The subject of inheritance claims and inheritance tax can often be contentious as people rightly seek to receive what they believe they are entitled to. Providing clients with guidance on the current laws is key to enabling them to attain what they are legally allowed.
The Inheritance Act 1975 was an important piece of legislation to set into law, given that it allows people to make a claim if they believe they are entitled to some, or all, of a person's estate when they have passed away.
While to some, outside the legal profession, it may sound subject to abuse, it has most commonly been used in the case of a husband or wife, or civil partner, who has been left out of the deceased's will, or there was no will at all. Historically, the success of such claims have not been reliant on whether they require the inheritance for maintenance. Instead, it is often seen that the spouse should enjoy the same quality of life they did before their life partner sadly died.
In such cases where it is not a spouse making a claim, there is, importantly, an order which stipulates priority of who can. Perhaps even more key is that a person can only make an inheritance claim when no relatives are alive or exist above them in that order.
Inheritance tax in 2021
The biggest inheritance claims news in recent years is that inheritance tax laws have changed, which saw the threshold for what many individuals may have to pay tax on increase.
Knowing how this applies to clients is fundamental. Thanks to the introduction of the Residence Nil Rate Band (RNRB) in 2017, which now equates to an extra £175,000 of tax-free allowance if the deceased has left their main residence to a direct descendent, it may make a big difference to a person. This may be more the case when taking into account the £325,000 basic inheritance tax threshold. The net result can therefore be that a person can leave up to £1 million to their descendants, tax-free. Given how house prices are at a historic high, this will be a material improvement to the inheritance tax laws for many.
However, there will still be a large number of clients whose estates are over £1 million. Providing them with advice on how to reduce the inheritance tax bill of beneficiaries through gifts or exempted gifts allows them to make fully informed decisions on how to write their will. This will be of particular interest to those who have an estate of over £2 million due to the tapering methodology employed in calculating inheritance tax.
Inheritance claims news
Despite the recent changes in inheritance tax laws, many argue that they only benefit those with children. Inheritance claims and inheritance tax laws can sometimes be a complex and delicate issue, as shown by the sad case of Alan and Margaret Bailey who passed away in 2019 with no children. While the higher inheritance tax threshold will be welcomed by a lot of people, many individuals will still be looking to minimise their tax bill - whether they have children or not. Knowing the laws around gifting and what counts towards the value of an estate is therefore crucial.