Tax and writing a will

Updated on 5 April 2018

You should make a will, even if you think you do not have much money or many possessions. A will gives you the chance to set out clearly who should get what from your estate when you die. This not only means that your wishes are likely to be followed after your death, but it makes the administration of your estate simpler for your executor. In addition, you can make sure that you make the best use of the inheritance tax reliefs and exemptions. 

What is a will and what is intestacy?

It is important to make a will, because a will means that you can decide who gets what, rather than leaving it up to the law. You appoint one or more people to be an executor or personal representative in your will. This can be a member of your family, a friend or professional person, such as a solicitor.

It is usually wise to obtain legal help with drafting a will. There is a section on the GOV.UK website providing guidance on this.

As well as making a will you can also have a 'Letter of Wishes', which will make certain requests of your executor. This type of letter is useful for setting out how you want to divide your personal effects and other small, non-valuable items.

You should also make sure that people know where to find your will.

If you die without making a will, this is called dying 'intestate'. If you die intestate, your estate is divided up between your spouse or civil partner and family in accordance with the law. This may be different from your own wishes. It also means that some people that you want to benefit from your estate, for example, a partner you are not married to or in a registered civil partnership with, might get nothing.

If you die intestate, the person who will deal with your estate will be called an administrator (executor in Scotland).

The rules for dividing up an intestate estate in Scotland and Northern Ireland are different from those in England and Wales. You can use the quick answer tool on the GOV.UK website to see how an intestate estate might be divided. In Scotland, if you lived with someone before they died but were not married to or in a civil partnership with them you may be able to make a claim on their estate if they have not left a will. Further details can be found in a booklet available on the Scottish Government website.

If you die without making a will and you have no known family, your property passes to the Crown. This ownerless property is known as ‘bona vacantia’. There is more information on unclaimed estates on the GOV.UK website.

Note – in Scotland, whatever a will says, there are ‘legal rights’ that can be claimed by certain people, such as the surviving spouse or civil partner and surviving children. You can find out more about legal rights on the Scottish Government website.

There are also laws affecting other parts of the UK under which family or dependants of a deceased person can ‘contest’ the will if inadequate provision has been made for them in the deceased’s estate. This is a complex area of law and legal advice is likely to be needed.

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What does an executor or personal representative do?

If you make a will, the person you name as an executor – also called a personal representative – is the person who will deal with your estate when you die.

If you die intestate, the person who deals with your estate is known as an administrator. In Scotland, the person who deals with an intestate estate is an executor.

There is more information on the role of the personal representative on our page, ‘what if I am an executor or personal representative?’.

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What is a beneficiary?

When you die, your beneficiaries are the people who are either:

  • named in your will as someone who will receive assets or cash from your estate; or
  • someone who is entitled to receive assets from your estate if you die intestate.

You can leave specific assets to particular beneficiaries, for example your house, or you can just leave some beneficiaries a share of what is left after all other gifts, tax and expenses have been paid – this is known as a share of the ‘residue’.

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Do I need to make gifts?

If you think your estate might exceed the inheritance tax nil rate band when you die, you might want to consider making some lifetime gifts. The inheritance tax nil rate band is exceeded if, generally speaking, the value of your taxable estate on death, plus any chargeable gifts made within the previous seven years, is more than £325,000.

If your spouse or civil partner has predeceased you, and the value of their taxable estate was less than their nil rate band, you can add the balance of their nil rate band to your own when you die. .

If you have a residence (or have sold a residence and have funds available from the sale), and the residence or sale proceeds is left to your direct descendants, you can also add a portion of its value to your nil rate band on death; but this ‘residence nil rate band’ does not apply to lifetime gifts.

Some gifts, such as gifts to charities or to one’s spouse or civil partner, are exempt from inheritance tax and these are not included in the nil rate band.

