We've said ‘goodbye’ to the old year and a warm welcome to 2015. Recent economic data suggests that a return to the good times is still not quite around the corner; the past six years of austerity will continue beyond next May’s General Election.
But ‘year-end’ is also a time for reflection, and perhaps taking stock, remembering those friends and relatives no longer with us. Often such memories lead to thoughts of our own mortality.
“Death and taxes” have long been stated as the two certainties in life. Inheritance Tax (IHT) brings the two together. Now that the chancellor George Osborne has “smoothed out” the impact of Stamp Duty, IHT probably stands alone as the most despised tax.
After the £325,000 (or for married couples, £650,000) threshold is reached, then the Treasury takes 40% of what remains, much of which may have been taxed once already as income or other gains.
We complain about IHT being unfair, but remarkably many of us fail to take advantage of the tax breaks regarding IHT. Even more astonishing is the numbers who die intestate, without making a will.
Around 180,000 die annually without leaving a will, despite many bodies continually reminding us of the problems this can cause, especially if a breadwinner dies unexpectedly at a young age into today’s complicated financial world.
Coping with the emotional turmoil of sudden death is stressful enough without having to try to re-organise your financial world after discovering you do not have access to your partner’s money or assets, which were part of a shared relationship.
A recent article in Good Housekeeping highlighted the problem. Louise Bailey had to cope when she lost husband, Andrew, aged 50.
“I pretty much knew straight away there was no will. We’d fallen into the typical trap of thinking we would do it when we were older. Midway through the funeral arrangements, I got a call from a probate lawyer.
“Of course I had no choice but to pay – and my lawyer Jane was wonderful – but I was emotionally raw, with no time to heal, instead having to lay bare all of my husband’s finances.
“You are left in financial limbo; it took nine months for everything to be sorted out. The mortgage was in Andrew’s name and he sorted everything out from his account.”
It would save an incredible amount of suffering for our nearest and dearest if we all make our 2015 New Year’s Resolution a commitment to ensure our financial affairs are in order and our intentions are made clear in a will.
It is only when someone sits down with a solicitor to draw up a will do we realise just how complicated our financial lives are in these days of mortgages, pensions, ISA’s and other investments; and that is without any complicated personal family life of second marriages, co-habiting, step-children or a dependant elderly relative.
Much of the planning with an Independent Financial Adviser (IFA) involves the consequences of what the client wants to happen should they die. Often the investor has a clear idea of what he or she wants to do, but fails to follow through by stating these intentions in a will.
Rules regarding dying intestate were revised in October and can be viewed on the gov.uk’s website. It had been expected that the new rules would give some protection to common-law partners over the deceased’s estate if they had lived together for five years.
“One of the initial proposals that was not included in the agreed changes was to include co-habitees in the intestacy rules to reflect living circumstances in today’s society,” revealed James Antoniou, head of wills for the Co-operative Legal Services.
“This would have seen a co-habitee treated like a spouse if they had been living together for at least five years up to death, or if they had children together and had been living together for at least two year up until death.”
The only way to ensure that part, or all, of your estate goes to your partner remains as it was before these changes – marry them, or make a will.
The pecking order in terms of inheritance is:- 1) Children or their descendants; 2) Parents; 3) Brothers or sisters or their descendants; 4) Half siblings or their descendants; 5) Grandparents; 6) Uncles and/or aunts or their descendants; 7: Half uncles and/or aunts or their descendants; 8) Whole estate passes to the Crown.
There’s another reason your IFA recommends you make sure you not only have a will, but also should regularly check it is up-to-date.
The chancellor’s pension revolution, and more recently changes to ISA rules, means that these investments can now be passed on to future generations free of tax and outside IHT.
Pension pots and ISAs can contain substantial amounts and might go some way to fulfilling the Tories’ 2007 promise to raise the IHT threshold to £1 million. The threshold hasn’t moved at all, and is currently frozen until 2018.
The Prime Minister has made a similar £1m promise if he wins next year’s general election. Should we believe him this time? Cameron blames the Liberal Democrats and the fact it’s a Coalition government for failing to deliver this time.
In the chancellor’s Budget statement, Her Majesty’s Revenue and Customs (HMRC) revealed that about 150,000 married people die each year with ISA’s worth, on average, just under £30,000. The ISA’s tax-free status used to “die” with its owner.
Now, a widow or widower can inherit those ISA savings; they will keep their tax-free status and will not affect the recipient’s own ISA holding.
“Allowing the transfer of Isa assets to spouses and civil partners on death provides a fairer outcome, especially for retired women. It will act as a further incentive to save in ISAs,” explained Carol Knight, operations director of Tisa (the Tax Incentivised Savings Association).
With poor interest rates on ISA accounts, Osborne’s change is a boost for this form of saving and investment. HMRC figures for the tax year ended in April 2014 showed that around £470billion is held in “adult” ISA’s.
Even though these new rules come into effect on April 6 next year, the chancellor declared that anyone who died on or after the date of the autumn statement (December 3rd) would benefit.
Many of us will have seen in 2015 with the promise of making sure their financial affairs were in order – maybe you did the same last year – but this time actually go and do something about it!
For a free, no obligation initial chat about your individual finances, call us on 0800 0112825, e-mail [email protected] or take a look at our website www.wwfp.net.
About the Author / Gareth Hargreaves
Gareth looks after all editorial content on 50connect. He is the Swiss Army knife of content ideas and production.
