Season of good Will

You can’t take it with you, as the saying goes. When your time is up your relatives need to sort out your affairs. This is a very stressful time, but you can make it easier for those you leave behind by having a clear and up-to-date Will, which has been drafted with tax in mind.

This is particularly important if the total value of your assets, including your home and any insurance policies that pay out on your death, will exceed £325,000 – the current starting point for inheritance tax (IHT).

There are a number of standard measures you can take to save very significant amounts of IHT. For example:

  • review who will receive proceeds from your life assurance and pension policies – if your executors are entitled to the money on your death, there will be unnecessary IHT to pay;
  • give away surplus assets as early as possible – those gifts will fall out of the IHT calculation completely if you survive seven years after the date of the gift;
  • make regular gifts out of your surplus income rather than accumulate income to make a big legacy on your death – the small lifetime gifts often do not attract IHT, while the big legacy is likely to cost 40% in tax;
  • leave at least 10% of your chargeable estate to charities and reduce the IHT charged on the balance of your estate to 36%.

This last reduction in the tax rate – introduced in April 2012 – means that you can leave nearly as much to your beneficiaries as if they received the whole estate, while making a generous bequest to good causes. The 10% is based on the taxable estate, not the whole of your assets, so you can reduce your IHT rate for a surprisingly small charitable bequest – but you may need a special clause in the Will to make sure your estate qualifies.

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