We give some general guidance on gifts on our inheritance tax page. But if you have an estate valued over the inheritance tax nil rate band, it is advisable to seek advice, for example from a Chartered Tax Adviser or member of the Society of Trusts and Estates Practitioners (STEP), on the likely inheritance tax consequences of lifetime gifts.

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What happens to my home when I die?

If you own your home, it becomes part of your estate when you die, which means your estate may be chargeable to inheritance tax. Whether or not inheritance tax is due depends on the value of your total estate for inheritance tax purposes and who you leave your home to.

If you own your home as a 'joint tenant' with your spouse or civil partner, when you die, your spouse or civil partner will automatically inherit the home. Your will does not affect this. There is no inheritance tax to pay in respect of the home on the death of the first partner, because gifts to your spouse or civil partner are exempt for inheritance tax purposes. Nor does a transfer to your spouse or civil partner use any of your inheritance tax nil rate band.

If your spouse or civil partner is not domiciled in the UK, you may need to seek advice from a tax adviser because only £325,000 of gifts are exempt. You can find a tax adviser on the Chartered Institute of Taxation website.

If you own a property as a 'tenant in common' with another person, whether or not they are your spouse or civil partner, you each own a share of the property. This means that you can use your will to leave your share in the property to whomever you choose. If you leave your share to your spouse or civil partner, there is no inheritance tax due. You may however choose to leave your share to your children, for example. This reduces the size of the taxable estate of your surviving spouse or civil partner. However, the transfer is not exempt for inheritance tax purposes, so there may be inheritance tax due on your estate if it exceeds the threshold.

From 6 April 2017, the value of an estate that can be left without inheritance tax being charged increases from the basic ‘nil rate band’ of £325,000 if the deceased leaves a residence (or former residence) to his or her direct descendants. Relief might also be due if a residence was sold before death, for example because the deceased had to go into care. This extra ‘residence nil rate band’ is explained further on GOV.UK. If you need advice on this, we would recommend getting help from a tax professional such as a Chartered Tax Adviser.

For more information on inheritance tax and death, go to the section ‘what is inheritance tax?’.

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Can I reduce my inheritance tax liability by giving to charity?

If your taxable estate is worth more than the inheritance tax nil rate band (currently £325,000) when you die, inheritance tax may be payable. The rate of inheritance tax on death is 40% – this only applies to the part of the estate that exceeds the £325,000 threshold.

Inheritance tax will be due at a reduced rate of 36% if you leave at least 10% of your estate to a qualifying charity.

The rules for obtaining the reduced rate are very complex – we suggest that you seek advice if you think you would like to take advantage of them. You can find a tax adviser on the Chartered Institute of Taxation website. There is more information on the GOV.UK website.

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What happens if the beneficiaries decide that the estate would be better divided differently – Deeds of Variation?

Even if you make a will, sometimes your estate will not be divided in accordance with it.

If all the beneficiaries agree, it is possible for them to vary the way an estate is paid out; or it is possible for some beneficiaries not to claim their legacies or ask that they be paid to someone else if they do not want them. In order to do this, they have to draw up a variation. If there are minor beneficiaries (ie not yet of full age), or any beneficiary is unable to deal with their own affairs (eg because of a mental health issue), and the other beneficiaries wish to vary the terms of the will or intestacy, they cannot do a variation but most go to the High Court for a Variation of Trusts Order. 

Note, that if all a beneficiary wants to do is disclaim the legacy without directing who it should go to instead, a signed disclaimer is usually sufficient.

There is more information in the section ‘what if I am an executor or personal representative?’.

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Where can I find more information?

There is basic guidance on making a will on the GOV.UK website.

The GOV.UK website provides details of the inheritance tax threshold in force and also has a section on inheritance tax.

For more information about inheritance tax, visit our section, ‘what is inheritance tax?’.

If you have significant assets, money or property, you may wish to seek professional advice about inheritance tax planning. You can find a tax adviser on the Chartered Institute of Taxation website.

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