It’s important to get professional advice on all legal and financial affairs, particularly if you’re considering ‘tying the knot’ with the new Civil Partnership Act. We asked financial expert Neil Edwards from Clerical Medical, specialists in pensions and investments, to answer some of your questions about all things financial!
You can listen to more of Neil’s financial advice on GaydarRadio between 11am-12pm on Sundays with Jamie Crick.
This week the Civil Partnership Act and Wills and Inheritance Tax.
QUESTION 1: Wills and the Civil Partnership Act
A reader asks:
Next month my partner and I are getting married under the new Civil Partnership Act. She is much younger than me and has never made a will. Do I need to make a new will or can I just amend my existing one to make sure that she is provided for, should anything happen to me?
Name: Jan
Age: 42
Occupation: maths teacher – head of department
Income: £40,000 per annum
Savings: £15,000 high street savings account, £4,000 cash ISA
Assets: 3 bed semidetached house in Guildford
Pension: final salary pension invested with Prudential
Neil’s response:
As I have indicated on many previous occasions, entering a civil partnership will revoke an existing will unless it is written in contemplation of the union.
If you die without a valid will the rules of intestacy will determine how your estate will be divided up on your death. A surviving civil partner has certain rights and in fact may well inherit everything if there are no children or other dependants involved, but this may not be the best result for inheritance tax purposes (see question below).
Amending an existing will
It is possible to amend an existing will before the civil partnership ceremony using a codicil that takes into account your prospective civil partnership status. However, it’ll probably be simpler and just as cheap to draw up a new will altogether.
Partner’s will
If you do decide to draw up a new will then it will probably make sense that your partner prepares her will at the same time. I’m not aware of any solicitors offering a BOGOF but the overall cost will probably be less than drafting separate wills at different times and it will make sense to ensure that both wills compliment one another for inheritance tax purposes.
QUESTION 2: Inheritance tax
A reader asks:
I have two children from a previous marriage. My wife passed away some years ago and I am now marrying my long term partner under the new Civil Partnership Act. We are both financially savvy but would like some help with inheritance tax arrangements. We want to make sure that any money we leave to my children is theirs rather than Gordon Brown’s.
Name: Martin
Age: 54
Occupation: professional photographer with his own business (semi retired)
Income: £120,000 per annum
Savings: £30, 000 invested in stocks and shares, £40,000 fixed interest bonds, £10,000 cash ISA
Assets: 5 bedroom house in Surrey, 2 bed cottage in Cornwall and 1 bed chalet in Chamonix, France
Pension: £90,000 personal pension with Clerical Medical and £8,000 in a Norwich Union pension with his first employer
Neil’s response:
It was the late Lord Jenkins who once remarked, “the people who pay inheritance tax are those that distrust their relatives more than they dislike the Inland Revenue.”
It’s certainly the case that with some careful planning it is possible to minimise the amount that passes into Gordon Brown’s coffers.
The issues for you are that you:
• Have considerable wealth
• Probably want to protect surviving civil partner
• Make provision for your children
• Minimise the amount of inheritance tax to pay.
Nil rate band planning
Anything normally left to a surviving civil partner is exempt from inheritance tax but this does not guarantee anything for your children and wastes your own nil rate band (currently £275,000).
You could leave an amount up to the nil rate band directly to your children although you have to consider whether that’s the responsible thing to do (depending on how old they are) and leave everything else to your partner. This saves inheritance tax but means that your partner does not have access to the amount left to your children and does not guarantee that your children will receive the remainder when your partner dies.
There are, however, certain trust arrangements that can solve this. For instance you could have a discretionary trust of the nil rate band with your partner and children as potential beneficiaries and the balance of your estate in a separate trust where your partner has a life interest but the assets pass to your children when he dies.
This is quite a complex arrangement and particular care must be taken with property because there are numerous anti-avoidance rules.
Lifetime planning
It is also possible to make lifetime gifts to reduce your exposure to inheritance tax. These gifts can be direct to your children or indirectly vial some sort of trust arrangement. You can exploit certain reliefs, such as the £3,000 annual exemption, and in most cases if you survive more than seven years from the date of the gift then it falls outside your estate for inheritance tax purposes.
Needless to say, you will need professional financial and legal advice and you will probably require the services of a solicitor and financial adviser.
Overseas property
You may also need to take advice on the French property and how entering a civil partnership will affect French inheritance and succession laws. Indeed, you may well need a French will to cover the chalet in addition to your UK will.
Don't forget, you can listen to more of Neil’s financial advice on GaydarRadio between 11am-12pm on Sundays with Jamie Crick.
Advice matters
Before you embark on any form of financial planning, Clerical Medical strongly recommends that you seek expert advice from a qualified financial adviser. You also might want to take a look at the Citizens Advice Bureau website.
If you don't have a financial adviser and would like some help in finding one near you, click here.
