Where there's a WillPosted on: 15 November 2013 by 50connect editorial
Free Wills month allows you to update or create a Will without cost. So what's stopping you?
November – or Movember – is not only a time for growing a charitable moustache. It’s also the month of “Will Aid” when participating solicitors will draft you a Will for “no fee”. Such rare generosity from the legal profession has raised over £100m in its 25 years through the clients’ donations rather than fees. (1)
The role of the solicitor is crucial to drafting a will; no less important is the input of your financial adviser. The solicitor will tell you what you can and can’t do; what’s avoidance and what’s evasion; and will attempt to make your instructions as clear as possible so there are no misunderstandings or disputes once you have gone.
But it’s the financial adviser who can best prepare a way – if there is one - through the most unfair, unpopular and frustrating tax maze of them all, Inheritance Tax.
Why is it so unpopular? Because it is so unfair! You work hard, pay your taxes, and use most of what is left of your hard-earned money into creating a home and a future for family.
Yet the Chancellor feels entitled to plunder another chunk of your estate, on which you have already paid taxes, just because you’ve passed away?
Life after death is about to get as bad as it’s ever been in the Inheritance Tax’s 120-year history. HM Revenue & Customs has launched a massive crackdown on IHT evasion and will be increasingly investigating people’s tax affairs after their death. (2)
Make no mistake, this is a tax on the middle class, not the rich. The rich have the resources and flexibility to evade IHT legally, through switching properties, complicated trusts and years of experience of keeping things in the family. (2)
It wouldn’t be a problem if George Osborne had kept to his 2007 promise of raising the IHT threshold to £1m when the Tories came to power. Instead, the Chancellor has recently announced the IHT limit of £325,000 is going to be frozen to 2019. (2)
The problem is that the majority of us have just one major asset – our home. That means there is no escape or scope to use the tricks of the rich. It’s just too risky. And it hits the south of England most severely because of house prices.
The UK average property price is £247,000 – the highest figure recorded since the index was first calculated in 1968. (3) In the South-East, that average is £281,148 with detached properties averaging £454,000 when sold. (4)
There’s the rub. Why shouldn’t the Chancellor get his share when you’ve bought a property for £250,000 and it’s now approaching the £1/2million mark. That looks like you’ve made a gain of over £200,000 without actually doing anything!
It’s not that simple.
Let’s say you bought the house with a £50,000 deposit and 25-year £200,000 mortgage and an average interest of 8% over that period. To own that house outright, you will have paid that initial £50,000, repaid the £200,000 loan and also paid £263,000 in interest – a grand total of £513,000 – more than likely all from money that has already been taxed. (5)
Small wonder families resent Inheritance Tax. A much fairer way would be to exempt the family home from the IHT equation – but reduce the IHT limited to around £150,000. Even if the HMRC allowed the value of property in your region as the exempt figure, it would be a much fairer system.
That way you aren’t penalising those who have focused on building a future for their children – or those who happened to live in the south of England.
A cynic may say that this Coalition, just as the previous Government did, has observed the Brits love of property ownership through Thatcher’s legacy and is going to milk that affection as often and for as much as they can.
“Will Aid” gives you a great opportunity to take advice and update your will. No longer can you place the will in a drawer, forget about it for a couple of decades before it’s retrieved and read to a grieving, but grateful audience.
Our Lords and Masters continually move the goal-posts, change the pitch and often the name of the game as they dream up new ways of increasing the Exchequers coffers, whether it’s fair or not. That is why an annual review of your will is more than sensible.
HMRC now make a big play of the fact that estates that give away 10% or more of the total assets to charity pay a reduced 36% rate on the remainder above the threshold limit. (2) Big deal! When you are living, if you give £100 to charity, they can claim back Gift Aid, another £25 – and if you are a 45% taxpayer, you can claim back another £31.25. That’s how £68.75 is worth £125 to a charity when you are alive. (6)
There are other ways of softening the IHT blow – Gifts out of Income, Gifts, Transfer of Assets, Discretionary Trusts and Enterprise Investment Schemes, among others – but it’s no place for the amateur or uninitiated. (2)
Skimping on advice when preparing to draft a will might save a few pounds today, but it could cost your heirs thousands. And those thousands will, sadly, end up in the Chancellor’s pocket, and may even assist in the building of a couple of centimetres of track for the High-Speed 2 rail link!
The value of shares and investments can go down as well as up. Your home may be repossessed if you do not keep up repayments on your mortgage.
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