- November 26, 2019
- By Christopher McNeill
- 0 comments
How not to write a will (2)
Christopher McNeill reviews some common tax mistakes
Even the simplest will has tax consequences, mainly in Inheritance Tax (IHT) terms. Explaining your situation fully to a solicitor experienced in these matters can avoid some of the mistakes we see again and again in wills prepared elsewhere.
1. The testator has failed to take account of lifetime gifts already made. If, say, one child mentioned in the will has also received a lifetime gift in the last seven years, this is still subject to tax and will use up part of the Nil Rate Band. Then, the child or children who have only inherited under the will not only have had to wait for their inheritances, and had less time to benefit from them, but the allocation of tax allowances against the lifetime gifts before the death estate will mean their gifts have borne more tax – a double disadvantage which even an equalising legacy in the will does not wholly offset. Instead, the will should have equalised the tax borne collectively by all the various assets.
2. The executors may not even know of the lifetime gifts (or may think HMRC will not discover them!) but they will still be liable to account for the tax even if it was actually the lifetime beneficiary who should have paid it. This becomes even worse if the executors then distribute the death estate before discovering the lifetime gifts, at which point HMRC may hold them personally liable to pay the tax whether or not any estate assets remain which would have covered it.
3. Specific gifts are made in the will, usually of freehold or leasehold property, with no mention made of how the tax attributable to that asset is to be paid. If nothing is said, tax comes out of residue. At best, this reduces the residue that may pass to other beneficiaries, at worst, it eliminates residue altogether. If the testator has not given the total value of the estate any real thought, the tax on the specific gift may even be greater than the rest of the estate. In all these cases, the distribution of the estate will be very different from what the testator intended.
Many difficulties arise simply because the will has not been reviewed often enough. For example, the value of a specific gift may have risen far faster than the value of other assets – typically, the testator’s own home – giving rise to one of the problems in 3 above. It is safer to review your Will at least once every five years and speak to someone who can discuss with you changes in personal circumstances or in the law itself.
*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*
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