The death of a loved one can often lead to financial hardship for their partner and family, particularly if there are young children to support. It may therefore come as a surprise that the Government plans to introduce yet further measures that will hit those already struggling to cope with their loss.
Widowed Parent’s Allowance
Under current rules, Widowed Parent’s Allowance is paid to those who have lost their husband, wife or civil partner and have at least one dependent child. The exact amount paid will depend on the Deceased’s National Insurance contributions but the maximum allowance is currently £112.55 a week. Some people are also eligible for Bereavement Allowance (once their Widowed Parent’s Allowance has ended) and a Bereavement Payment (currently £2,000).
Under the current rules, payments are made until the child leaves full time education. Consequently a parent with a newborn who loses their partner could receive up to £119,052 in bereavement payouts – comprising of the £2,000 lump sum plus the weekly payments of £112.55 for the maximum period of 20 years.
For widows and widowers over the age of 45 without children, Bereavement Allowance may be available. This is a taxable weekly allowance paid for one year. The exact amount payable depends on the Deceased’s National Insurance contributions together with the age of the claimant – a 45 year old claimant could receive £33.77/week while a claimant between 55 and state pension age could receive £112.55/week.
Under the new rules, if your partner dies from 6th April 2017 you will get a higher lump sum of £3,500 (or £2,500 if you don’t have children) followed by 18 monthly payments of £350 (or £100 if you don’t have children). The maximum amount you can receive is therefore £9,800. Those claiming under the existing scheme will not be affected by the change.
The change coming into effect from April will leave 75% of grieving families worse off and will hit those with young children particularly hard, according to the Childhood Bereavement Network.
Probate fees hike
The second change due to hit those grieving for a loved one is the increase in probate fees due to come into effect from May. Where a person dies, a Grant of Probate is needed in most cases to be able to deal with their estate. However, a backlog at the tax office has meant that many will be unable to obtain the forms they need to enable them to submit a probate application before the new higher fees come into effect.
Currently, the application fee is £215 (or £155 if using a solicitor) for estates worth £5,000+.
From May, the fees will be as follows:
- Estate valued up to £50,000: £0 (no fee)
- Estate valued £50,001 – £300k: £300 fee
- Estate valued £300,001 – £500k: £1,000 fee
- Estate valued £500,001 – £1 mill: £4,000 fee
- Estate valued £1mill+ to £1.6mill: £8,000 fee
- Estate valued £1.6mill+ – £2mill: £12,000
- Estate valued above £2mill: £20k
With the average property price in Greater London standing at £649,772 for March (UK House Price Index) and house prices continuing to climb, families who would have paid just £215 for probate fees prior to the changes could be expected to find £4,000 or more from May. This is a particular concern in asset-rich, cash-poor estates where the main asset is the family home and few if any funds are available to pay the fees.
Freeze on inheritance tax
A further blow to grieving families has been the freeze on the inheritance tax threshold which has stayed the same for the past eight years and will not change until at least 2020. Since 2009 the threshold has been set at £325,000 but house prices have been climbing since. Average house prices in the East of England, South East and Greater London exceeded the threshold for March, with houses in the South West coming very close to this limit.
The new Residence Nil Rate Band (RNRB) may provide some consolation on this point. Due to come into effect from April, it gives married couples and those in a civil partnership an additional allowance when leaving a property to a direct descendent (e.g. a child or grandchild). The allowance will be introduced gradually as follows:
- £100,000 in 2017 to 2018
- £125,000 in 2018 to 2019
- £150,000 in 2019 to 2020
- £175,000 in 2020 to 2021
A husband dies, leaving his wife his 50% share of the family home in 2020. The property is worth £1 million in total. Because the transfer is made to his wife, it is free from inheritance tax and he therefore hasn’t used his £325,000 inheritance tax allowance or his new £175,000 RNRB allowance. His wife can therefore inherit his allowance (total £500,000). If she then dies, leaving the property to her children, her total inheritance tax allowance will be £1 million (her own £325,000 personal allowance + her own £175,000 RNRB + the £500,000 of unused allowances she inherits off her husband).
The downside of this new allowance is that it is only available to married couples and those in a civil partnership – it won’t be available to cohabitees. An additional downside comes from the complications of leaving the entire estate to your surviving husband or wife. If after your death they need care, the Local Authority will consider all their assets (including any which they inherited from you) when assessing their ability to pay care fees.
This can be avoided by creating a trust in your Will which leaves your partner a lifetime interest in your property, which then goes to a direct descendent (child/grandchild) after your partner’s death. The Government has provided examples that show the RNRB will still apply in this case.
If you are concerned about any of the above changes or you would like further advice on estate planning, inheritance tax or probate, get in touch with our Later Life Planning team on.