Cecily Zamora
Inheritance law in the UK determines how a person's estate—including their money, property, and possessions—is distributed after their death. This distribution depends on whether the deceased left a valid will. If a person dies without leaving a will, they are called an 'intestate person', and their estate is divided according to the rules of intestacy, which generally prioritise spouses, civil partners, children, and other close relatives. Inheritance laws in the UK also include regulations on inheritance tax, which is a tax on the estate of someone who has died, as well as rules regarding gifts made by the deceased during their lifetime.
| Characteristics | Values |
|---|---|
| What is included in a person's estate? | Money, property, and possessions |
| Who can inherit if there is no will? | Married partners, civil partners, and some relatives |
| Who inherits if there is a will? | The deceased specifies who receives what |
| Inheritance tax threshold | £325,000 |
| Who pays inheritance tax? | The person dealing with the estate (called the 'executor') |
| Who is exempt from paying inheritance tax? | Beneficiaries (those who inherit the estate) |
| Do beneficiaries ever have to pay taxes? | They may have related taxes to pay, e.g. if they get rental income from a house left to them in a will |
| Do people have to pay taxes on gifts received from the deceased? | Yes, if the gift is over £3,000 and it was given within 7 years of their death |
| Inheritance law in the UK for non-domiciles | Their estate will comprise only UK-based assets |
| Inheritance law provision | Inheritance (Provision for Family and Dependants) Act 1975 |
| Inheritance (Provision for Family and Dependants) Act 1975 | Children left out of a will may have grounds to challenge it under this Act |
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What You'll Learn
Inheritance Tax
If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren, your threshold can increase to £500,000. The estate can pay Inheritance Tax at a reduced rate of 36% on some assets if you leave 10% or more of the ‘net value’ to charity in your will. The net value is the estate’s total value minus any debts. Some gifts you give while you’re alive may be taxed after your death if you give away more than £325,000 and die within 7 years. Depending on when you gave the gift, ‘taper relief’ might mean the Inheritance Tax charged on the gift is less than 40%must be paid by the end of the sixth month after the person’s death. If it’s not paid by then, HMRC will start charging interest. The executors can choose to pay the tax on certain assets, such as property, by instalment over ten years. However, the outstanding amount of tax will still get charged interest. If the asset is sold before all the IHT is paid, the executors must ensure that all instalments (and interest) are paid at that point.
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Rules of intestacy
In the UK, the Rules of Intestacy apply when someone dies without a valid will. These rules determine who is entitled to the deceased's estate, which includes their property, money, and possessions. The Rules of Intestacy are set out in the Administration of Estates Act 1925 and have been updated and amended over the years, with the most recent changes made in February 2020.
Under the Rules of Intestacy, the estate is typically inherited by the surviving spouse or civil partner and/or the children of the deceased. If the estate is worth less than £322,000, the surviving spouse or civil partner inherits the entire estate, including all personal effects, as long as they survive at least 28 days after the death. In such cases, the children do not inherit. However, if the estate is valued at more than £322,000, the inheritance is divided between the spouse or civil partner and the children. If there are multiple children, the amount is divided equally among them, including any adopted children or biological children from other relationships.
Unmarried partners, stepchildren, and close friends are not entitled to anything under the Rules of Intestacy. Only those in a formal legal relationship with the deceased through marriage, civil partnership, or blood relation can inherit. If there are no surviving relatives who can inherit, the estate passes to the Crown under Bona Vacantia, and the Treasury Solicitor becomes responsible for dealing with the estate.
It is important to note that the Rules of Intestacy may result in the estate passing to individuals the deceased would not have chosen, and it can cause financial hardship for loved ones. Therefore, it is advisable to make a valid will and seek legal advice to ensure one's wishes are carried out after their death.
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Inheritance disputes
Disputes can occur when individuals feel they have not received what they are rightfully entitled to, even if a valid will is in place. For example, if a deceased person's will does not make reasonable financial provision for someone who was financially dependent on them, that individual may be able to claim under the Inheritance Act 1975. This act also allows family members to seek "reasonable provision", as seen in the case of Terry Jones' children suing their father's second wife, who was the main beneficiary of the will.
