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Avoiding the inheritance tax trap: learning lessons from Rik Mayall

Avoiding the inheritance tax trap: learning lessons from Rik Mayall

It has recently been reported that comedian Rik Mayall failed to make a will before he died in June 2014, with potentially significant tax consequences for his family that he left behind. The rules on intestacy – dying without a will – changed last October. The result is that there are slight differences in the way that the law treats people who died before and after 1 October 2014.

Dying intestate and the implications

Despite suffering a serious head injury in a near-death quad bike accident in 1998, probate records have suggested that Rik Mayall died without making a will. The comedian and actor died unexpectedly in June 2014, aged just 56. As such, his £1.2 million estate will be dealt with under the rules of intestacy, which could leave his family with a large inheritance tax bill.

In October 2014, the Inheritance and Trustees Powers Act came into force bringing changes to the rules of intestacy. Where there are no children, the estate of the deceased will now pass to their spouse or civil partner absolutely. Where there are children, the spouse or civil partner will receive a half share absolutely, rather than the life interest they would have received before the changes. The definition of chattels – personal possessions – has also been amended to include property consisting of money or security for money; property used solely or mainly for business purposes or held solely as an investment.

Mr Mayall was married, with three children when he died. As he died before October 2014, assets of up to £250,000 will pass to his wife. His assets above that limit will then be split 50/50 between his wife and his children, with his wife taking a “life interest” in those assets above £250,000. This will mean that she is able to take the interest from this share but is not able to spend the capital, as this will then pass to their children on her death. However, had Mr Mayall died after October 2014, the life interest distinction would no longer apply, and his wife would be free to spend, and dispose of, the capital.

Perhaps most significantly is the fact that without a will, tax will now be paid on his children’s inheritance. Under inheritance tax rules – both before and after October 2014 – spouses and civil partners can bequeath any amount to each other without attracting tax. However, assets distributed to children will trigger the payment of inheritance tax if they exceed the “nil rate band” of £325,000. With an estimated wealth of £1.2 million, there is a definite likelihood that significant tax payments will fall due. Had Mr Mayall drafted a will, he could have ensured all his wealth passed to his wife on death. She would then have been able to add his “nil rate band” of £325,000 to her own personal allowance, creating a combined allowance of £650,000 tax-free. She would then have had the opportunity to make future plans to limit her future inheritance tax bill, such as giving away assets in her lifetime.

Reducing an inheritance tax bill

As well as taking advantage of the combined spousal allowance, there are other methods of reducing inheritance tax liability. Individuals can give assets away during their lifetimes, which, if they survive for a period of seven years after making the gift, become exempt. Further, every year an individual is able to give gifts worth up to £3,000, as well as make small gifts of £250 to any number of people.

Trusts can also be used to pass down wealth and new provisions regarding pensions can also be utilised to minimize tax exposure where an individual dies before the age of 75.

However, most important is the need to draft and update a valid will.

Protecting your wealth

Drawing up a will is the best way to ensure that your wishes are carried out as you intended after you’ve gone. A will also protects your loved ones and family and minimises the financial worry during what is an upsetting and stressful time. At IBB Solicitors, our wills, trusts and probate solicitors are here to help you plan for your family’s future.

Contact IBB's experienced wills and trusts solicitors today to discuss your inheritance tax and estate planning issue. Call us today on 01494 790002 or email jacqueline.almond@ibblaw.co.uk. Alternatively visit wills, trusts and probate page for more information on how we can help you.