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Legal News | 30.05.24

In times of Uncertainty

There is one big question on everyone’s mind at the moment – who will be in No 10 Downing Street after 4 July?

With such a big unknown hanging in the balance (and debated on every news channel!), we wanted to give you some Private Client-related certainty by debunking some common misconceptions…

  • “My estate will pass to my common-law partner”

There is no such thing as a common-law partner.

If you die without a Will and without having married your partner, they will not be eligible to inherit from your estate under the laws of intestacy.

  • “If I am married and die without a Will, everything automatically passes to my spouse so I don’t need to worry”

Not necessarily.

The intestacy rules (which apply in the absence of a valid Will) dictate that the first £322,000 in an estate will pass to a surviving spouse or civil partner (together with the deceased’s personal possessions).

If assets exceed this figure? The value above £322,000 will be divided into two equal shares, with one half share passing to the surviving spouse or civil partner and the other half share being shared equally between the deceased’s children. This could give rise to unnecessary inheritance tax and if the children are under 18 they will not be able to vary the intestacy with a deed of variation.

  • “If assets are held within a trust I won’t need to pay tax”

Trusts have their own taxation rules.

Certain interest in possession trusts or life interest trusts are charged to inheritance tax on the death of the life tenant. Discretionary trusts are subject to HM Revenue and Customs’ ‘Relevant Property Regime’ for inheritance tax, with inheritance tax charges most notably occurring at 10-yearly intervals and when assets enter or exit the trust (depending on the value of the trust).

Funds in a trust do not escape income or capital gains taxes, either; income and gains are taxed in the hands of the trustees (unless trustees of an interest in possession/life interest trust opt to mandate income to an income beneficiary, where that beneficiary settles the tax instead).

  • “If I gift my home to my children, the local authority will pay for my care fees in the future”

Giving away assets to avoid paying care fees is known as a ‘deliberate deprivation of assets’. The local authority can treat these gifted assets as belonging to the donor (person who made the gift) when carrying out a means test for local authority funding.

Added to this, if you gift property to a child but continue to live in that property, rent free, the value of the property will also form part of your estate for inheritance tax purposes on your death; this is known as a ‘gift with reservation of benefit’.

Of course, in the famous words of Benjamin Franklin, “nothing is certain except death and taxes”, so a future government may decide to change things; perhaps by safeguarding the position of common law partners or by making changes to the current systems of intestacy or means-testing for local authority funding. Both now and in the event of any future changes, Wansbroughs will be on hand to assist you in the Private Client sphere – and if you do have any current uncertainties, please do reach out to your usual contact at Wansbroughs or by getting in touch at wealth@wansbroughs.com.

 

Posted By Our Wills, Tax, Trusts & Probate Team