The death of legendary entertainer Sir Ken Dodd has highlighted an issue which for many people, particularly the younger generation, is not high on their list of financial priorities.
Sir Ken, probably best known for the Diddy Men and his beloved Knotty Ash, took what some may consider to be rather drastic action which, ultimately, had a significant impact on his estate and the size of the related tax liability.
He married his long-term partner, now Lady Anne Dodd, two days before his death last month. Had they remained unmarried, his estate, which was estimated to be worth about £7million, could have been subject to an inheritance tax (IHT) liability of more than £2million. Marriage meant all of his estate could pass to his new wife free of tax.
The rules and regulations around IHT can be complex, with various exemptions, time frames and relationships between people helping to decide exactly how much our loved ones must pay the tax man.
Sir Ken and Lady Anne’s case has highlighted the difference between how married and civil partners are treated, compared with cohabitants.
IHT planning is of benefit to anyone who plans to pass on any of their wealth after their death, be it property, cash or shares – pretty much anything with a cash value.
In simple terms, all of your assets are totted up, exemptions are applied and the remainder is then liable for tax.
The making of a will should be top of the list if you want to be absolutely sure that, first and foremost, the people you wish to inherit your hard-earned gains actually benefit.
If you don’t leave a will, the law of intestacy will dictate what happens to your wealth. Basically, this means that your partner won’t automatically inherit any of your assets unless you are married or in a civil partnership.
This has even greater importance if your partner is financially dependent on you.
You also need to be aware of your allowances and, more importantly, figure out how much your estate might be worth.
It’s not a cheap business either, with anything over your allowances taxed at 40%.
There are a range of actions you can take to help reduce or manage your potential tax burden but these are more extensive than is possible to explain in one article.
Ultimately, you run the risk of both missing out on what the government is happy to give you and incurring costs you don’t have to.
It is a sensitive subject but one that requires attention sooner rather than later.