Intestacy problems on the rise
The BBC reported yesterday that according to Citizens Advice, the number of enquiries it receives about intestacy problems has more than doubled over the last five years.
Despite attempting to drive home the message that dying without a will can cause immense stress and financial pressure on those left behind, Citizens Advice still received 3,747 intestacy enquiries last year, compared to 1,522 in 2011.
These figures appear to contradict the findings of a survey carried out by YouGov last year, which indicated that 38 percent of people in England and Wales had made out a will – a rise of three percent from the previous year.
Failing to make out a will does not only mean that the funds from an estate may not be distributed in the way that the deceased would wish. It also means that any charities could potentially miss out on vital income. Also, effective estate planning will not have taken place and so the next of kin could lose thousands of pounds unnecessarily, by way of inheritance tax.
The BBC report for example, cites the case of a man who left around £700,000 but no will. His cousin administered the estate but this process took around two years and £240,000 was given to the tax man. The rest was split among 17 people, a number of whom had never even met the deceased.
Interestingly, the number of enquiries received from executors of a will also rose last year to 11,137 from 8,160 in 2011. This shows how estates are becoming increasingly more complex, making the role of executor more difficult, particularly for those who attempt to distribute an estate without taking specialist advice from a probate expert.
How to ensure your grandchildren receive their inheritance
A recent survey by insurance company Sunlife has revealed that a large number of grandparents intend to leave part of their estate to their grandchildren, but surprisingly, don't trust their own children to ensure that these instructions are carried out.
The results of the survey showed that seven in ten grandparents plan to leave their grandchildren an inheritance. 55 percent of those grandparents are looking for ways in which they can protect this aspect of their legacy, without having to rely on their children to pass it on, according to their final wishes.
In some instances, such a legacy is not as straightforward as simply leaving a sum of money in a will. It may be that the grandparents wish to leave a property such as the family home instead – the problem being that children under the age of 18 are not legally able to own property.
One way to get around this problem is to leave assets in trust for the grandchildren. When doing so, it is vital to consider an appropriate age for the child to receive the inheritance, so that they are mature enough to use it wisely. An age contingent trust such as this is normally written into the will.
It is worth remembering however, that any assets left in a trust may incur an inheritance tax charge every ten years, of up to six percent of the value of the trust, above the IHT threshold.
The key to ensuring that your grandchildren will benefit from your estate as you would want, is to take control now and have a will and trust drafted, which both reflect your wishes and family circumstances. Through effective estate planning, it may also be possible to identify ways to reduce any inheritance tax payable on your assets.
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Will I need to pay inheritance tax before I die?
Much has been made recently of government proposals to force certain people to pay inheritance tax before they die, rather than leaving the financial burden and responsibility to those left behind.
These proposals are currently being discussed, as a direct result of a significant number of individuals using trusts to shield their estates from inheritance tax liability.
At the moment, inheritance tax is calculated on the basis of the value of a person's final estate, at the time of their death. Any value over £325,000 (or £650,000 for married couples) is taxed at 40 percent, unless any reliefs can be applied. It is difficult therefore, to envisage how a value can be calculated whilst they are still alive and it must be stressed that this scheme, should it be applied, would be used only to chase more wealthy individuals suspected of deliberately trying to avoid paying inheritance tax.
It is unlikely that these proposals will affect the average individual who is simply seeking ways to minimise their inheritance tax liability through effective estate planning, but we will of course keep you up to date with the progress of these discussions and what they mean for us all. If you have any questions, contact the IWC inheritance tax team on 0800 612 6105 or 020 8150 2010.
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Inheritance tax payouts at six year high
The Office for National Statistics has just released figures which show that £3.4 billion was collected by the Government last year in Inheritance Tax – the highest amount for six years.
This figure was last exceeded in 2007/2008, when HMRC takings stood at £3.8 billion.
Given the dates, it doesn't take a genius to link this trend to two outstanding factors:
a. High/rising house prices
b. An inheritance tax threshold which has been frozen at £325,000 per person since 2009, in order to catch as many individuals as possible.
Currently, although the allowance for a deceased person can be passed to the surviving spouse; ultimately, the joint estate will then be subject to inheritance tax at 40%, if it is valued over £650,000, although some reliefs may be applied in certain circumstances, to reduce this value and so lessen the amount of death duty which must be paid.
It has been forecasted that the number of families who will receive inheritance tax bills this year will rise by one third to 35,600 – with no sign of this number falling, until the threshold is raised.
Now more than ever, it is vital that you look at ways to reduce the financial burden on your family whilst you are still alive, by planning your estate well in advance. Exemptions and reliefs do exist, but you must take action now to avoid causing unnecessary stress for your loved ones, in the future.
IHT band for trusts creates demand for financial advice
With HMRC cracking down on individuals using trusts as a means of reducing inheritance tax liability, estate planners are experiencing an increase in demand for their services, as reassurance and advice regarding future plans are sought.
The consultation paper, entitled: "Inheritance Tax: a fairer way of calculating trust charges", highlights instances whereby an individual has set up multiple trusts on different days, each one with its own nil rate band below the formal IHT limit – an often used technique in the past, for distributing the wealth of an estate.
To combat this tactic, HMRC has suggested introducing a single nil rate band to be applied to all new trusts set up by one individual after 6 June 2014. Existing trusts will continue to be taxed under the old regime, although if any further assets are added to them or they become a relevant property trust after 6 June 2014, they will then automatically be transferred over to the single nil rate band scheme.
