Even well-intentioned Wills can cause problems if they are not aligned to wider estate planning and don’t consider the tax implications. Here are some of the most common pitfalls to avoid.
Common Will mistakes and omissions
1. Leaving everything outright to your children
If your children already hold assets, this may increase the value of their estate for future IHT purposes.
2. “Everything to my spouse” with no second-step planning
While this might seem sensible, it can create a larger combined estate on second death, increasing the eventual IHT bill.
3. Not coordinating your Will with wider planning
Consider how your property is owned, along with pensions, business interests, and any trusts already in place.
4. Ignoring tools like deeds of variation
If used within two years of death, these can help redirect assets to reduce tax.
5. Overlooking spousal exemptions
Transfers between spouses are exempt from IHT, so this should never be ignored.
6. Failing to revisit your Will regularly
Tax legislation and IHT rules change over time. A Will that was tax-efficient when drafted may no longer be optimal years later.
7. Incorrect or poorly timed gifts
Giving away assets without understanding IHT rules (such as gifts within seven years of death) can unintentionally increase your estate’s tax liability. Many people assume that if they survive 3–7 years after making a gift, the tax rate on that gift will automatically reduce. In reality, the taper only applies if the gift exceeds the nil rate band and many gifts don’t qualify.
8. Not considering the £2 million taper threshold
Once an estate exceeds £2 million, the main residence nil-rate band is reduced by £1 for every £2 above the threshold. . The pitfall here is not forward planning to see whether anything can be done to mitigate the extra IHT bill.
With careful planning, families could claim up to £1 million in tax-free allowances, potentially safeguarding a significant portion of their estate.
The takeaway is clear: drafting a Will isn’t just about deciding who gets what,it’s about protecting significant wealth for future generation and avoiding any unnecessary tax burdens.
The risk of not having a Will
Not having a Will in place can also increase the risk that your estate becomes unnecessarily exposed to inheritance tax. This example demonstrates the potential consequences of not having a Will:
Joe has a wife, Susan, two children, and an estate worth £1 million.
If Joe died without a Will, the laws of intestacy would apply. Under these rules:
- Susan would receive up to £322,000, plus half of the remaining estate (£339,000 in this case), as well as all of Joe’s personal possessions.
- The children would be entitled to the other half of the remaining estate, which is £339,000.
Transfers to a spouse are exempt from inheritance tax (IHT), so Susan’s total inheritance of £661,000 would not be taxed. However, transfers to children are only covered by the £325,000 nil-rate band (assuming the main home does not pass to them). In this scenario:
- The children’s share of £339,000 exceeds the nil-rate band by £14,000.
- That excess is taxed at 40%, resulting in an IHT bill of £5,600.
Now, compare this with having a properly drafted Will:
- Joe could have left the entire £1 million to Susan tax-free.
- When Susan passes away, she could then pass on £1 million tax-free to the children by using both her own and Joe’s nil-rate bands (a combined £650,000), plus the main residence nil-rate bands for both of them (a combined £350,000) if she leaves the family home to the children.
The difference is clear: without a Will, the family pays avoidable tax. With careful planning, a Will can ensure your estate is passed on tax-efficiently and in line with your wishes.
Review your inheritance tax position and protect your family’s future
Your Will is a crucial part of inheritance tax planning, and the two should go hand in hand. We often work alongside solicitors to ensure Wills are drafted in a tax-efficient way, and we can help you review your inheritance tax planning directly.
Our experienced tax team can advise on IHT planning, ensuring your estate is structured efficiently so your loved ones don’t face unexpected tax bills. Contact us today to discuss how we can help and for a no obligation quotation.
Ammad provides personal taxation planning, advisory and compliance services.
