Statutory legacy increase 2023

What happens if you die without a will? Your estate, regardless of its size, will pass in accordance with the rules of intestacy. These rules dictate an order of who will inherit your estate and this can vary depending on whether you are married or in a civil partnership, and whether you have children or not.

The statutory legacy takes effect when a person dies whilst married/in a civil partnership and they have children. 

Previously, in these circumstances, the first £270,000 (the statutory legacy) of the deceased’s estate would pass to the surviving spouse/civil partner, together with all personal belongings. The remainder of the estate would then be split, with 50% also going to the surviving spouse/civil partner and the other 50% being divided equally between the children of the deceased. Depending on the value of the estate, this could result in inheritance tax being payable when the first spouse/civil partner dies, instead of being mitigated to only be payable on the death of the second spouse/civil partner.

On 5 July 2023 the government actioned The Administration of Estates Act 1925 (Fixed Net Sum) Order 2023, which subsequently came into force on 26 July 2023. This had the effect of increasing the statutory legacy from £270,000 to £322,000. The increase is, of course, welcome, not least due to the increase in the value of people’s estates driven by increasing property prices over recent years, but also as it will reduce the likelihood of some estates having to pay inheritance tax on the death of the first partner.

However, even with this increase, it still makes sense for everyone to make a will. The rules of intestacy can be inflexible and there are issues that can be avoided in this world of mixed/hybrid families. Here are just a few examples:

•  Mr and Mrs Green have been married for 15 years and have two young children. Mr Green dies suddenly, leaving an estate of £1,000,000 (one million). The first £322,000 passes to Mrs Green free of inheritance tax due to spouse exemption; all personal items pass to Mrs Green too. The remaining £678,000 is split with 50% going to Mrs Green, also exempt from inheritance tax, and the other 50% to their two children, held in trust until they are 18. Depending on how the estate is made up (property, money, investments, etc.) the share of the estate passing to the children could be subject to inheritance tax.
• Mr and Mrs Brown have been married for 10 years. Mrs Brown has children from a previous relationship. Mr Brown treats them as his own and has no children of his own. Mr Brown dies leaving an estate of £1,000,000. The entire estate passes to Mrs Brown free of inheritance tax. Mrs Brown’s children inherit nothing from Mr Brown’s estate on his death.
• Mr and Mrs White had been married for five years. Mrs White has children from a previous relationship. Mr White treats them as his own and has no children of his own. Tragically, Mr and Mrs White are involved in a car accident. Mrs White dies at the scene and Mr White passes away in hospital a month later. Mrs White’s estate of £1,000,000 passes in its entirety to her husband. Mr White now has an inflated estate due to the inheritance from his wife. When he passes away a few short weeks later, the intestacy rules say that his estate must go to his siblings, but unfortunately, Mr White does not get on with his brother and sister and in fact has not seen them or spoken to them for many years. The children of Mrs White, who Mr White loved dearly and treated as his own, receive nothing…not even a share of the estate that used to belong to their mother. Mr White’s estate is also subject to a significant inheritance tax bill which, had a will been made, could have been mitigated.
• Mr Blackand Miss Emerald have lived together as man and wife for over 20 years. They both have children from previous relationships. Mr Black dies leaving an estate of £1,000,000. Miss Emerald receives nothing from Mr Black’s estate ( she could potentially make a claim against his estate but that is a subject beyond the scope of this update). Mr Black’s children receive the entire estate, which is subject to significant inheritance tax - depending on the composition of the estate and other factors. But in summary, everything over the nil rate band (currently £325,000) and potentially the residence nil rate band (currently a further £175,000) would be taxed at 40%.

In all these examples, a will would have clarified the situation and ensured that the money and assets went to the people whom the deceased had wanted to benefit. A will also gives you the ability to appoint guardians for young children, dictate the exact distribution of your estate, mitigate inheritance tax and, of course, provide for your loved ones. Not only is it important to take legal advice and make a will, but it is essential to keep it up to date as time passes and your life circumstances change.

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