Are you aware the Inheritance Tax laws changed on April 6th 2017? Are you one of the many who now believe they have £1 million before they pay any inheritance tax? You are most probably wrong! Do you have children / grandchildren (direct lineal descendants)? Are you married? Do you have a property that you live in or have lived in (a qualifying residential interest)? How much debt do you still have on your property? All these factors contribute to whether you will get the extra Residence Nil Rate band. Confused yet?

As an attempt to satisfy the promise of £1 million inheritance tax-free, the new Residence Nil Rate band was introduced in April 2017. Experience to date shows that many people are under the misconception that everyone now has £1 million, and it really is not that simple.

Everyone has their own tax-free allowance of £325k (‘ordinary nil rate band’) which has been fixed until April 2030 (as per Autumn Budget 2024). As the survivor of a married couple, you will benefit from your spouse’s £325k (‘transferable nil rate band’), providing they haven’t used any of it up at their death or with lifetime gifting. So, when you have both died, your family will benefit from £650k before tax is paid.

Each individual now has an additional £175k (‘residence nil rate band’), again fixed until April 2030 (as per Autumn Budget 2024), to pass on to their family, inheritance tax-free, but they must pass it to direct lineal descendants: children, grandchildren, adopted children, stepchildren, foster children, spouses of deceased children provided they have not remarried. What if you do not have any direct lineal descendants? You will not qualify for this extra allowance. Unfair?

The additional allowance must be in the form of property (or if you have downsized since 8 July 2015) that you live in or have lived in (i.e. excluding buy-to-lets, unless you had previously lived in it). That property can pass to your spouse at your death. Then, at your spouse’s death, your estate will get both your allowance and your spouse’s allowance (i.e. a transferable residence nil rate band). This will mean that as a married couple you will have £1M before inheritance tax is payable; the 2 ordinary nil rate bands of £650k plus the 2 Residence nil rate bands of £350k. If you are unmarried, beware! If you pass your property to your partner at death and then on to your children, you will lose one allowance. Unfair?

The value in the property is also a consideration. The value is the net value i.e. minus your mortgage. So you may own a £350k property as a married couple but you have a £250k mortgage. Hence only £100k (between you) rather than £350k will qualify for the additional allowance.

Trust planning within Wills is common and very useful. However, beware, some trusts will disqualify you from the new allowance. Specialised estate planning is required to ensure you still retain the benefit from trust planning as well as the additional tax allowance.

Then there is Residence Nil Rate Band Taper relief.  If the deceased’s GROSS estate i.e. including business or agricultural assets (before any Business Property Relief or Agricultural Relief is applied) exceeds £2 million then a taper relief is applied. The residence nil rate band will reduce by £1 for every £2 that the estate is worth more than the £2 million taper threshold.

The Autumn Budget 2024 changed the way pension pots are taxed at death. Not only are any unused pension pots potentially subject to Inheritance Tax, but the inclusion of the value of the unused pot in your taxable estate at death could mean that any Residence Nil Rate Band is subject to Taper Relief or result in your estate exceeding the threshold meaning no Residence Nil Rate Band at all.

As you can see it’s a minefield. So, don’t assume the inheritance tax free allowance you think you will get and seek proper legal advice.

As always, we would be delighted to talk through your estate planning with you, so do email us on office@hamiltonlegacy.co.uk or call the office on 0191 406 0747.

I think we all know that dying without a Will is not a good idea but do we really know why?  Most people think of the potential financial hardships but there are more emotional and emotive reasons also.

Let’s start with what happens if you die without a Will and who gets what.  Dying without a Will is called dying INTESTATE.  There are statutory laws – called the Law of Intestacy – that govern how your estate will pass if you die without a Will.

Remember that any assets owned jointly will NOT be governed by your Will or the Law of Intestacy.  Instead, those joint assets pass by the Law of Survivorship, i.e. the remaining joint owner(s) get the lot. So, if you and your partner/spouse own everything ‘jointly’, should you die, your partner/spouse gets everything. However, anything not owned jointly (i.e. any assets solely owned by you) will fall according to the Law of Intestacy.

