Inheritance tax (IHT) disputes are on the rise. In addition to a growing number of individuals failing to write a will and leaving their estate in intestate, changing traditions in family life, cohabitation and poorly crafted DIY wills are leaving the assets so many have spent a lifetime striving for particularly vulnerable.
Being clued up on the latest rules of intestacy, and realising the long list of benefits that accompany will writing and regular revision is the key to securing the futures of the people around you. It will also ensure that your estate can be divided in accordance to your final wishes, minimising the potential for inheritance tax disputes and far reaching damage that affects the relationships between the people you leave behind.
Getting expert, professional help is critical to making the right preparations and understanding the tax implications of your decisions. Here we delve deeper into the latest inheritance tax thresholds, rates and liabilities, and reveal how preparing a bulletproof will could make life easier for all you care about after your death.
How does inheritance tax work?
Inheritance tax is one liability many people overlook, no one after all likes dwelling on morbid topics like death! Preparing for what will happen in your absence however is crucial, and this includes making provisions for inheritance tax.
The latest inheritance tax rules could mean that your estate – i.e. any assets or money you plan to pass on upon your death – could be dramatically reduced. Your beneficiaries could be liable for tax payments of up to 40% of the value of your estate, and this doesn’t include any debts, administration costs or funeral expenses they have to settle on your behalf after you have passed away.
Who pays what in accordance with IHT rules?
In accordance with the latest IHT rules for 2021 to 2022, every individual is entitled to an allowance of £325,000. Any assets above this threshold will be taxed at the standard IHT rate of 40%.
If you are married or in a civil partnership, your spouse or partner will be able to combine their inheritance tax allowance with yours to enjoy tax-free assets of up to £650,000. This allowance for married couples and civil partners is higher if the deceased’s estate includes the family home, with the nil-rate band rising to £1 million in this instance.
Other gifts made from your estate, including donations to charities, are also tax-free. Inheritance tax must be paid by all eligible beneficiaries within six months of death.
Why do inheritance tax disputes occur?
Inheritance tax disputes are particularly common. These disputes may be the result of a poorly crafted, DIY will or family circumstances. Blended families and cohabiting couples still don’t have the same rights as spouses, biological and adopted children, and blood relatives, despite these household types being widespread within the UK.
Increasing property values, the poor handling of the complex estates of professionals or business owners, and disgruntled relatives not named as beneficiaries may also see claims put forward to contest the will.
Could making a will be the answer?
The best way to avoid inheritance tax disputes is by preparing a will that is well-written and valid. Unfortunately, and despite the principles of drafting and executing a will being set out in law, will writing is not regulated which can make disputes more common than they need to be.
Specialist advice should be sought in the instance of blended families and second marriages, as well as complex estates to ensure the will you draft protects your assets and your loved ones in the event of your death.
Want to prepare a will and ensure that your estate is in order? Find out more about how Winn Solicitors can help here.
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