Inheritance tax: New laws enforced from next month will create 'pitfalls' for IHT plans


    Inheritance tax (IHT) is levied on estates valued at more than £325,000 when a person has died and is passing on their assets. When used correctly, wills can ensure that families do not pay more on IHT than needed and if a person dies without a will, the state’s law will decide who gets the persons estate.

    In some extreme instances, a person’s estate can be passed onto the crown if their affairs aren’t in order.

    Because of this, both tax planning experts and the government alike encourage everyone to create a will where they can.

    Andrew Wilkinson, a Partner at Lime Solicitors, explained the importance of wills but the delicate nature of such documents should be particularly paid attention to: “Wills are often drafted to try and reduce (or even avoid) the burden of tax, particularly inheritance tax, on death.

    “However, sometimes those arrangements don’t work – sometimes it is because the law is changed, but sometimes they don’t work because of the precise wording that has been used.

    READ MORE: Inheritance tax: Residence nil-rate band ‘valuable’ for IHT burdens

    Alistair Spencer, an Associate in the Contentious Probate team at Lime Solicitors, expressed doubt on the supposed short term nature of these proposals: “Although only initially for a period of two years from January 31 2020, the small print of the proposals provides that virtual witnessing can remain in place for as long as the government deem it to be necessary. It may therefore be here to stay.

    “Advisors may see the introduction of virtual witnessing as a green light to make far more of the will making process virtual including obtaining the testator’s instructions and advising the testator on how best to structure their will.”

    Alistair went on to share his thoughts on how the virtual process may not provide the best outcomes: “It is often more difficult to explain complex inheritance tax structures when this is done remotely instead of in the physical presence of the testator.

    “Certain testators may also struggle with the use of video conferencing technology and that technology may not work effectively. A testator may end up with tax structures within their will they simply do not understand. That lack of understanding might lead to a breach of those structures with the loss of tax advantages.”

    He went on to note other administrative problems such the fact that it will be easier to challenge virtual wills in court and that this new system is rife for abuse and trickery.

    However, Alistair pointed out a clear problem which could be a major issue for those looking to organise their estate: “Even with the introduction of virtual witnessing a Will still has to be physically signed by both the testator and the two witnesses. Electronic signatures are not allowed nor are counterpart copies.

    “If a testators signature has been virtually witnessed but the testator dies before the witnesses physically sign the will in his virtual presence then the will is invalid.

    “Virtual witnessing of wills should be avoided if at all possible due to the many pitfalls and the increased possibility of the will subsequently being challenged.

    “The Lord Chancellor himself has said that virtual witnessing should remain a last resort.”

    In the current tax year, the IHT rate is 40 percent but this is only levied on the parts of the estates valued higher than the £325,000 threshold.

    So, for example, if an estate is worth £400,000, 40 percent will only be charged on £75,000 worth of the assets.

    Property is likely to make up the bulk of an estate but IHT can be levied on:

    • Possessions
    • Cash (in some instances)
    • Land
    • Shares and more


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