Docklands Solicitor

- As a rule of thumb, on death every individual has a ‘Nil Rate Band’ (NRB) of £325k they can leave free of Inheritance Tax (IHT) to a ‘taxable’ beneficiary - which in general terms is anybody other than a spouse/civil partner, charity or political party(!).


- Anything gifted to taxable beneficiaries over this NRB is liable to IHT at 40%

- Since October 2007 any transfers to spouses or civil partners are free of IHT on 1st death, and the surviving spouse can add the proportion of unused NRB of the 1st to die to their own NRB on 2nd death, so that a maximum of £650k can be left on the survivors death to taxable beneficiaries.

- However, it is not quite so simple as that - well it wouldn’t be with the government involved would it? To enable HMRC to rake back rather more in tax, they look back at any ‘lifetime gifts’ the deceased had made in the 7 years prior to their death and under certain circumstances these gifts, made up to 7 years previously, will be deducted from the deceased’s available £325k NRB at the time of death.

- eg - If Mr Smith had given his son £100k (~30% of his NRB) six years before he died, he would only have £225k of his NRB left to gift after his death. If he then left his entire estate to Mrs Smith, on her death she would have her own NRB + the unused 70% or her husband’s NRB to leave free of IHT.

- These lifetime gifts are known as ‘PET’s’ or ‘Potentially Exempt Transfers’, and the ‘7 year rule’ should be an important consideration for people with substantial assets looking at long term tax planning. If you have sufficient free assets you can basically gift up to £325k at 7 yearly intervals and after that time has elapsed, the gifts will no longer be considered in your estate for IHT purposes.

- If you are considering making such provisions you should always take professional advice from a taxation specialist such as an accountant or a specialist financial advisor dealing with tax planning, to ensure you are maximising the tax planning opportunities without potentially getting yourself into trouble with the tax man!

- For people without the need for such lifetime tax planning, there are ways of protecting your estate from IHT within your Will, particularly important for unmarried couples where there is no tax-exempt spousal transfer, and unless it is protected on 1st death, there will only be one NRB available to pass on 2nd death.

Rahcael Rodgers (Will Writing and Estate Planning) Tel: 07841 868 828

Labels: civil partner, inheritance tax, lifetime gifts, spouse

- Anybody who is ‘dependent’ on you at the time of your death, has a right to be provided ‘reasonable financial provision’ from your estate under the ‘Inheritance (Provision for Family & Dependents) Act 1975’ - IPFDA - if there is no Will, or the Will fails to adequately provide for them, with the Court using similar principles to those used by a divorce court.

- Dependents can include the deceased’s spouse, ex-spouse, co-habitants living together in a relationship other than a marriage or civil partnership, children, persons treated as children of the family and those financially dependent on the deceased - but excludes friends and close family who share a property.

- The ‘dependence’ has to either be literal dependence or dependence in the circumstances of that relationship for a particular standard of living.

- There are currently around 2 million co-habiting couples in the UK, and the widely held belief of a ‘common law marriage’ does not actually exist in law, but often results in people incorrectly believing their property will go to their partner on death. Such cohabitants are often forced into making a claim on their deceased partner’s estate, as, if there was no Will they would otherwise not inherit at all under Rules of Intestacy.

- The current qualifying cohabitation period after which a surviving partner can make a claim under the IPFDA is 2 years, and unlike a spousal claim, a cohabitee has to demonstrate that provision is necessary for his or her maintenance.

- It is important to remember that although you are entitled to leave your estate to whoever you wish, you must take into account potential claims that could be made by family members who are excluded or only left ‘token’ gifts when more was expected or even promised to them. Resolving such disputes can be a lengthy process – and incur significant costs!

Labels: children, cohabitee, dependant, Estate, ex-spouse, spouse

- If you are a business owner or partner you may have considered leaving your business to your spouse or children through your Will, but have you really considered the consequences, and will this actually work?

- Leaving a gift in your Will of ‘my shares in my company’ when you die, may be invalid if the terms of your company’s Memorandum and Articles of Association, or your Shareholder Agreement determine a different course of action – and these documents will ‘trump’ your Will bequests.

- Do you know what provisions your company documents make? I have yet to meet a business owner that knows whether theirs make any provision for business succession. Many have just ‘downloaded the standard forms off the internet’ and signed them – does that ring any bells?

- When you die any assets in your name are frozen until after the Deed of Probate has been granted, which will be a minimum of 3 months but could take several years in complex cases. If you own a business outright and you employ people, failing to prepare for such an eventuality might mean your business would have to cease trading immediately on your death, and, as your accounts would be frozen, your staff would not get paid!

- If you are a Partner in the business, leaving your share to your spouse or children might prove a total nightmare to the other partners – consider your position if one of them was to die, would you want their spouse to take their place? If not, what provision have you made for the business to buy them out? Do you have a ‘Cross Option Agreement’ in place? And has this been phrased in such a way so as to ensure you do not lose the Business Property Relief (BPR) that would be due on your share?

- A business or interest in a business, including property (except businesses engaged in investments, land or buildings), may be fully or partially exempt from Inheritance Tax after death. Business property must be solely used for the purpose of the business and must have been running for at least 2 years. But, if that business is committed to being ‘put up for sale’ by the event of your death, your share may no longer qualify for BPR and hence would fall into your taxable estate.

- You should get your Company Documents checked by a legal professional to ensure they are going to do what you need them to do after your death, seek further advice from your accountant in relation to your tax position, and consider making Business Continuity provision in your Will.

Labels: business, children, partner, spouse, tax

When making your Will you may consider leaving your estate to a son or daughter in law in the event that your own son or daughter does not survive you. However don’t forget that if the son or daughter in law remarries their future new spouse will be first in line for their estate and therefore end up with your money!



Often people think – if my son dies then I want his wife to have the money to look after the children. Once the “in-law” has that share in your estate you have no guarantee that it will be used to benefit the children. The money may be taken from the “in-law” through divorce or bankruptcy.



When money is left to grandchildren if their parent (ie your child) does not survive, then provisions can be included in the Will so that the money can be used for the children’s benefit – but the money does end up with the grandchildren and not with a stranger who at some later date marries your son/daughter in law.

Labels: grandchildren, in-law, spouse, Wills