Making a Will is a very important task in ones life. Many people mistakenly believe that you do not have to make a will until you are ‘older’ and therefore do not bother with it until something happens later on in life to make them re-think their position.
When you purchase a property you are increasing your assets. If you have a Will in place you will be able to dictate through the terms of your Will exactly who your assets are to pass to. If you die without leaving a Will then you have no control over who inherits your assets and they will pass under the Rules of Intestacy and will depend on whether there has been a full or partial intestacy.
There are a few factors to consider when you are buying a property or if you own a Property, in terms of the inheritance of your assets.
Are you going to buy a property jointly with another person / do you co-own the property?
You can own a property jointly as tenants in common or as joint tenants. As tenants in common you own a share of the property and are therefore able to pass on your share in the property in your Will. There can be any number of co-owners and you can own a share in the property in equal or unequal portions.
If you own the property as joint tenants it can only involve two parties. On your death, the surviving co-owner will automatically become the sole owner of the property. In terms of your Will, the most important thing to be aware of is that you will be unable to leave the property to a named beneficiary if you own it as joint tenants.
Therefore, if you own property jointly, you must think about what is going to happen to it when you die. It is common for couples to own properties as joint tenants but it is becoming increasingly popular these days for couples to own as tenants in common since they want to have a distinct share in the property so as to be capable of passing it on under a Will.
Who do you wish to pass your property / share of property to when you die?
Do you want your property automatically passing to your co-owner on your death? If so, you should own as joint tenants which means it will automatically pass to them under the rule of Survivorship. But what will happen if you both die in a car crash, and neither of you have prepared a Will? The rules of intestacy will come into play and the estate including the property you own will be distributed amongst the persons entitled under Intestacy laws.
If you want to have complete control over who inherits your property then be sure to make a Will. If you want your property to pass to someone other than your co-owner then you should own your property as tenants in common which means you can leave your share to a named beneficiary in your will.
Inheritance Tax (IHT) Implications relating to the property on your Death
When a person dies and the administering of their Estate begins, there may be IHT to pay. In most cases, IHT must be paid within 6 months from the date a person dies. If it is not paid within this time then penalties and interest will have to be paid to Inland Revenue.
For effective tax planning you should consult a specialist to assist. However, a few basic matters should be remembered:
1. The IHT tax threshold is currently £325, 000 which means if the Estate falls below this amount then there is no IHT to pay.
2. Gifts made to the following are exempt from IHT:
- Your Spouse
- UK charities
- Some national institutions, e.g. museums, the National Trust and Universities
- A Political Party based in the UK (subject to certain conditions)
3. Any mortgage secured against the property is deducted from the value of the property for the purposes of calculating IHT on that asset.
4. If a property is part of a deceased’s Estate then the Personal Representatives can elect to pay tax in instalments over 10 years. However, once the property is sold the balance becomes payable.
For more information on IHT check the HMRC website.
It is therefore important to consider making a Will once you buy a property or if you already have a will, you should consider revising it if your circumstances have changed. The Rules of Intestacy are complicated and there is a set list of beneficiaries to whom the Estate is to pass, so, if you want control over your assets you should ensure you make a Will.
You should also consider the issues surrounding joint ownership of property if you are not the sole owner of your property with a view to amending the type of ownership if necessary.
If you want to make your will, get in touch with a company like Best Value Wills, as they have solicitors who are experienced in Wills and Probate.