All this means that for many, their trust arrangements will need to be reviewed to ensure that taxation will definitely continue as before and that they will not be affected by these proposed changes to legislation which, if passed, are likely to take effect from 6 April 2015.
One in ten will pay inheritance tax by 2018
Figures released by the Office for Budget Responsibility have revealed that over 26,000 estates were deemed liable to pay inheritance tax during the last financial year, a figure which is otherwise calculated as just under one in 20 deaths.
Forecasts predict that by 2018 however, these figures will rise to one in ten deaths, rising to 35,600 this year and 43,800 in 2015-16. By 2019, it is thought that we will see last year's numbers double.
Despite promises made by the shadow chancellor seven years ago to increase the nil rate band to £1 million, it has instead been frozen for some considerable time, and is set to remain fixed at £325,000 (or £650,000 for married couples) at least for the next three years. This, coupled with soaring house prices – particularly in London, will see many more of us being scooped up in the inheritance tax net. This means that in general, any assets we leave behind which take the value of our estate over this figure, will be charged tax at a rate of 40% of the overall value of the estate.
Little wonder then, why individuals are racing to protect their money whilst they are still alive, by planning their estate now and ensuring that their loved ones will receive as much of their hard earned cash as possible, after they've gone.
What are single settlor trusts?
A single settlor trust is a popular means of reducing potential inheritance tax liability on an estate.
It simply means that you are setting up a trust as an individual rather than as part of a couple. You may for example be widowed or have remarried and wish to keep your estate separate from that of your partner but would like to include your spouse as a potential beneficiary.
Estate planners will normally advise against making payments from this trust to a surviving partner whilst they are alive, as proof must then be given that they did not benefit from the money which is often difficult and may well result in IHT liability subsequently being applied. Instead, if a loan is granted to the person which is then repaid on their death, inheritance tax liability can validly be reduced.
Beware that if you and your husband, wife or civil partner set up your own single settlor trust, each nominating your spouse as a potential beneficiary, this is classed as an "associated operation" and gift with reservation rules may then apply. This means that you are still gaining benefit from the gift of your assets and so the value of that gift would still form part of the estate and will still be included within the inheritance tax liability calculations.
Looking for ways in which to minimise any inheritance tax which must eventually be paid from your final estate can be a minefield. For further advice and guidance, contact the IWC Ltd team.
London hospice received £250,000 legacy
I read a heartwarming article recently, about how a London hospice received a £250,000 legacy from a gentleman, by way of thanks for the care he received at the end of his life.
Sometimes I think we become hardened to the subject of charitable legacies. We're bombarded with marketing literature, TV advertising and doorstep salespeople, all trying to encourage us to leave a legacy to a particular charity. Of course, there's an additional incentive to do so – provided by the government who has allowed us to use legacies as a means of reducing inheritance tax liability. But rarely do we take the time to understand precisely what that cash injection can do for a charity.
In this instance, Mr Eric Rawson, who died in November 2012 aged 89, left £250,000 in his will to St Luke's Hospice in Kenton.
In March last year, five months after his death, the hospice was presented with the cheque and expressed its delight and gratitude to Mr Rawson.
The hospice's director of fund raising stated that this money will fund an impressive 40% of its Home Care teams, who looked after Mr Rawson in his own home.
Interestingly,the deceased's executor also revealed that by leaving this charitable legacy, Mr Rawson's estate saved almost £200,000 in inheritance tax charges.
What a very fitting and wonderful end to this generous gentleman's life.
Have you thought about leaving a charitable donation as part of your estate planning process? Contact the team at IWC Ltd who will be able to discuss your individual circumstances and highlight the benefits of charitable legacies in more detail.
New estate planning solutions will be needed
New estate planning solutions will be needed by many individuals, in the very near future. This comes on the back of house prices rising once again and the inheritance tax nil rate band frozen at £325,000.
IHT revenue collected by HMRC is expected to average around £3bn per year, with the number of estates expected to fall into the IHT trap, doubling by 2017.
Whilst trusts have offered a viable solution for many years, HMRC is now looking to change the way in which periodic and exit charges are calculated. This could have a significant effect on many estates, with higher tax charges being imposed.
Instead, many professional estate planners are advising clients to consider the tax advantages of Business Property Relief (BPR) as a means of reducing inheritance tax liability – specifically, investing in assets which could qualify for 100% BPR in two years.
For further information on the proposed changes to tax on trusts and the advantages of BPR, or to review your current estate, contact our estate planning experts at IWC.
Inheritance tax revenue shows north/south divide
Statistics collated by Prudential show that half of HMRC's inheritance tax revenue during the period 2010-11 came from London and the south east alone – indicating a huge north/south divide.
These statistics are somewhat unsurprising, given the difference in house prices between the south east – the capital in particular, and the rest of the UK.
In the north east, the average inheritance tax bill was £130,000, whilst in Wales, it was around £126,000. In London, the average amount billed was £234,000 – perhaps ultimately, a high price for living in the capital. The total overall IHT revenue during this time was £2.6bn.
Since the period in question, HMRC's IHT revenues have continued to climb, as the property market begins to prosper once more. The government reaped £2.9bn in 2011-12 and £3.1bn in 2012-13. This trend looks set to continue – a great reason to start planning your estate and minimising your IHT liability right now.