If someone were to die intestate leaving a spouse / civil partner (CP) and no issue (children, grandchildren, and great-grandchildren), the spouse / CP would receive everything. If the deceased had a surviving spouse / CP and issue, the surviving spouse / CP would receive the first £270,000 of the estate plus all personal chattels (possessions). Any remaining assets of the residuary estate would then be divided into two shares, with one passing to the surviving spouse / CP and the other share being divided between issue. Note that the spouse / CP would inherit even if they no longer lived with the deceased at the time of death, or if they were separated (but not divorced).
Should the deceased have no spouse / CP or issue, or if they were not to survive the decease, a strict order is followed with regard to inheritance. The surviving parent of the deceased will inherit the estate and if both alive, then in equal shares. Subject to that, the estate would pass to the deceased’s brothers and sisters, and to their own children in substitution (nieces and nephews of the deceased). The half-brothers and half-sisters would be next, and to their own children in substation. If this were not possible, it would pass to the surviving grandparents in equal shares. Should this not be possible, then the estate would pass to any aunts and uncles of the deceased in equal shares, and to their own children in substitution (cousins of the deceased). Subject to that, the estate would pass to any half-aunts and half-uncles, and to their own children in substitution.
If there were no surviving blood relatives, then the estate would pass to the Crown.
There is currently no forced heirship in England and Wales, this therefore means that people are free to leave their property as they wish by making a Will. There is an exception to this, which covers the situation in which the deceased has been financially supporting someone up until the time of their death, but then does not make provision for that person in their Will. This can lead to a claim under the Inheritance (Provisions for Family and Dependants) Act 1975.
To create a valid Will in England and Wales, the testator (the person making the Will) needs to have the necessary capacity to make a Will, the intention to make a Will and also, they must observe the formalities for execution of Wills which is contained within the Wills Act 1837.
To have the necessary capacity the testator must be 18 or over, must not be suffering from any insane delusion affecting the disposition of property and they must have the requisite mental capacity to make a Will. To have this mental capacity, the testator must understand the nature of the act (putting a Will into place) and its broad effects, understand the extent of his own property and understand the moral claims that should be considered.
The testator must have the intention to make a Will, and more specifically, they must have the intention to put the Will they are executing in place.
The formalities (which must be followed when putting a valid Will in place) are included in Section 9 of the Wills Act 1837. These specifically state that the Will must be in writing and signed by the testator (or by someone on his behalf in his presence), the signature of the testator must be intended to give effect to the Will and this signature must be made or acknowledged in the presence of two or more witnesses present at the same time. These witnesses must also sign the will in the presence of the testator.
Inheritance tax is charged when the estate is not exempt (passing to the spouse / CP for example) and if the value of the estate is in excess of all available reliefs. Currently, to be chargeable to inheritance tax, the estate for a single individual will need to have a value of more than £325,000 (the Nil Rate Band). Where a spouse / CP leaves their estate to their spouse, they will not use this Nil Rate Band, meaning that it can be carried over. Therefore, it is possible for the second spouse / CP to have an available Nil Rate Band of £650,000.
In addition to this, if the deceased has left their primary property to lineal descendants (children and grandchildren), then they will also be able to leave £175,000 free of tax (known as the Residential Nil Rate Band). Again, where a spouse / CP leaves their primary property to the surviving spouse / CP, on the second spouse’s / CP’s death there will be a carry-over of this Residential Nil Rate Band. This means a possible £350,000 can be passed free of tax.
Lifetime gifts will not be charged to inheritance tax provided that the donor survives for 7 years following the date of the gift or provided that the gift is exempt (£3,000 can be given away per year, for example, as well as other relatively small exemptions). If the donor were to die within the 7 years, the available Nil Rate Band on death would be reduced by the value of the gift. There is a taper relief for tax which would be charged.
Some lifetime gifts are chargeable at the point of transfer (lifetime chargeable gifts), this is where a gift passed into a Discretionary Trust (unless exempt) over a certain amount. However, these gifts are charged at half of the death rate (i.e. at 20%), and will not be actually payable unless they are in excess of the Nil Rate Band (£325,000).
Inheritance tax is charged at 40% on any the value of the estate which is more than any available reliefs. Should the testator choose to leave 10%+ of their estate to charity, then inheritance tax rate will be reduced to 36%.
This information was compiled by Streathers Solicitors.