Millions May Miss Out On New Inheritance Tax Benefits Due To Lack Of Estate Planning
Millions of people could miss out on benefitting from changes to the Inheritance Tax rules which come into force this April as they are either not making or updating their wills and organising their estates.
With the average UK house price now over £215,000 (£400k in London) many estates will be pushed over the current nil-rate band of £325k (under which people pay no Inheritance Tax) when pensions, savings and other assets are taken into account.
In April new rules come into force adding an extra £100,000 to the threshold which applies to property that they have lived in and which they are leaving to a direct descendant. This amount will then rise each year until 2020 – this is known as the Residence Nil-Rate Band (RNRB). This band only applies to one property worth below £2m, the amount of tax relief is then reduced by £1 for every £2 above the limit (so there is a £2.2m upper limit for the first year of RNRB).
Now expert lawyers are urging consumers to review their wills and inheritance plans to ensure they are making the most of the additional allowance. Under the new rules, from April 2020 married couples and civil partners will be able to pass on assets worth up to £1m, completely free of Inheritance Tax.
Specialist private wealth lawyers at Irwin Mitchell say that 60% of people still don’t have a will while research by the law firm shows that some 47 per cent of people don’t know how assets are distributed after death, while 54 per cent aren’t aware of all the accounts and investments their partner or family has.
Gillian Coverley, a partner and specialist in wills trusts and estates planning at Irwin Mitchell, said: “Many people across the UK will be subject to inheritance tax without even knowing because of the value of their estates will be higher than they realise. There are also many people whose estates are worth considerably more who could benefit from the new rules with a bit of extra planning and organising of their estates.
“The changes are very positive and open up opportunities for family members to ensure their property is better protected and that people are able to pass down what they have earned to their loved ones.
“Many people admit to putting off making a will thinking it’s something they only need to consider at an older age, but now is the time to ensure that your life savings and property will pass down to family rather than ending up with the tax man.
"Despite the Residence Nil-Rate Band being introduced, people with large estates could still end up paying thousands of pounds in Inheritance Tax if they don’t take action.
“It’s important that people review their wills and how they are leaving their assets, and particularly residences, to family members. There are various ways that their assets can be organised and structured to ensure that the estate benefits from the new Inheritance Tax rules. Things to consider are how funds for grandchildren’s school-fees are set up, pension planning, ensuring that all available tax-allowances for spouses are being used and the use of trusts.”
Assets taken into account when assessing the value of an estate include money in the bank, property and land, personal belongings including cars and jewellery, any shares, pensions and any payouts from life insurance policies.
Published: 30 January 2017
Winter 2017
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