Wills for Same Sex Couples

I want to begin this article by stating that I consider myself apolitical. The processes around politics seem to me a negative-sum game for the incompetent, the punchable and the lost. I vote with pragmatism and disloyalty.

Notwithstanding, some of you may remember old Etonians, David Cameron and George Osbourne. What you probably recall about this pair, is the joie da vivre with which they de-funded the NHS, and got us kicked out of the EU (by way of an update their good works continue in the private sector – for Greensill Capital in the case of David C and for Russian Oligarch, Evgeny Lebedev, in the case of George O).

What you may not recall, is that Osbourne, in a characteristic flight of ‘who’s side are you actually on … ery’ – managed to introduce the Resident’s Nil Rate Band. A piece of Inheritance Tax law that one might generously describe as: ‘superficially not homophobic’. In this article we’re going to talk about Wills for same sex couples and what this change meant.

Here’s how it works. As of 2015, if you own a house and you leave it to a direct descendent i.e. a child, you can attain a boost of up to approx. £175,000 to your (de-facto) inheritance tax ‘exemptions’ (known as your Nil Rate Band). This can take your individual Nil Rate Band up to a maximum of approx. £500,000, i.e. you pay no inheritance tax until you gift more than this amount by your will. If you are married, when you die, this exemption may be transferred to your spouse giving them a total (de-facto) exemption of up to £1,000,000. 

So why is this rule unfair to same sex couples? Using census data, such as that available to Cameron & Osbourne during formulation, discrepancies begin to appear. 

  1. Only 15% of same sex couples have children (remember you need these to access RNRB), compared to 38% in opposite sex relationships. 
  2. Only 58% of same sex couples are married versus 88% of opposite sex couples (that exemption passes between married couples).
  3. Same sex couples tend to make more money than opposite sex. UK data on this is sparse, Forbes have an approximately 12% difference in house hold incomes. 

I don’t want to bore you with calculations, but when you adjust for all of the above and work out (weighted average) inheritance tax bills for two cohorts of couples (same and opposite sex respectively), with estates of around £1 million and houses of more than the RNRB. The inheritance tax bill across both deaths for opposite sex couples comes in at around £110,00 and that for same sex around £240,000. 

So, what can you do about it? Well, if you’re unmarried, you can look at including an instrument called a ‘Nil Rate Band’ trust in your will. Essentially you set up a discretionary trust naming your partner as a beneficiary, you also name any others you wish to benefit. The effect of this is to keep gifts on first death out of your partner’s estate, for tax purposes, on their own death. 

Over and above this there are various other routes open to you for IHT planning. Structurally these cluster around gifting in various forms and the use of business property reliefs. 

Crucially, there are time limits associated with certain of these approaches, i.e. periods of time that must pass before they take effect, so I urge you to start looking at this now.

If you’d like to discuss any of the issues raised, please speak to our client advice team on 0121 202 4714 or click here and we’ll call you. Don’t wait until it’s too late!

Some facts and figures about Wills

For the analytically inclined, I’d like this week to lay out, in numbers, a picture of Britain’s comparative ‘unpreparedness’ with respect to end of life by demonstrating some facts about Wills.

  • You probably haven’t got an up to date will. 

31 million people in the UK have no will, 84% of those under 35 have no will and 60% overall, lack an up to date will. 

  • You probably won’t correct this until something horrible happens. 

The number of people without a will is actually rising (around 6% per year). Of our client base, less than 15% are simply ‘getting around to it’, when making a will. The three most common triggers for will creation are: diagnosis of illness; death of a family member and terrorist action/pandemic.  

  • You probably think you don’t need a will right now. 

You probably won’t get his by a bus tomorrow. It’s true, take comfort in the fact that, actuarily, you’re around two million to one on, to avoid fatal bus impact all year! Less, fun are the odds of ultimately dying from cancer (20%) or cardiovascular issues (40%). Nobody needs a will until they absolutely need it, at which time its absence may prove catastrophic.

For completeness, death by coconut is visited upon one in 250 million of we poor, benighted islanders!

  • The consequences of lacking a will may be far reaching for those you leave.

Even setting aside the risk of your loved one’s struggling financially on your death; I tell my clients that around half of a will’s function is conflict mitigation. Arguments around bereavement tend to be explosive. Not only can they fracture families, their financial impact can destroy estates. There were around 10,000 attempts to block wills last year. 25% of people report willingness to challenge a will if they feel treated unfairly. The mean cost of a court challenge to a will is £150,000. Even more concerningly, the pre-court costs of conflict are estimated to be £20,000. Court cases rose by 60% prior to Covid.

  • It’s later than you think. 

If you plan to make a will, you need to do it: 1. Before you die and 2. Before you lose mental capacity. As a population we expect to live to around 80. But such statistics are poorly understood, and fail to speak to the fate of the individual, for whom death is binary. Few realise that their chance of dying within 10-years nudges 10% at only around 55. These are not ‘national lottery’ odds and loss is total. These numbers don’t even capture those who will lose mental capacity. One person a minute in the UK suffers TBI, dementia diagnosis or stroke.  

The cost in time and money of making a robust will, is tiny in comparison to the costs of not having one. Nobody likes to think about this. The very best advice I can give you is ‘begin’, a good professional will guide you and ensure you reach the end of the process.

Speak to our client advice team now on 0121 202 4714 or click here and we’ll call you.