Inheritance of wealth continues to be a hot political potato in the UK as in many other countries as two very different commentaries show.
Inheritance of wealth continues to be a hot political potato in the UK as in many other countries where cries of “unfairness” or support for intergenerational asset transfer create often sharp divisions of opinion. In the UK, new rules (for England and Wales) have come into force designed ostensibly to tidy up older laws on inheritance. Separately, a new survey shows how a heavy majority of UK citizens expect to inherit.
A six-year review culminating in significant changes to UK intestacy law is due to take effect from today.
What is called the Inheritance and Trustees’ Powers Act 2014 changes several supposed anomalies and old legal complexities. However, James Ward, from the law firm Seddons, has argued that cohabiting partners, children from previous marriages, parents and siblings may now be overlooked and ignored.
“These attempts to modernise the intestacy laws in order to better deal with the complexities of contemporary family life should be welcomed. However, the reforms coming into play on 1 October do not significantly protect cohabiting partners, children from previous marriages or wider family members,” Ward said in a statement.
“It is now more important than ever for individuals with children from a previous marriage to make a will, as under these new laws, the first £250,000 ($405,159) plus half of the remainder of the assets will be left automatically to the new spouse. The rest will go to the deceased’s children in equal shares. The change sees the life interest trust over the spouse’s half share of the assets disappear meaning that assets falling in that half share are never likely to go back to the children of the first marriage, as they did under the previous rules. An untimely death may, therefore, see your second spouse take over 50 per cent of everything.”
“If a married individual dies leaving no children, then assets will pass automatically to their spouse. Previously, after a statutory legacy of £450,000, half of this would have gone to the parents or siblings. In new marriages, having the spouse take everything may not have been the intention of the deceased,” he continued.
Ward goes on to argue that the new rules mean that unmarried, cohabiting partners still have “no legal intestacy rights”.
“It is a shame that the Law Commission’s recommendation of a co-habitation bill has not yet been taken up by Parliament, as this would have given unmarried partners who had lived together for more than five years (reducing to two years, if the couple had a child together) substantial legal rights and protection,” he continued.
On a separate tack, highlighting what is at stake in the UK inheritance legal regime, a survey from Investec Wealth & Investment, part of Investec, shows that one in three (30 per cent) adults expects to receive an inheritance of which 16 per cent estimate is likely to be worth over the inheritance tax threshold of £325,000.
According to the firm’s report, almost half (47 per cent) of those expecting to receive an inheritance windfall plan to pay off some or all of their mortgage and other debts. Over half (56 per cent) intend to put the money into a savings account and 20 per cent to invest it in funds, stocks and shares. One in five (20 per cent) plan to invest their inheritance in property and 10 per cent will use it to fund their children’s education.
IW&I’s analysis showed that 16,000 estates paid out £2.6 billion at an average of £165,920 each. The number of families facing an IHT bill is likely to grow dramatically in future years due to rising house prices and the recovering economy, the report said.