How to avoid the inheritance tax trap

Dying without a properly drafted and valid will in place could land your family with a large and unexpected inheritance tax bill, not to mention the fact that those who profit may not be your intended beneficiaries.

This is highlighted by the death of the comedian Rik Mayall. 

Sadly, Rik, the star of shows such as The New Statesman, Bottom and Blackadder, died in June 2014 aged just 56 and it has now come to light that he didn?t have a valid and up-to-date will in place at the time. 

Dying without a will is called intestacy, or dying intestate. If this happens, then problems may arise, as it falls to the law to decide who gets what and how much. Frequently this means that either married or civil partners inherit everything, or else only the dependents or close blood relatives benefit. 

Intestacy rules don?t take into account the state of the relationship at the time of death, for example, if the deceased is separated informally from their spouse, but not legally divorced, then they may still inherit the entire estate and, likewise, if family members have been estranged from each other then, again, this is not a factor under intestacy rules. 

While the rules of intestacy were updated for deaths on or after 1st October 2014, Rik Mayall?s estate is subject to the old intestacy rules which are determined by the value of the estate and those family members who are alive at the time ? in this case, Mayall?s wife and three children. 

Transfers between spouses are currently exempt from inheritance tax, but those assets passing to children will not benefit from the exemption and could be subject to taxation at 40 per cent.

Meticulous and rigorous tax planning can reduce, delay, or entirely eliminate, the inheritance tax liability of beneficiaries and therefore it is highly recommended to find out how best to plan for the future. 

Furthermore, by leaving a will that says clearly who should get your assets when you die ? from property and possessions to money ? you can prevent additional distress at an already difficult time whilst also ensuring that the correct recipients benefit from your legacy. 

Regardless of the size of their estate, individuals should have a valid and up to date will in place to ensure that their estate is distributed in accordance with their wishes.

Craig Harman is a tax specialist at Tunbridge Wells-based Perrys Chartered Accountants.

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