Chapter: 2 - Inheritance Tax Mitigation: The Basics

Wills

2.13.1

On death a person can ensure that his possessions go to intended recipients by means of a validly made and executed Will.  Remember the trap that neither of the two required witnesses must be a beneficiary, as otherwise any such individual will forfeit the right to inheritance. 

Failing a Will for all or part of an estate (as a Will could extend to just part), the property will pass according to the intestacy rules, which can throw up some surprising results.  It is a common misapprehension that ‘there’s no need to make a Will as I want everything to go to my wife and she’ll get it anyway’.  Well, she will so long as there are no children or remoter issue, brothers or sisters, nephews or nieces, parents or grandparents etc surviving.  The intestacy rules (described in detail at 18.2) can mean not only property going to people who the deceased would rather not have had it, but also triggering an IHT bill on death which might easily have been avoided with proper planning.  Of course, tax efficiency is not the only aspect of Will planning and other issues such as the appointment of executors as the chosen persons to administer the estate might be just as important.  The important thing is to keep the Will (and any letters of wishes) up to date.

The main IHT planning issue applies only to married couples and members of a registered civil partnership – and then on the first death.  The structure of IHT was explained at 2.1.  For deaths before 9 October 2007, it was axiomatic that full use should be made of the nil-rate band, insofar as not taken up by chargeable lifetime gifts in the seven years before death, in passing assets other than to the survivor on the first death.  Otherwise the property would be passed to the survivor, whether absolutely or on what is now called an ‘immediate post-death interest’ trust, so deferring any IHT liability on that estate until the second death.  That ‘accepted wisdom’ has been overturned by the introduction of the transferable nil-rate band (found in IHTA 1984 s8A): see 18.4.3.  General policy should now be to maximise use of the spouse/civil partner exemption on the first death.  In any event, between the two deaths there might be some IHT mitigation which can be undertaken through PETs made by the survivor to limit the impact on the second death.