‘Intestacy’ is the term used to describe how a person's ‘estate’ (money, property and possessions) will be divided on death when the person does not leave a valid will choosing their beneficiaries, or where their will does not give away their entire estate.
Intestacy is different in England and Wales to Scotland and the rules are more complicated for those north of the border, so let’s take a closer look.
As with English rules, if you have a valid will in place then you will not be affected by intestacy. However, if you die and have no will in place then there are intestacy rules that dictate who will inherit by law.
If you die leaving a spouse or civil partner behind and your house is owned jointly, then it is worth noting that the house will automatically pass to the surviving spouse. If not, the surviving spouse will receive the house (if it is worth less than £473,000) plus up to £29,000 worth of furniture and furnishings. If the property is valued above this level, then the surviving spouse receives just £473,000, plus up to £29,000 worth of furniture and furnishings. The amount in excess of £473,000 is dealt with as follows:
If there are no children, then the spouse receives up to £89,000 plus one-third of your ‘moveable estate’. This term refers to anything you own other than house, land and buildings such as money in the bank, investments, shares and personal possessions. Should there still be some remaining residue in your estate and you have surviving blood relatives, such as parents or siblings, then they will take claim and your spouse will receive no more.
However, just like in English law, if you are cohabiting then your surviving partner gets nothing if you die without a will and has no claim to your estate.
So what if you do have children? In Scotland, this can also mean illegitimate and adopted children, but excludes step-children, your spouse will receive up to £50,000 plus one-third of your ‘moveable estate’. Anything left will go to the children in entirety.
In Scottish law, grandchildren and great grandchildren will also fall into the category of children, but will only benefit if their parent has pre-deceased you.
Finally, if you haven’t made a will and die with no surviving relatives, everything goes to the Crown.
The reasons to make a will are relevant whether you are in England or Scotland, so if you want to be certain who will benefit from your estate when you die, you really should consider making a will. It’s the only way to be sure that your remaining assets go to who you want to receive them once you’re no longer around.
Inheritance tax (IHT) is often called a voluntary tax in that, with planning, the payment of inheritance can be avoided. It is a tax levied on a person's estate when they die and on certain gifts made during an individual's lifetime.
IHT is often described as the UK’s most hated tax. Former Chancellor, Lord Jenkins once called inheritance tax “a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”.
Currently (October 2022) everyone has a tax-free inheritance tax allowance of £325,000 – known as the Nil-Rate Band. The standard inheritance tax rate is 40% of your estate over the £325,000 threshold. The nil-rate band has been frozen since 2009 and is in place until April 2026.
The £175,000 Residence Nil Rate Band (RNRB) is available to those passing on a qualifying residence on death to their direct descendants. A taper reduces the amount of the RNRB by £1 for every £2 that the net value of the estate is more than £2 million.
If IHT is a concern for you, there are a variety of ways to reduce its impact on what your children or grandchildren will inherit. It will not surprise you to learn that with such a misunderstood tax, the starting point is professional advice. A good Independent Financial Adviser will often work in conjunction with a Solicitor. They will ensure that a client’s estate planning is correctly set up, based on their wishes and objectives, and regularly reviewed, especially as the law can change.
For the majority of people there are various approaches that can be taken to mitigate a future IHT liability.
At Armstrong Watson our quest is to help our clients achieve prosperity, a secure future and peace of mind. We provide bespoke tax planning, financial planning and wealth management all under one roof. Please note, advice on IHT related matters could be provided by a mixture of both our financial planning and tax specialists.