it could cause great upset for the people you love.
It becomes particularly fraught for non-traditional families, such as those with stepchildren or for co-habiting couples. If an unmarried person dies, the surviving partner has no right to inherit their assets, regardless of how long they have been in a relationship.
By contrast, estranged spouses retain the right to inherit, even if any amicable attachment has long since dissolved.
Antoniou adds: ‘To avoid any uncertainty for those left behind, it is important to make key wishes known – such as the care of young children and division of sentimental belongings such as jewellery.
‘It is possible to include a letter of wishes to explain your reasons for deciding who benefits from your estate and any other personal messages you wish to communicate after you have gone.’
If there are no living members of your family who are around to inherit, the Government could ultimately swallow up all profit after assets are sold. TAX BENEFITS THE estates of many people will not exceed the threshold for paying inheritance tax, which is £ 325,000 and known as the ‘nil-rate band’. But if you have owned a home over many years it is possible the property value will now tip you over that threshold.
Any value above the nil-rate band is taxed at 40 per cent. You can avoid this charge by leaving everything to your spouse, in which case no tax is owed. Some experts say this is a good enough reason to get married.
Nicola Waldman, private client solicitor at law firm Hodge Jones & Allen, says: ‘Unmarried couples not covered by this inheritance tax exemption might want to consider formalising their partnership through marriage – if for no other reason than to avoid a hefty inheritance tax bill.’
A surviving spouse also inherits any unused portion of a deceased person’s nil-rate band of inheritance tax and could end up with a threshold worth up to £650,000.
So when he or she passes away, children and other beneficiaries can receive a greater slice or all of the estate without having to pay inheritance tax.
The Co-op’s Antoniou adds: ‘Naming
spouses or civil partners as beneficiaries in your will attracts an inheritance tax exemption, as can leaving gifts to registered charities and major political parties.
'But a lot of tax mitigation strategies can be undertaken whilst an individual is still alive.’
He suggests people make use of their annual gift allowances. For example, you can give away up to £250 per person every year free of inheritance tax.
Remembering a charity in your will can also have an impact. Giving 10 per cent of anything over £325,000 to charity reduces the taxable sum by the value of that donation. The tax rate also falls to 36 per cent.
For example, if you have £100,000 left once the nil-rate band is accounted for, and donate 10 per cent of that sum to charity, you pay 36 per cent on tax £90,000 instead.
THE NEW NIL-RATE BAND A NEW exemption for inheritance tax was introduced in April last year. Called the ‘residence nil-rate band’, it is an extra allowance for individuals passing on their main home to direct descendants.
It is worth £125,000 this year, rising by £25,000 a year up to £175,000 in 2020. It will then rise in line with the Consumer Prices Index measure of inflation.
The allowance can be inherited by a surviving spouse, meaning a married couple could leave children up to £ 1 million tax- free by 2020 if they include the family home and maximise use of both nil-rate bands.
Waldman says: ‘I would advise anyone with assets over the £ 325,000 threshold who also has children, to review their will to ensure they are taking advantage of the new exemption.
‘Failing to do so could mean that beneficiaries are liable for thousands of pounds more tax than they need to be.’
Direct descendants include children, grandchildren, step-children, adopted or foster children. But it will not cover nieces, nephews, brothers or sisters.
The allowance tapers off for estates worth more than £2 million and does not i nclude buy- t o- l et or second properties.
HOW DO I DRAFT A WILL? APPOINTING a solicitor is the most traditional route. He or she can provide sound advice, prevent you from making errors and the firm can store it for you until your passing.
If there is no branch of solicitors on your high street, then search for one on the Law Society’s website at solicitors.lawsociety.org.uk.
There are well-known and trusted brands offering fixed-fee services online or by phone. These include Coop Legal Services and Which? Legal.
Some charities offer a free service – often for people aged over 55 and in return for a donation. They include Cancer Research UK, which offers a free will-writing service in the hope of being remembered in a will.
Alternatively, there are cheap do-ityourself kits available from the Post Office or stationery shops. There are also free or low-cost online services. These include Farewill, Rocket Lawyer, Affio and Make A Will Online by Digilegal. The DIY option is cost- effective but risky. Common errors people make when writing their will can render the document invalid. This route is unsuitable for anyone with complex family and financial affairs.
Whichever route you choose, be aware that will-writing is not regulated, so it pays to check who is behind a service.
Solicitors are regulated by t he Solicitors Regulation Authority and can be held accountable by the Legal Ombudsman, which mediates in fallouts between law firms and customers. To err on the side of caution, select a company that is a member of one of the regulatory bodies – the Society of Will Writers or the Institute of Professional Willwriters.
Though these organisations are selfgoverning, members must adhere to certain standards and both bodies have a complaints procedure in place. Visit willwriters.com and ipw.org.uk respectively.
Prices depend on who writes the will and the amount of hand-holding you need. You might expect to pay £150 for a single, professionally drafted document. For couples with mutually reflected wishes there are ‘mirror wills’ that cost around £250.
DIY templates cost between £ 15 and £ 20. Rocket Lawyer’s online service offers users a free, oneweek trial where you can create a will before cancelling your membership. Otherwise it is £25 a month thereafter.
STORING PAPERWORK DOCUMENTS can be stored by you, a solicitor, a will-writing service or the Probate Office ( for England and Wales). A solicitor or online provider might include storing your document within its fee for drawing up the will.
You can store it yourself but there is a risk of it being damaged, destroyed or lost. Some companies offer storage for a yearly fee, but before signing up you should research the company, its credentials and consider what might happen if it goes bust.
Wills can be stored independently with the Probate Service at its Principal Probate Registry in London. But if you need to amend and re-store your will, a fee will be payable again.
The flat fee is £ 20 and you can deliver a will in person to one of the regional probate registries or post it. If you go down the latter route you first need to ask the Probate Registry in London for a special envelope pack. Once complete, a certificate of deposit is provided. For more information call 020 7947 6000.