Your will and Inheritance Tax

We all know the saying that ‘nothing is certain in this world, except death and taxes’. But not many of us realise that tax can have a drastic effect on those we leave behind. With inheritance tax potentially taking a great deal of our estate away from our loved ones, writing a will can help avoid it being applied and ensure our loved ones get as much of our estate as possible.

What is Inheritance Tax?

Inheritance tax is the levy on the total estate of someone who has died. Thankfully, the tax only applies if the estate is worth more than £325,000, and so many of us won’t need to worry about incurring these penalties. But for those whose estate is worth more than £325,000, then the tax rate charged is 40%. This can massively reduce the amount of money our beneficiaries might otherwise receive.

This also applies if you married or in a civil partnership, as a significant amount of inheritance tax will still apply on the estate not allocated to your partner, due to its liquidation following the £325,000 threshold. This could potentially result in instances were assets or property will need to be sold in order to meet the tax.

Dying without a will will result in intestacy, during which the government will step in and allocate your estate. If your estate is above the threshold, then this will usually result in inheritance tax being applied, as the government will not actively look to avoid it.

How can a will help avoid the tax?

Thankfully, there are several ways to avoid the maximum charges incurred by inheritance tax, and which can only be done by writing a will.

For example, if you leave all your estate above the threshold value to your married/civil partner, or a charity, as part of your will. This will avoid the tax entirely, as inheritance to individuals or institutions is exempt from the tax.

You can also leave all your total assets to your partner in your will. This means you keep your tax-free allowance and the unused percentage can then be utilised as part of the nil-rate band of your partner. But this is only legal if you are still in the partnership with that individual, not if you are separated or unmarried.

You can also leave your home directly to your children or grandchildren in your will. This will raise the inheritance tax bar from £325,000 to £475,000. Again, this is only legally possible if your entire estate is worth less than £2 million. Likewise, donating over 10% of your estate to charity will also lower your inheritance tax levy to 36%.

To ensure inheritance tax doesn’t unnecessarily affect your estate, writing a will is an inexpensive solution to what might otherwise be a devastating levy on your loved ones. It is also better to have the knowledge that your estate is going to those you want it to, rather than be subject to the mechanics of the state.

Kwil can help you manage inheritance tax by helping you to make your will, simply and effectively.

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