With an ever changing tax landscape (both known changes and general volatility in the UK tax landscape), now may be the prudent time to review and, if necessary, change your Will.

With recent changes affecting much used tax reliefs for both trading businesses (Business Property Relief) and agriculture property (Agricultural Property Relief), in addition to a unused pension funds on death being subject to inheritance tax from 6 April 2027, it has never been more important for individuals to consider if their Wills ensure that all reliefs and exemptions can be claimed in addition to the succession plans. Additionally, these changes have the real potential to significantly skew the mechanics of your Will and estate planning strategy (particularly the inheritance tax liability on death not falling how it previously did before these rule changes).

Given our unique offering (having a legal business and accountancy and tax advisory business in the same group), we can work seamlessly alongside our sister legal business, RRL Wills, to ensure that adequate thought and consideration is given to maximising tax efficiency in your estate planning strategy and ensuring your Wills are drafted to reflect this.

Why your existing Will may no longer be appropriate

A Will is not a static document. Changes in legislation can significantly alter the tax consequences of a distribution strategy that may have been perfectly sensible when the Will was originally prepared.

At this time you should review your Will in addition to each of the following:-

• The composition and value of your estate.
• The availability of inheritance tax reliefs, such as Agriculture Property Relief (APR) and Business Property Relief (BPR) on qualifying assets.
• The value of pension benefits and death benefits and ensuring that relevant nominations are in place (as the distribution of unused pension fund on death are not dealt with via your Will – contrary to popular belief).
• The extent to which available nil-rate bands are being utilised, and how the above tax changes (and others) may impact the availability of the nil-rate bands.
• Whether charitable gifts remain appropriate and tax efficient.

In addition to the above it is also important to ensure that the Will is drafted to maximise reliefs and exemptions, as many changes have been suggested to ensure that this remains the case. For example, it is now advised to ensure that any business assets are separately carved out within the Will (even if such assets pass to their own trust within the Will), rather than including the same within the residuary estate.

It is also strongly advised to seek advice in lifetime to ensure that any anticipated reliefs and exemptions are actually available, and the position is maximised and made as robust as possible.

Another example for review is charity gifts, where a percentage is left to a charity as this may be drastically impacted with pension funds being taxed after April 2027.

The above are mere examples of a complex plethora of matters for review.

We set out below some particular areas for review.

APR and BPR

For many years APR and BPR have provided substantial relief from inheritance tax. A reduction in the relief will now cause an unexpected inheritance tax liability for many and the issue of raising the funds to settle such liability.

In some circumstances, a different distribution strategy may achieve a more favourable overall tax outcome, while still preserving family succession objectives.

Lifetime planning should also be considered, with a view to banking the availability of the reliefs now – this is particularly relevant in the following circumstances:

• There is the potential for the qualifying asset to be sold.
• There is the potential for the qualifying trade or agricultural activity to cease.
• For businesses, where there is significant investment activity in the business or corporate group; and/or
• Where legislative change is a concern e.g. reduction in the 100% APR and BPR allowance from the current £2,500,000 per individual.

Pensions

This change not only brings about potential significant additional inheritance tax liability, but also a significant additional burden for the executors of the estate.

Executors will be responsible for ensuring that any inheritance tax due on the pension fund is paid, yet they will have no control over the unused pension funds, as the unused pension funds do not form part of the death estate. The result is a huge further risk for executors. There is a large amount of additional administrative obligations that executors will need to fulfil in this regard. Therefore, you should ensure that your appointed executors will be suitable for the administrative burden, and consider guiding your executors to seek professional input from tax and probate/estate administration specialists (such as us), to assist your chosen executors with the probate and estate administration process.

Alongside a review of your Will, a review of the nominations of pension death benefits that are in place, should also be reviewed. It is key to ensure that relevant, valid nominations are in place – as explained above, the distribution of unused pension funds on death are not dealt with via your Will – contrary to (popular misconception).

Charitable gifts

Gifts to qualifying charities are generally exempt from inheritance tax. In addition, where at least 10% of a person’s net estate is left to charity, the rate of inheritance tax applying to the remainder of the taxable estate, may be reduced from 40% to 36%. However, recommendations now advise to review the wording of such gifts, to ensure that this does not inadvertently include assets or funds that are not intended – for example pension funds, if the Will refers to taxable assets.

The interaction between charitable gifts, nil rate bands and other inheritance tax reliefs should be carefully considered when drafting or revising a Will.

Additionally, new restrictions on the availability of the exemption for gifts, into charitable trusts created via the Will, need to be considered by those with current Wills with such trusts included.

Residence nil rate band

An important consideration for clients with substantial estate (whilst considering the significant increase to the chargeable estate, that could result from the changes to unused pension funds on death from 6 April 2027), is the potential loss of the Residence Nil Rate Band (RNRB).

The RNRB currently provides an additional inheritance tax allowance of up to £175,000 per individual (£350,000 for a married couple or civil partners, where allowances are transferable), provided a qualifying residence passes to direct descendants. This can increase the total inheritance tax-free allowance available to a couple to as much as £1 million.

The RNRB is however, tapered for larger estates, being those exceeding £2 million and will be lost for many.

With careful lifetime planning and structuring of the Wills it may be possible to preserve some, if not all, of the allowance which could result in an immediate inheritance tax saving, of up to £140,000 for married couples or civil partners.

Cohabitation

Although no changes have yet taken place, the definition of cohabitation is currently being reviewed, and this will likely impact Wills or potential claims from cohabitees once enacted.

Who should consider reviewing their Will?

A review is particularly important if you:

• Have pension savings that are not in the form of an annuity.
• Have not reviewed your Will in the last three to five years.
• Have experienced significant changes in family circumstances.
• Own a trading business, agricultural property, or investment assets.
• Leave charitable gifts in the Will, particularly a percentage of the residuary estate, or have a charitable trust included in the terms of your current Will.
• Have an estate that may be subject to inheritance tax.
• Have established trusts as part of your estate planning.

We Are Here to Help  

If you would like us to review your current inheritance tax position (factoring in the known tax changes), discuss any of these matters in more detail, and/or consider wider estate planning opportunities, please contact us and along with our sister company RRL LLP, we can provide a comprehensive review that can help ensure that your estate is structured efficiently and that beneficiaries receive the maximum possible benefit from available reliefs and exemptions.

RRL Wills can then review your existing Will, in line with the above advice to provide a seamlessly co-ordinated offering.