Inheritance and Succession Law in the melting pot for Scotland in 2016, says Gillespie Macandrew
Everything to do with inheritance and succession planning has been thrown into the melting pot.
Or that is how it might feel, says Lianne Lodge of Scottish legal firm Gillespie Macandrew, and with numerous changes to inheritance law on the horizon, 2016 provides an ideal opportunity for individuals to take some simple and effective steps towards organising a succession plan.
Since the Scottish Government announced plans to change inheritance laws back in November 2014 there have been two formal consultations, the first of which resulted in the Succession (Scotland) Bill. This Bill contains mostly technical changes to the operation of succession law set for enactment before the May 2016 election. It includes changes such as if a Will is written before a divorce under the new law any provision relating to a former spouse no longer takes effect unless specifically requested.
However, according to Lianne, an associate with Gillespie Macandrew, it is the second consultation which is more likely to result in major changes if the government elects to take these forward. She says:
“Around 60 per cent of people in Scotland die intestate (without a Will) and as a result their estate is divided up using a series of complex rules which can result in uncertainty depending on what property is left in the estate. The government wants to simplify these rules to give children and cohabitants more rights, but any changes to the law could have major implications on what happens to a person’s property should they die without leaving a Will.
“Although a second Bill introducing changes to the law on intestacy is unlikely before May there is a clear intention to make changes here. If you don’t have a Will, 2016 might be the year to get one.”
There are also proposed changes to Legal Rights which is a statutory entitlement for spouses and/or children regardless of the terms of someone’s Will. In Scotland it is not possible to completely disinherit a child as they have rights to an estate regardless of the Will. Up until now these rights have only related to moveable property (generally everything other than land or buildings) but there is a move to change this so all property is taken into account. This change may drastically alter a person’s planning needs and therefore advice should be taken.
Also key to 2016 planning should be watching out for Inheritance Tax (IHT) announcements. IHT is generally paid at 40 per cent on anything in an estate worth over £325,000, known as the nil-rate band, unless it is left to a spouse or other exempt beneficiary e.g. a charity. There are also some reliefs available in relation to business or agricultural property. With the introduction of the transferrable Nil Rate Band in 2007 most spouses currently have an allowance of £650,000 which they can give away on death tax free with the balance generally being taxed at 40%.
From next year the UK Government is introducing a family home allowance, which increases the nil-rate band for everyone in the UK. This allowance comes into effect from April 2017 and will increase every year until 2020 when it will be possible to leave assets amounting to £500,000 (or £1million if you’re married or in a civil partnership) to their direct descendants (including step, adopted or fostered children) without them being liable for IHT. This means, depending on the assets involved, spouses may be able to give away up to £1million of assets on death without having to pay any inheritance tax.
“For those looking to downsize a current property this year but still want to take advantage of their allowance there’s good news. Downsizing a home is eligible for an “inheritance tax credit” providing the majority of an estate goes to the descendants and the new IHT threshold will still apply.
“When redrafting a Will this year keep the allowance thresholds in mind, and if selling a home and speak to a solicitor about inheritance tax credit to take full advantage of the nil-rate increase when it comes.”
Finally, if there are assets above the nil-rate band, gifting might be an option but it is something that needs to be planned in advance. The general rule is that the value of any financial gifts made within seven years of death is added back into the estate when inheritance tax liability is calculated unless it falls into a limited number of exemptions.
One example Lianne gives is in the case of a family wedding,
“If there is a family wedding this year it is possible to opt to make a financial gift in consideration of marriage (as long as it is below certain thresholds.) It is also possible to make any number of small gifts below £250 and give up to an additional £3,000 worth of gifts each year, known as the annual exemption, and if the whole amount is not used one year it can roll into the next.
“So even if you do not like to think about the fact that you will not live forever, it is good to make plans which will look after your family and loved ones to the best of your ability. Keeping abreast of the regulations and knowing what you can do within the law is well worthwhile and may make all the difference to the comfort and well-being of those you love when the time comes.”
Notes to Editors
For further information please contact Felicity MacFarlane or Elizabeth Lambley at Indigo on 0131 554 1230