Wills and tax planning: when not to do it yourself

We often carry out tasks ourselves rather than employing someone to do them for us so that we can save some money but, generally, we know our limits and, while we might decorate our house and assemble flat pack furniture, most of us would employ a builder to add an extension to our house.

When it comes to Wills and inheritance tax planning how far should we try to do it ourselves?

Wills and inheritance tax planning

The tools are available to enable someone to make a Will or save tax without the necessity of employing a professional as Will packs can be bought from stationers and the financial pages of the newspapers carry plenty of articles about inheritance tax. Remember though that a Will deals with your entire wealth and its destination after your death.

Homemade Wills can lead to all sorts of problems. If, for example, you fail to execute it in accordance with the strict statutory requirements, the Will could be invalid or, if the provisions of the Will are not clear, this can lead to a dispute and could ultimately end in an expensive court case. Alternatively, while the Will may be properly executed with clear provisions, it may fail to make maximum use of tax reliefs and cause your loved ones to pay more tax than is necessary.

Example: Charles’s gift to charity

For example, Charles, a single man, with an estate of £750,000, wishes to benefit charity in his Will and leaves a legacy of £40,000 between four favourite charities, with the rest to his godchildren. Charles is not aware of the reduced rate of inheritance tax which is payable if at least 10% of a chargeable estate is left to charity, and therefore is unaware that if he increases the legacy by £2500 his estate would benefit from an inheritance tax rate of 36% (instead of 40%) and, for the price of that £2500 increase in the charitable legacy, his godchildren would be better off by £17,000 in saved tax.

Example: Anne’s gift of property

Similarly, Anne leaves her property to her daughter who lives with her and the rest of her estate to her son. Anne does not realise that because her daughter will receive the gift of the property subject to the mortgage secured on it, the whole of the tax payable on the estate will fall on the residue passing to her son unless she provides otherwise in the Will.  If Anne was aware of these points she may have made her Will differently.

Tax law is becoming ever more complicated, and there are several hundred years of succession law to bear in mind when making a Will. Mistakes can result in expensive court battles or applications to ask the court to determine what a particular Will clause means. The advent of the transferable nil rate band and the residence nil rate band from next April can save significant amounts of tax but only, particularly with the latter allowance, if the Will is drawn up in a tax efficient way.

Lifetime gifts

The same principles also apply to gifts made during your lifetime. Complicated tax rules can cause unintended consequences.

Example: Rose’s lifetime gift of property and Harry’s cash gift

Rose, for example, makes a lifetime gift of her property to her daughter unaware that if the gift is to be effective she must pay a rent for her occupation after the gift.  Harry makes a substantial cash gift to one of his sons who is in need of financial help and leaves the rest of his assets to his daughter in his Will. When he dies two years later Harry’s daughter finds that she has to pay inheritance tax on the entire estate left to her under the Will as the gift to her brother has used up the whole of Harry’s inheritance nil rate band of £325,000. If Harry had realised this he may have done things differently so that his children benefitted more equally from his estate.

Can you afford to do it yourself as far as all your financial assets are concerned? In this ever more complicated world, the answer is probably no.

Contact a specialist solicitor

For Wills, inheritance tax planning or advice in relation to lifetime gifts, please contact our specialist team of solicitors on 0800 652 8025 or contact us online.