So, now it depends on whether you are married or not?  If ‘yes’, then the next question is ‘do you have children’?  If ‘no’, then your spouse inherits the lot but don’t forget that is also the case if you are separated but not yet divorced.

However, if you do have children, it gets a little trickier. As per recent changes made to the statutory gift which come into effect on 26th July 2023, your spouse will now receive the first £322,000 of your estate.  So, if you do not solely own more than £322,000 your spouse receives your entire estate.  However, if your estate is in excess of £322,000 that excess balance will be split 50% to your spouse and 50% to your children (held in trust until they are aged 18).  Your personal chattels go to your spouse.  This can cause many obvious difficulties, especially if your spouse is not the parent of your children.  

If you are not married, it gets even trickier.  If you have children, they receive your entire estate, NOT your partner – even if your partner is the parent of your children!  If you don’t have any children, your parents will receive your entire estate – these monies may end up going on their care fees.  If your parents are not alive, your estate falls to your siblings and of course down to their children (your nieces and nephews) should your siblings die before you.  Do you really want your nieces and nephews to inherit rather than your partner to whom you aren’t married?

If all that fails, the next level down is to your half-siblings, then grandparents and then aunts/uncles and of course their children should they die before you. If all that fails… then your estate passes to The Crown!!

So, you can see why the Law of Intestacy is often called a ‘blunt instrument’!

There are other aspects that are often not thought about.  If you haven’t got a Will then you haven’t nominated your own Executors and Trustees.  The former are the people to whom you give the responsibility of administering your estate and body.  The latter, often the same people, are those who manage monies and trusts on an ongoing basis. If you haven’t nominated your own Executors and Trustees then it will be down to those closest to you to act as your Administrator.

There are strict rules as to who can apply to be your Administrator. The order is as follows: the surviving spouse where the deceased was married or in a civil partnership; children of the deceased; grandchildren; surviving parents; surviving brothers or sisters; nephews or nieces; another relative.

Let’s take a look at that list.  What if you don’t like or trust or get on with any of those people?  They are now in charge of disposing of your body, organising your funeral, distributing your money, liaising with the family and the ongoing management of money and trusts.  Are there any people on this list within your family who you would not like to act in such a way on your behalf?

What about all the aspects of your life that won’t be reflected in the Law of Intestacy?: gifts to family and friends; gifts to stepchildren; care of pets; gifts to charity; guardianship of children; ongoing management of your business; excluding estranged beneficiaries; tax planning… to name but a few.

Heartache, family disputes and financial hardships may all occur at what is already a very difficult time.  Do you want that for your loved ones?  No, of course you don’t, so go to the effort and expense of having a well-crafted Will to make sure your wishes are adhered to.

As always, we would be delighted to talk this through with you so do email us on office@hamiltonlegacy.co.uk or call the office on 0191 406 0747.

Many clients come to me as they feel they need to put their house into trust – often “as a priority”.  Others ask me to advise their elderly relatives regarding their properties.

This is a specialised area that needs to be viewed on a client-by-client basis as every estate is different.  For many clients, I must inform them that a trust is not right for their circumstances, for others, we can offer several solutions. However, for everyone, we must consider the following areas:

• • Why do they feel they need to put their home into trust?
  • Do they need a Will trust or a lifetime trust?
  • What is their income, as individuals and as a couple?
  • What are their savings, as individuals and as a couple?
  • Are any of their savings disregarded
  • What is the state of their health as individuals at the time of putting the house into trust?
  • Would they need to consider downsizing to release capital to help fund their retirement or other activities?
  • What is their inheritance tax liability – do they need their residence nil rate band?

As you can see, this is not a one-size-fits-all scenario.

There are many misconceptions and much misinformation around the subject, such as the following;

• • “Putting your house into trust will help with inheritance tax planning” – incorrect, if you have the right to live there, and enjoy the benefit of living there, the house will still be taxed as yours at your death.
  • “Your house is safe after 7 years” – incorrect, the 7-year rule is a fictitious one, often confused with inheritance tax planning.
  • “I have given my house away or intend to do so, to my children” – this is fraught with danger as your children now own your home.  You have no security.  If you fall out with them, or they get divorced or into money problems, your house is now vulnerable.

