Is your Will out of date?
Is your Will out of date? Did you make it 2+ years ago? If the answer was yes, then you should review it to ensure that, firstly, it is in line with your current wishes. Secondly, you want to ensure it is in line with current legislation.
If your will is out of date, then you could lose out on the new Residence Nil Rate Band. Furthermore, as a result you could end up paying more Inheritance Tax.
What is the Residence Nil Rate Band?
Everyone has a tax free allowance, known as the Nil Rate band of £325,000 that they can pass on death. Anything above this is subject to Inheritance Tax (IHT) at 40%. With property values rising, the government introduced the Residence Nil Rate Band which came into effect on the 6th April 2017.
If you own a property which is to pass to direct descendants (children, grandchildren including step, adopted and even fostered) then your estate may be able to claim an additional allowance of £125,000. This would give you a tax free allowance of £450,000, per person, in the current tax year. Anything in excess of this would be subject to Inheritance Tax at 40%.
The Residence Nil Rate Band will increase by £25,000 a year until 2020/21 when it reaches the maximum of £175,000. This means that by 2020/21 you will have a tax free allowance of up to £500,000 before any Inheritance Tax becomes payable. For a married couple, that’s up to £1million before any IHT is payable.
However, you could lose this additional allowance, if your Will has any of the following:
- a trust;
- age restrictions;
- legacies of property to non-qualifying beneficiaries; or
- a Nil Rate Band Discretionary Trust Will.
You should review your Will and if it has any of the above, you should update it as soon as possible.
You should also review your Will and update it, where necessary, in the following instances:
- If you separate or get divorced;
- If you have had more children;
- You have had grandchildren;
- Left a gift to someone in your Will, who has subsequently passed away;
- Your circumstances/priorities have changed;
- Lost contact with your appointed Executors; or
- if you have appointed your bank as Executors.
An out of date Will can mean your assets ending up in the wrong hands, let alone the Inheritance Tax consequences.
You may also like the following articles: