The 30th October 2024 UK Budget announced significant changes to inheritance tax in relation to pensions, agricultural and business property relief, and “non-doms”. It is important to review your will regularly.
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It is important to review wills regularly to take into account, amongst other things, any changes in legislation.
Currently, UK Inheritance Tax is a domicile-based system. A government Policy Paper originally published on 29th July stated that the government intends to replace this with a new residence-based system from 6 April 2025. Another document published by the government on 31st July stated that officials will seek further feedback through a series of separate engagement sessions on Inheritance Tax with confirmation of the final design of these policies to be published at Budget.
The next Budget is due to take place on 30th October 2024.
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Today, the Chancellor of the Exchequer set out that the inheritance tax nil rate bands will stay fixed at current levels until April 2028.
The nil rate band will continue to be at GBP 325,000. The residence nil rate band will continue to be at GBP 175,000. The residence nil rate band taper will continue to start at GBP 2 million.
This is subject to legislation being passed.
What follows are 6 occasions on which you should review your English and Welsh will.
- Marriage
If you marry, your existing will is automatically revoked. This is unless your will was written in contemplation of that marriage and an appropriate clause is included in the will to state this. - Divorce
If you divorce, any gifts in your will to your former spouse or civil partner are made void. Also void are any appointments of them as an executor, trustee, or guardian. You should also review your will planning if a beneficiary of yours divorces or is in the process of going through a divorce. - Sell or move home
A home, for many people, is their most valuable asset. If you no longer own that asset it is a good idea to review your will – you might want to leave a different asset to your beneficiaries instead. Also, if you store your will at home, it is important that it does not become lost during the move! - Change in family circumstances
Relationships change over the years and unfortunately friends and family we were once close to may drift away or die. On a happier note, new potential beneficiaries are born, new relationships formed, and previous relationships repaired. Your will should be reviewed as your circumstances change. - Change in the law
If tax law changes and your will isn’t kept up to date your estate may end up paying more inheritance tax (IHT) on your death. For example, in 2017 there was a change to UK IHT which introduced the residence nil rate band – an IHT allowance that can be available where your home is gifted to your children (or other direct descendants). If your will contains provisions that create a trust on death, it is important to review these if trust law changes. - Every 3 to 5 years
Review your estate plan every 3-5 years to make sure that your will still matches your current wishes.
When thinking about making a will for the first time, a lot of attention will be paid to who will benefit from which assets. However, there are other things you can set out in your will.
Here are three of them:
- Appointing guardians for minor children
You can make provision in your will for how your minor children are brought up and by whom. - Funeral wishes
Why leave it to your loved one to guess when you can set out your funeral wishes in writing in your will? - Executors
The executors of an estate have many duties and responsibilities including arranging the funeral, applying for a grant of probate, dealing with tax returns, and paying any inheritance tax which is due. Your will gives you the opportunity to set out who those people should be. Importantly, they should be people you trust.
The above points were written in relation to England & Wales.
With a joint tenancy, the co-owners own 100% of the property simultaneously. And if, for example, a property were to be owned by two joint tenants and one of those owners were to die, the surviving owner would become the sole owner: this is known as the ‘right of survivorship’.
With a joint tenancy, the first-to-die does not have an identifiable share of the property to leave to someone in their will.
For tenants in common, however, each co-owner does have an identifiable share of the equitable interest in the property. This identifiable share does not pass under the ‘right of survivorship’ on death. It is important, therefore, for someone who owns such a share to make a will. The will can set out who is to benefit from the share on death.
Many will trusts make use of the family home being held as tenants in common. Will trusts can help each co-owner arrange how their share will be managed after death.
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What is a discretionary trust?
A discretionary trust is a type of trust where the trustees have complete discretion to pay or apply the income or capital of the trust fund for the benefit of one or all of the beneficiaries. No particular beneficiary has an interest in the trust or an entitlement to the trust funds – they only have a potential interest until the trustees actually exercise their discretion in the beneficiary’s favour.
A discretionary trust can be included within a will. It is generally advisable for the testator to write a letter of wishes accompanying the will which provides guidance to the trustees on how they would like the trust fund to be distributed. Letters of wishes are not legally binding, therefore, there is no obligation for the trustees to follow them.
A discretionary trust can provide flexibility.
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Trust Registration – UK
It is important that trustees consider whether they need to register their trust with HMRC in the UK if they haven’t already. There is an important UK registration deadline for many trusts on 1st September 2022.
This post will not go into any detail about which trusts must register: much has been written about that elsewhere. For example, there is trust registration information on the UK government website: https://www.gov.uk/guidance/register-a-trust-as-a-trustee
If you are a trustee and unsure whether you need to register a trust, please speak with your financial adviser, legal adviser, accountant, or tax adviser as soon as possible.
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Choosing an executor
An executor is someone appointed in a will to distribute the estate of the testator in accordance with the wishes set out in the will
It is important to take care when choosing an executor. An essential quality of your chosen executor is that you trust them. If you are appointing more than one executor you will want them to be able to work well together.
Executors can be friends and family members. For more complex estates, you may decide to appoint a professional executor. Alternatively, a lay executor can obtain professional advice as and when required.
You should also consider where your executor is located. You will usually want them to be in the same country as you. If you were to move abroad, however, it might be sensible for the executor to be in the same jurisdiction in which probate will need to be obtained for the will.