We have been advising our clients regarding house trusts for many years.  If you feel you have now got the stage in life where you would like to consider your options, we would be delighted to talk this through with you so do email us on office@hamiltonlegacy.co.uk or call the office on 0191 406 0747.

Too often I see business owners assuming that it is the right thing to do just to let the business fall into their estate at death, “just pass to the wife/ husband”.  This usually means they have not had the appropriate discussions nor the correct advice for them and their circumstances.  This could end in disaster for their business, their widow and their family. Also, why wouldn’t you protect your life’s work?

The ramifications of poor planning for your business in a Will is too detailed to cover fully in this blog but here are a few tasters.

If your business a sole tradership

Do you have business continuity clauses in your Will?  If you don’t, then your business assets will require a Grant of Probate, along with the rest of your personal assets.  This means those assets are frozen until a grant is produced and this can take many months.  Would your business survive being frozen for that length of time?

Without continuity clauses, a sole tradership can only be sold or wound down and cannot continue to trade.

Contracts of employment cease at your death, can your business run without staff?

If your business is a partnership

If nothing is pre-stated, your partnership ends at your death as one of the partners is now no longer acting. Action now needs to be formulated as to how the “new” business carries on.

If your business is a Limited Company

If there are no directors as you were the sole director, your estate now needs a grant of probate, and your executors will have to appoint a new director to run the business in the meantime.  Do your executors realise this and understand their responsibility

However, the missed opportunities of not having those bespoke discussions about the business you have worked so hard for many years are

• • What happens to the business at your death – 
    • is it sold
    • Can you be replaced with putting another manager in 
    • MBO?
    • Continuity plan
  • Do you have certain members of the family in the business and not others, for example, has your daughter worked in the business and been involved in running it but your son hasn’t? So, do they benefit equally from the business or not and does the other child get compensated?
  • Business Property Relief – does the business qualify?  Is it trading or investment?  Does it comply with the wholly or mainly rule?
  • How much cash is in the business?  How much can be seen as working capital?
  • Do we need to utilise the business for inheritance tax planning?
  • If your spouse inherits the business, what if they remarry/ go into care?
  • Does your spouse need an income?
  • Will the business value affect your residence nil rate band at first and/ or second death?

ALL businesses need a disaster plan, but this is often thought to have to do with natural events, or supply issues, or even cyber-attacks for example. However, your death could constitute a disaster for your business and all related to it, your staff, the stakeholders and your family members.  Therefore, it is vital to incorporate this in assessing risks for the business.

Don’t assume you don’t need to plan for your business at your death.  Have an informed discussion and plan accordingly. Act now before your life’s work is wasted.

As always, we would be delighted to talk this through with you so do email us on office@hamiltonlegacy.co.uk or call the office on 0191 406 0747.

No one wants to think about death. Not their own death, nor especially that of a beloved family member or friend. We help our clients to prepare themselves both practically and mentally, and in some cases emotionally, for that inevitable moment. It can be a huge relief for some to know that their affairs are in order. For others, it is very trying and difficult making all the necessary decisions.

When a loved one sadly passes, there is a huge amount of work to be done. This, despite the fact that you are often barely functioning because of their loss. One of our team recently lost her mother and she is keen to share her practical thoughts and experiences with our readers. She found there is little straight-forward guidance available generally and of course most of us are administering an estate for the first time.

Make an Appointment with the local Registry Office

The initial hurdle to overcome is making an appointment to register the death at the deceased’s local Registry Office. (I am sorry – I’m going to refer to the person who has died as the ‘deceased’ for the purpose of clarity but I do recognise that no term is ideal.) You will need a ‘Medical Certificate of Cause of Death’ from the doctor in order to be able to do this. You will also be asked for various pieces of information and copies of documents but you will be advised exactly what is required.

‘Tell Us Once’ service

Do use their ‘Tell Us Once’ service as this undoubtedly saves you time and, more importantly, heartache. On your behalf, the Registry will contact HMRC (tax office), Passport Office, DWP (benefits), DVLA (driving licence) and the local council (possibly care fees). Again, various documents will be requested from you; do try to find them all. It may be that your loved one was due a tax rebate.

