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Statutory legacy change

Welcome news for some as the statutory legacy has increased.

Whilst inheritance tax allowances remain frozen for the foreseeable future, since 26 July 2023 the statutory legacy payable on intestacy to a deceased person’s spouse or civil partner has increased from £270,000 to £322,000.

Given current rates of inflation, this announcement is welcome as it will increase the number of intestate estates where no inheritance tax is payable due to the rise in value passing to a spouse or civil partner.

It is, however, inadvisable for anything other than the most straightforward of estates to rely on the application of the intestacy rules. IHT is still payable if the estate is valued at over £1 million and when we return to an era where the IHT nil rate band increases, incurring an IHT charge on both deaths will generally lead to a higher IHT charge than if the tax bill was deferred to the second death when the nil rate band may be higher.

In addition, assets passing to the deceased’s children under the intestacy rules will come under the children’s control when they reach eighteen, which most parents would consider to be too young for a beneficiary to receive a large inheritance.

The intestacy rules have no regard to inheritance tax planning. This can be retrospectively incorporated by drawing up a notional Will within two years of the deceased’s death. This can be read back into the estate for IHT purposes under s142 Inheritance Tax Act 1984 but relying on s142 being in force at the critical time is inadvisable as the legislation has been in danger of abolition several times over the years.

Finally, testators may wish to choose their own executors, trustees and guardians for minor children all of which is facilitated by a Will. Ongoing protection for young beneficiaries and tax planning that reaches several generations into the future can also be achieved in a Will.

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