When planning for the mitigation of any potential Inheritance Tax liability, one of the most important factors to consider is likely to be the individuals you wish to inherit your assets. Indeed, one of the key benefits of Inheritance Planning generally is that it allows you, to a great extent, to avoid the possibility of your estate being passed either to recipients whom you had not intended should receive assets, or perhaps worse still, to the Exchequer.
To get a clearer picture of whether your estate might face an Inheritance Tax bill and explore potential ways to reduce it, you can use our free Inheritance Tax Checker.
Intestate Death
In order to understand the importance of proper inheritance planning, it is helpful to first look at the implications of intestate death (that is, death without having left a will). In the first instance, whether or not you are married or in a civil partnership will have a significant effect on proceedings. In these cases, your entire estate will pass directly to your spouse or civil partner, but only if your assets have a total value of £250,000 or less.
If your estate is worth more than this figure, however, your spouse or civil partner will not automatically entitled to it all. Rather, they will receive any personal effects, as well as the first £250,000 of the estate tax-free if there are children, or £450,000 if there are not. After this, they will be entitled to a life interest in half of the remainder of the estate. This means that, although this half of the remainder will be the property of your children, your spouse or civil partner will be entitled to its use and benefit until their death, at which point your children will take on complete ownership.
The 50% of the remainder that the spouse or civil partner has not received a life interest in is treated in a specific way. To begin with, each of the children will receive an equal share. If there are no children, it will pass to grandchildren; after this to any surviving parents; after this it will pass to brothers and sisters of the deceased with the proviso that they must have shared both of the same parents. Finally, if none of the above apply, the spouse or civil partner will receive the entire estate – but, of course, only the first £450,000 will be tax-free.
Worried about inheritance tax on your estate? Answer a few questions and find out if your estate is likely to be liable, how much might be due, and how to reduce it.
Try our Inheritance Tax Checker free, here on this site →Your situation may be slightly different. ask a question below ↓ and our editorial team will reply with our advice.
Co-Habitees
The distribution of estates according to intestacy laws can also cause great financial hardship to co-habiting couples. If you live with another individual as if you are married but are not officially husband and wife or in a civil partnership, then the surviving partner is not automatically entitled to anything on your death. Instead, they must make a claim in the same way as any other individual who feels that they have been unfairly provided for after a death. This involves making a claim under the Inheritance (Provision for Family and Dependants) Act 1975.
One of the key problems that co-habitees may encounter with this process is that it requires complainants to prove that they were, according to the Act, “maintained either wholly or partly by the deceased”. This can be particularly difficult if you have both made financial contributions to the household.
As you can see, the rules surrounding intestacy can be complex. As with all matters concerning Inheritance Tax, it is always wise to seek professional advice and much easier if you have made a will.
Ask The Tax Guide a question
Ask our editorial team a question and we will reply with our advice. Tell us as much about your situation as you can: the more detail you give, the more useful our answer can be.
You do not need to use your real name. Please do not include your full address, phone number, email address, or the names of other people. We may edit or remove identifying details for privacy and legal reasons.
Comments are moderated before publication.