Do I need a Codicil to my will for a new Limited Company?

[flatmum]

Hi there just wondering if someone in the know could shed some light on this. My partner and I are unmarried and have 3 children together and own a joint property (the family home). Because we are unmarried and because it is a good idea we made joint mutual wills (or whatever the term is) a few years ago where we named guardians and set it up so that our "entire residuary estate" currently passes to each other subject to 30 day survivorship. The idea being that if I die I want him to get everything I have for the upbringing or our children and vice versa.

At this time we were both employed full time. Since then I have set up a limited company of which I am the sole director and sole shareholder. As this is now our major source of income I am thinking I should fomralise some sort of provision for it if I died - presumably the company would be wound up but I would want the proceeds of liquidation to go to him, for the children. What is the best way to do this?

Would the one single share (mine) be included with residue of the estate and passed to him automatically as the wills currently stand? Or do I need to make a specific gift of this share to him (or the children?) via a Codicil to the will? Would it help if I made him a shareholder?

[mumblechum1]

I'm a willwriter and if the client owns a limited company, I do either make a separate gift or specify that it is included in the residuary estate.

This is to ensure that, for example, directors loan accounts and dividends are dealt with but also to specify that if the company merges or changes its name, the assets will still be passed on to whomever you wish.

You could do a codicil, though to be honest I usually prefer to rewrite the will completely as often other things have changed since the first one was done, so it's just as easy to do a fresh will as to mess around with an existing one.

[flatmum]

thankyou that is really helpful. is there any particular benefit to passing it as a specific gift rather than including it as residual estate? Could I pass it straight to my children so they don't have to pay IT?

[mumblechum1]

Inheritance Tax is payable on the whole estate as it stands at your death, I'm afraid.

However, if you gave the business, or indeed a lump sum, to the children during your lifetime (but obviously when they're of age), then inheritance tax wouldn't be payable on that gift so long as you survived for 7 years after the date of the gift. That is called a Potentially Exempt Transfer.

Because you're unmarried, IHT applies only on £325,000. If you were to marry, then it would only be payable on the second death (assuming that you give everything to one another), and the threshold on the joint estate is £650,000.

Not the most romantic reason to marry, I know!

[bachsingingmum]

This needs a bit of clarification. IHT is payable on the value of the estate in excess of £325k (nil rate band), and that includes the share in the family home. But if the share is in a trading company and you've owned it for at least two years the chances are it will qualify for business property relief and so no tax will be payable on its value.

Any estate that passes to a spouse/civil partner is normally tax free. Then if the nil rate band hasn't been used for other legacies the surviving spouse has that to set against their estate.

If you are not married, there is no spouse exemption.

As it stands it sounds as though your wills (I think mirror rather than mutual is the term) do what you want, but particularly with the company being there now you might want to be a bit more creative. Its a good idea to review wills periodically anyway.

Gifts of shares/property have capital gains tax consequences when not to a spouse.

I'm a tax person, not a lawyer.

[flatmum]

thankyou b mum, appreciate the insight. Just to clarify, I have 2 major assets which I wish to pass to my children via my DP if I die. One is the house which we own jointly. We bought this before I set up the limited company. The other is my limited company which is in my sole ownership, our address is the registered premise.

Annoyingly, we never got around to getting married though have been together 19 years. Who would be the best person for me to do the creative re-jig with? both my accountant and the lawyers who prepared the wills are being very vague. I am happy to be as creative as possible.