Wealth Management Update August 2023

INTESTACY LIMITS RAISED

The UK government has changed the amount you can now leave as a statutory legacy. The statutory legacy is the amount which a surviving spouse or civil partner is entitled to before the estate is divided, should an individual die without a Will, but with children. Currently, the amount is £270,000 but this will increase to £322,000 from 26 July 2023.

This change, whilst more beneficial to spouses, only serves to highlight the need to have a proper Will in place. If you don’t put a Will in place, only a small portion of the estate will pass to your spouse if you also have children. Think of the ways that could negatively impact your husband or wife financially. Or consider the results of your children receiving a large inheritance with no protection or guidance on how to best use it.

A reminder of the new process and limits is below. But the biggest reminder is to make sure you have a valid Will in place that reflects your wishes, otherwise where your money ends up will be decided for you, and it might not be what you wanted.

If you would like a member of our Legal Team to review your current Will, and to discuss updating this very important document, please do not hesitate to contact us.

INHERITANCE TAX INTEREST ON THE RISE

In case you missed it, a further increase in interest rates on unpaid IHT was announced from 11th July.

So, whilst rising interest rates can be a good thing for cash in the bank, it clearly has negative implications elsewhere.

The interest rate was all the way down at 0.5% in 2020 and has recently doubled from 2% at the end of 2022 to 4% in July 2023 and more rises could be on the horizon if interest rates continue to increase. So, if you want to avoid getting charged interest on an IHT bill you are dealing with, (and we would suggest you do) then you will need to make sure any IHT due on a deceased’s estate is paid promptly by the end of the 6^th month after the date of death.

If you or anyone you know needs any help with the probate process or navigating the complicated job of being an executor, please get in touch with our Legal department who will be happy to help.

Source: Inheritance Tax thresholds and interest rates – GOV.UK (www.gov.uk)

INHERITIANCE TAX HAUL

Speaking of inheritance tax, we thought it might be interesting for you to know that the Treasury is currently collecting IHT at a rate of £22m per day!

And it keeps rising! The figures for June 2023 are the highest monthly total on record with the interest rates mentioned above being a contributing factor.

IHT has increased considerably over the years due to frozen tax-free thresholds and rising house prices and so if things don’t change, we can expect to see these amounts rise even further.

However, there are usually ways to mitigate IHT and it is regularly referred to as a ‘voluntary’ tax. We like to think that too, and have become experts in saving our clients IHT over the years.

So, if you or someone you know needs help avoiding IHT then get in touch.

Source: HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin) – GOV.UK (www.gov.uk)

DON’T SIGN YOUR HOME AWAY

A case that has been in the news recently acts as a word of warning to anyone thinking of transferring their homes to family members (usually their adult children) to try and avoid Inheritance Tax.

In this example, a mother and daughter lived together in a home that had been split into two private flats. The mother gifted the freehold of the home to her daughter to try and avoid IHT, but she has recently repossessed the £1.4m property.

The reports state that the relationship between mother and daughter was very good until changes in the family set-up in 2008 resulted in a relationship breakdown.

The recent repossession of the property came after more than 10 years of legal battles and court appearances where both sides argued their case. But in the end, the judge ruled in the favour of the daughter as there was clear evidence that the transfer of the property was done willingly by her mother and for the purposes of avoiding IHT.

Transferring the ownership of your home, which in many cases is your biggest single asset, to avoid IHT can be a very tempting proposition. But we think you would agree that this scenario acts as a stark warning and reminder that family relationships are some of the most volatile connections we have.

In addition to the risk of repossession (which should surely be enough on its own!), there are other issues which can arise. For example, the property can become part of marital assets, and at-risk upon divorce, or if the new legal owner gets into debt, it can be repossessed.

There are so many ways to avoid IHT, this is never one we would recommend. The risks are simply too high.

INFLATION, INFLATION, INFLATION

Currently, inflation, which is the rate prices rise at, is 7.9% – nearly four times the Bank’s target of 2%, but down from 8.7% the previous month.

The Bank of England has been increasing interest rates in a bid to combat inflation. Its base rate – which has a direct effect on borrowing costs for things like mortgages and credit cards, but also influences savings rates – is now 5%, up from close to zero 18 months ago.

Some analysts have predicted interest rates will peak at 6.5%-7%, but as inflation has finally started to fall, others think that there will be no more immediate interest rate rises on the horizon. Especially because mortgage rates finally fell for the first time in 2 months after a steep incline recently.

The theory behind raising interest rates is that by making it more expensive for people to borrow money, and more worthwhile for people to save, people will spend less, which will in turn lead to price rises to slow.

The Bank of England has previously warned big pay rises are contributing to the UK’s still-high rates of inflation, but there have also been accusations that some sectors have been profiteering by overcharging customers and recently that banks have not been fully passing on the higher interest rates to their savers.

With an average 2-year fixed rate mortgage interest rate above 6% and an average instant access savings account with interest of around 2.5% they might have a point!

If you would like to speak with one of our Mortgage Advisers about anything discussed here, please do not hesitate to contact our team.