Review your will to ensure loved ones benefit from lower taxes as new inheritance tax changes come into force
Millions of people may need to urgently review their wills to ensure their beneficiaries benefit from new inheritance tax rules coming into force on 6 April.
The threshold for paying inheritance tax of 40% is currently set at £325,000 but from April each individual can claim an additional tax free allowance when a residential property is passed on death to a direct descendant. This new tax allowance will rise by £25,000 per year to £175,000 by 2020, allowing a married couple to pass on up to £1m tax free, where the family home is included.
The new benefit, announced in the 2015 Budget, tapers off for those with estates valued at over £2m and will not apply to those who do not have children or other issue or to buy-to-let or second properties.
Those who had wills drawn up in the past, designed to minimise inheritance tax liabilities through the use of trusts, will need to revise them as the changes won’t apply to properties held in many types of trust, which will include gifts over to grandchildren when they reach the age of say 21 or 25. Those who had planned to split their assets between descendants and charities, for example, may also need to revisit their wills to ensure that they are not in danger of losing the exemption as a result of not leaving the entire family home to descendants.
Nicola Waldman, private client lawyer at Hodge Jones & Allen says, “I would advise anyone with assets over the £325K 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.
“Where necessary, redrafting your will makes it clear that the family home is left to descendants, which can include children, grandchildren, step children, adopted or foster children, and will ensure that the exemption applies. Property that is left to nieces, nephews, brothers or sisters will not be covered so this needs to be considered, as will any property held in a non-qualifying trust.
“On the face of it these changes are good news but for many will present a headache as they are forced to revisit carefully planned wills once more. For those without children or who wish to leave their home to other family members or loved ones, the exemptions could be viewed as discriminatory, favouring the traditional family over other alternatives.”
Notes for Editors
Hodge Jones and Allen
- Hodge Jones and Allen is one of the UK’s most progressive law firms, renowned for doing things differently and fighting injustice. Its managing partner is Patrick Allen.
- For almost 40 years’ the firm has been at the centre of many of the UK’s landmark legal cases that have changed the lives and rights of many people.
- The firm’s team of specialists have been operating across: Personal Injury, Medical Negligence, Industrial Disease, Civil Liberties, Criminal Defence, Court of Protection, Dispute Resolution, Employment, Family Law, Military Claims, Serious Fraud, Social Housing, Wills & Probate and Property Disputes.
- Co-founder Patrick Allen is still at the helm of the firm he co-founded in 1977.
- In 2016 the firm launched Hearing their voices – a campaign to raise awareness and build conversations around the issues and the injustices we might all face.