Understand what is and isn’t covered by a Will

A Will is a document a person can use to say who they’d like their property, belongings and money (their ‘estate’) to go to when they die.

Not sure what you need to think about when writing your Will? You can visit GOV.UK for more information. Wills are really important for helping the right people inherit your wealth. If you don’t have a Will in place, your estate needs to be shared out under specific rules. This is called 'intestacy' and your assets might not go to the people you wanted them to go to.

If you’ve been written into someone’s Will, their executor needs to tell you what you’re entitled to. The executor is the person who carries out the instructions in a Will.

Pension plans aren’t usually covered by your Will because pensions aren’t currently considered part of your estate. So it’s important to let your pension provider know which people or charities you want your pension savings to go to when you die (your ‘beneficiaries’). Although your provider isn’t bound by your wishes, they’ll take them into account.

Know what taxes might need to be paid

Whether you’re leaving wealth or inheriting it, it’s good to understand what taxes may be owed, as this can impact the amount that can be passed down. Here are some taxes that could apply.

Inheritance tax

Inheritance Tax (IHT) might need to be paid when someone dies – but only if their estate is worth more than the ‘nil rate band’, which is £325,000 for most people. Or if the person is giving their home to their children or grandchildren, there will usually be zero inheritance tax to pay unless the estate is worth over £500,000. A spouse or civil partner can inherit any unused nil rate band, so couples may have up to £1 million when the last person dies.

It’s important to know how much IHT might be owed. 40% tax will usually need to be paid on the amount that exceeds the £325,000 threshold.

The tax will come out of the estate, so it could lower the overall amount that’s passed on to you.

Capital Gains Tax and income tax

Capital Gains Tax (CGT) may be owed. Let’s say a loved one dies, you inherit their property, then sell it during ‘probate’ – the period during which their estate is being dealt with. If that property has increased in value since the owner’s death, CGT may be owed on the profit.

Or say someone has interest from a savings account paid to them throughout the year. Interest can be subject to income tax. So if the person dies, the executors will need to pay this on their behalf from the estate.

You can learn more about these taxes on MoneyHelper.

Talk to each other – and consider getting advice

Death and inheritance can be sensitive, emotional subjects. But open conversations can be really important when it comes to wealth changing hands. It can help make sure everyone’s on the same page about where assets are going – meaning everyone involved can then plan accordingly.

If you are inheriting money, you could consider putting some money in a pension plan. Or you might decide to put your money in other savings or investment accounts, like ISAs.

You could use it to pay off your mortgage, or get on the housing ladder.