If you believe you can leave an estate of £1 million on your death, then you need to think again because the right comes with a lot of ifs and buts.
Chancellor George Osborne announced raising the allowance to £1 million in his Summer Budget – but if you read what he said carefully, that is not precisely what he said.
What he told Parliament was parents who leave their main home to their children or grandchildren each receive a new transferable allowance of £175,000.
That means a married couple living together can take advantage of the £350,000 allowance that swells their total inheritance tax relieved estate to £1 million for the surviving spouse.
However, the allowance does not change for anyone else – so nephews, nieces and the children of close friends all miss out.
Dying without a will
In October 2014, the government also changed the laws of intestacy. These are the rules that say how an estate is divided up if the owner dies without leaving a will.
A common misconception is that a ‘common law partner’ living with the deceased will inherit their home.
Firstly, ‘common law partner’ is not a legal term or definition and is not recognised in law and secondly, partners living together who are not spouses or civil partners have no rights under intestacy law.
Following that thread, if one spouse or civil partner from a same-sex ,marriage dies without making a will, the laws of intestacy are still followed.
The new rules give extra rights to the surviving partner and they would probably inherit the lion’s share of an estate, but by no means all.
IHT bill
One famous name falling foul of this rule was comedian Rik Mayall who died without making a will.
A chunk of his not unsizeable estate was channelled to his children under intestacy rules after the deduction of inheritance tax. Had he made a will leaving this part of his estate to his wife, no tax would have been due.
That’s why lawyers make such a song and dance about everyone making a will.
You never know when your time is up, so procrastinating over who gets what could end up with the worst happening and those you really wanted to benefit may have a hefty inheritance tax bill taking a 40% slice of your estate.