To resolve inheritance disputes, individuals can seek legal advice from specialist solicitors and lawyers who are experienced in this niche area of law. Mediation and arbitration are also options to avoid the costly and lengthy court process. Online tools, such as the one created by inheritance dispute specialists IDR Law, can help individuals understand their legal options and whether they can take any action.
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Executor disputes
In the UK, the laws of inheritance dictate that the funds from a deceased person's estate are used to pay inheritance tax to HM Revenue and Customs (HMRC). This is typically carried out by the executor, or the person dealing with the will. The executor is responsible for administering the deceased person's estate, which includes money, property, and possessions. They are legally required to act in the best interests of the estate and its beneficiaries, which may include taking legal action against a beneficiary if they have acted in a way that prejudices the estate.
- Delay or Inaction: Executors may be criticised for delays in obtaining a Grant of Probate or distributing assets. However, it's important to note that there is no liability for negligence in delaying the Grant of Probate. If an executor is taking too long or refusing to act, beneficiaries or creditors can seek a citation from the Probate Registry, ordering the executor to take action or lose their right to act.
- Mismanagement of Funds: Executors have a duty to manage the estate's funds appropriately. This includes paying the correct amount of tax and not misusing or misapplying estate assets. If an executor fails to comply with their legal obligations, they may be held personally liable for any financial losses or shortfalls.
- Breach of Fiduciary Duty: Executors must act in the best interests of the estate and its beneficiaries. This includes maintaining detailed records of assets and liabilities, avoiding conflicts of interest, and refraining from acting in their self-interest. If an executor breaches their fiduciary duty, beneficiaries may take legal action.
- Suitability and Performance: Sometimes, disputes arise due to concerns over the executor's suitability or ability to effectively manage the estate. In such cases, parties may consider applying to the court for the removal of the executor to facilitate the efficient administration of the estate.
If you are facing an executor dispute, it is essential to obtain legal advice as soon as possible. The costs of contested matters can be significant, and understanding your rights and options is crucial.
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Gifts and tax
Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who has died. There is normally no Inheritance Tax to pay if the value of the estate is below £325,000, or if everything above this threshold is left to a spouse, civil partner, charity, or community amateur sports club.
Gifts made to family and friends while you are alive can be a good way to reduce the value of your estate for Inheritance Tax purposes. However, if you die within seven years of giving a gift, it may be subject to Inheritance Tax. This is known as the seven-year rule. The amount of tax due depends on when you gave the gift. Gifts given in the three years before death are taxed at 40%. Gifts given three to seven years before death are taxed on a sliding scale known as 'taper relief'. Taper relief may also reduce the Inheritance Tax rate below 40% for certain assets, such as farms or woodland.
If you give away more than £325,000 and die within seven years, the people you gifted may have to pay Inheritance Tax. There are also annual exemption allowances for gifts. For example, you can give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance for the same person. Birthday or Christmas gifts from your regular income are also exempt from Inheritance Tax.
It is important to note that non-cash gifts, such as shares or property, could result in you or the recipient having to pay Capital Gains Tax. Additionally, if you sell something for less than it is worth, the difference is considered a gift and may be subject to Inheritance Tax.
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Frequently asked questions
Inheritance law in the UK determines how a person's estate (their money, property, and possessions) is distributed after their death.
If a person dies without leaving a will, they are called an ''intestate person'. Their estate will be shared out according to the ''rules of intestacy'', which prioritise spouses, civil partners, children, and other close relatives.
If there are no surviving relatives who can inherit under the rules of intestacy, the estate passes to the Crown. This is called 'bona vacantia'.
Children, including biological and adopted, are typically entitled to inherit from their parents. However, parents are not legally obligated to leave an inheritance to their children.
British laws do not consider gifts over £3,000 made by the deceased in the last 7 years of their life as property of the beneficiary. Gifts made 7 or more years before death are no longer considered part of the estate.
