Benefits of will

Inheritance tax planning will only achieve the desired result if the people you plan to inherit your estate actually do so. For example, if you want to benefit from the inter-spouse exemption and ensure that no inheritance tax is payable on your estate by leaving everything to your spouse or civil partner, this will only happen if they do, in fact, inherit everything. The only way to ensure that your estate passes in accordance with your wishes is to make a Will. In the absence of a Will, the intestacy rules will dictate who gets what. This is particularly crucial if you want to make provision for a partner to whom you are not married or in a civil partnership with as the intestacy laws make no provision for unmarried partners.

It is never too early to make a Will. Once a Will has been made, it should be kept under review and amended if your circumstances or wishes change. It is advisable that professional advice is sought.

Will: Intestacy Provisions

If you die intestate (i.e. without leaving a valid Will), the intestacy laws will dictate how you estate is distributed. Under these rules only married and civil partners and some close relatives will inherit – the rules do not make any provision for unmarried partners or cohabiting partners.

Will: Surviving spouse or civil partner and surviving children

Where the deceased leaves a surviving spouse or civil partner and at least one surviving child, and the estate is valued at more than £270,000, the surviving spouse or civil partner inherits:

• All personal property and belongings of the deceased
• The first £270,000 of the estate.
• Half the remaining estate.

The remaining half of the estate is passed to the children and divided equally among them. If a child of the deceased has died before the deceased, their share passes equally to their children.

If the estate is valued at less than £270.000, the surviving spouse or civil partner inherits everything.

Will: Surviving spouse or civil partner but no children

 If the deceased dies intestate but has no children, grandchildren or great grandchildren, the surviving spouse or civil partner inherits:

• All personal property and belongings of the deceased.
• The whole estate.

Will: No Surviving Spouse Or Civil Partner But Children

If the deceased was not married or in a civil partnership or is a widow or widower and has children, the whole estate passes to the children who inherit equally when they reach the age of 18. Biological and adopted children are treated equally.

If a child died before the deceased and they have children, their share is inherited by their children.

Will: No Surviving Spouse, Civil Partner or Issue

If the deceased has no surviving spouse or civil partner or children, grandchildren, the entire estate passes in the following order:

1. Surviving parents.
2. Surviving full siblings
3. Surviving half siblings.
4. Surviving grandparents.
5. Uncles, aunts and their children.

Will: No Living Relatives

Where a person dies intestate and has no living relatives, their entire estate will go to the Crown. An unmarried or cohabiting partner will not inherit.

Case Study – Operation Of The Intestacy Rules

Bernard had been planning to make a Will. However, he dies suddenly on 10 April 2023 before he had got round to it. He leaves an estate valued at £3 million, including several investment properties. He has two children, Becky and Beatrice.

He had planned to leave his entire estate to his wife Beryl.

As the intestacy provisions apply, Beryl inherits his personal possessions, valued at £100,000, the first £270,000 and 50% of the remaining £2.63 million – a further £1.315 million.

The total amount inherited by Beryl is £1.685 million.

The remaining £1.315 million is shared equally between Becky and Beatrice.

The £1.685 million inherited by Beryl is covered by the inter-spouse exemption and free from inheritance tax.

The nil rate band of £325,000 is deducted from the remaining £1.315 million, leaving a chargeable estate of £990,000 on which IHT at 40% is payable. The IHT payable by the estate is £396,000.

Had Bernard made a Will and left everything to Beryl as planned, no IT would have been payable. His failure to make a Will means that not only does his property not pass in accordance with his wishes, the estate also has to pay £396,000 in IT which would not have been payable had he made a Will.

Making a Will is essential to ensure IHT is not paid unexpectedly.

Will: Post-Death Variation

Where the deceased has died leaving a Will, it may become apparent that less IT could have been paid by the estate had the deceased made different provisions. Where this is the case, it is not too late to undertake some tax planning as it is possible to vary the Will within two years of the date of death, as long as any beneficiary who is left worse off as a result of the changes to the Will agree to the changes.

A Will can be varied:

1. To reduce the amount of IHT or capital gains tax that is payable.
2. Provide for someone who has been left out of the Will
3. Move the deceased’s assets into a trust.
4. Provide clarification where there is uncertainty in the Will.

To change the Will after death, a Variation must be made. The Variation must meet certain conditions. These are set out in the Inheritance Tax: Instrument of Variation checklist (IOV2), which is available on the Gov.uk website.

If, as a result of the Variation of the Will, more IHT is payable, this must be paid to HMRC within six months of the date of Variation.

Case Study – Post-Death Variation

Christine dies on 1 May 2023 leaving an estate valued at £2 million. She leaves her share in their home, worth £500,000, to her husband. Her remaining estate is left equally between her husband, Charlie and her children Craig and Caroline. Her husband received £1 million (house plus one third of remaining £1.5 million) and the children receive £500,000 each.

The £1 million left to her husband is covered by the inter-spouse exemption. The £1 million left to the children is not exempt. After deducting the nil rate band of £325,000, her net estate is £675,000 on which IT of £270,000 is payable.

To prevent the estate having to pay IHT of £270,000, the children and Charlie vary the Will within two years of Christine’s death so £325,000 is passed equally to the children and the remainder to Charlie. This saves IHT of £270,000.