Arrange the Funeral and/or Memorial Service

The only other urgent task is to arrange the funeral. You may already know the deceased’s wishes or they may be detailed in their Will. (I hope they wrote one.) The deceased may hold a pre-paid funeral plan which may also detail their wishes but will certainly cover the basic costs. Opt for the earliest date you can for the funeral; you will not be able to move on until it has taken place. You may wish to think about placing an announcement in a local and/or national newspaper regarding the death and the date of the funeral. Once all this is done, you might want to take a breather as there is still much to be done, even if the estate is relatively simple. 

Gathering Finances

Once you can face it, you need to establish where the deceased held their ‘sole’ funds. (Joint funds will automatically pass to the other named account holder(s) according to the Laws of Survivorship.) This could include banks, building societies, Premium Bonds, financial advisors (ISAs/Bonds) etc. Register the death with each organisation and request a final valuation statement to be sent to you. (Do ask for a number of copies of the death certificate when you register the death. Whilst all organisations will return original copies to you, these certificates are like gold dust.) Do the same with all pension companies, including the DWP, if you didn’t use the ‘Tell Us Once’ service.

Your heart will be broken many times over the next few weeks as these organisations blandly respond to ‘The Late ________’ or the ‘Pers Reps (personal representatives) of _________’. It is shockingly impersonal. Do however retain all the documents received for your records. 

Probate?

You may need to go through Probate, you may not. Probate is the Latin word meaning ‘to prove’ so probate is the process of ‘proving’ the deceased’s death, who their personal representatives are, whether or not there is a Will, the assets etc. Each financial institution has its own rules and investment levels at which Probate needs to be done. Check with every financial institution where the deceased held ‘sole’ funds. Unfortunately, even if only one institution requires Probate, you will have to go through the process. Probate will also be required if the deceased held their property as Tenants in Common with a spouse or partner or individually. (You can check this via the Land Registry.)

Do go to the government website (https://www.gov.uk) and search under ‘Probate’. This site contains lots of really useful information, probably too much! From here, you can download all the necessary forms:

• PA1 – complete by hand to apply for probate
• PA2 – explains ‘How to obtain probate without using a solicitor’
• PA3 – details probate fees (£215 at the time of writing)
• PA4 – gives addresses of local Probate offices.

Tax forms for Inheritance Tax

You will also need to complete a tax form for inheritance tax purposes, even if there is nothing to pay. Complete form IHT205 if no tax is owing; complete IHT400 if inheritance tax is owing. If you struggle with either form, call one of the contact numbers or seek professional advice.

‘Swear an Oath’ at the Probate Office

Having sent off the necessary documents, you will need to arrange an appointment to ‘Swear an Oath’. Only one of the Executors needs to do this if you prefer.

Trusts

If there are any Trusts in the Will then these must be implemented within two years of the death. They cannot simply be ignored and need to be set up even if they are immediately closed again. A solicitor will be able to help you with this aspect of the estate administration but a fee will be payable for this service.

Distribute the Estate

Once you have all the final fund valuations, draw up an income and expenditure statement of the estate i.e. all the in and out payments. This should include any debts owed by the deceased. All debts must be settled prior to making any payments to beneficiaries. Circulate the income and expenditure statement as appropriate and distribute the estate.

Contact the Office of the Public Guardian

Lastly, (as if you haven’t already tackled enough bureaucracy), you should cancel any Enduring or Lasting Powers of Attorney held by the deceased. These are ‘lifetime’ documents and they cease to be of use once the Donor (the person who drew them up) has died. Send the original documents (there may be one for Finance and a separate one for Health) along with a copy of the death certificate and a covering letter to the Office of the Public Guardian to get them cancelled. They should not merely be destroyed.

Administering an estate is not pleasant but there is a certain satisfaction, and of course, relief, in seeing your loved one’s final wishes carried out as they wanted them to be. Alternatively, if it is a complicated Estate or you are lacking time, you could consult with an Estate Administration service.