Planning with wills and dealing with investments when an investor dies


This briefing sets out the importance of making or reviewing Wills as part of an overall estate planning strategy and the process for, and tax issues that need to be considered, when dealing with investments after the death of an investor.

Core considerations 

  • Making a Will is the first step in an effective estate planning strategy. It is important that Wills are reviewed regularly and kept up-to-date so that they reflect changes to family circumstances and remain appropriate in light of changes to legislation.
  • In the event of death, the provisions of the deceased’s Will determine what happens to investments that were owned in the deceased’s sole name. The deceased’s executors will usually need to obtain a Grant of Probate and pay any inheritance tax due on the estate before they are able to access and distribute investments that were owned by the deceased.
  • Investments not held in trust may need to be sold to pay inheritance tax and/or discharge the deceased’s debts and liabilities. In some cases, realisation of the investments could create income tax or capital gains tax liabilities for the executors.
  • Where investments were placed in trust by the deceased during their life, the terms of the trust will determine who can benefit. The trustees will be the legal owners of any investments that are held in trust and these will not form part of the deceased’s estate for distribution.


The importance of having a Will

Having a Will allows an individual to choose who will act as their executors and trustees, who will benefit from the estate and how; and structure it in such a way that available tax allowances and reliefs are maximised and the residence nil rate band is not wasted.

If a person dies without a Will, their estate will be distributed in accordance with the intestacy rules. Many people mistakenly believe that if they are married, their entire estate will pass to their surviving spouse if they have not made a Will. However, this is only true in the case of small estates. In England and Wales, where the estate is in excess of £322,000, large sums could pass to children (or other relatives) outright giving rise to inheritance tax liabilities on first death as well as loss of control over the ultimate destination of wealth and even potential loss of security for the surviving spouse.

A Will also provides those with minor children with the opportunity to leave their children’s inheritance to a trust to ensure that the children do not take control of large sums too young.

Once a Will has been made, it is important that it is reviewed regularly and kept up-to-date so that it remains tax-efficient despite changes to legislation and family circumstances. For example, Wills made prior to April 2017 should be reviewed to ensure that they do not contain provisions that inadvertently result in the estate losing access to the Residence Nil Rate Band.


What happens on death?

When an individual dies with a valid Will, the persons named as Executors will need to collect in the deceased’s assets, pay any debts and liabilities and distribute the remaining estate in accordance with the deceased’s wishes in their Will.

Where there is no Will, administrators will need to be appointed to fulfil this function. There is a hierarchy that determines who can apply to be appointed as administrator, based upon their relationship to the deceased. Sometimes, the generic term ‘legal personal representatives’ will be used to describe the persons acting either as executors or administrators.

In most cases, the legal personal representatives will need to obtain a Grant of Representation before they are able to access the deceased’s property and investments. In England and Wales, this will be a Grant of Probate where there is a Will; or a Grant of Letters of Administration, where there isn’t a Will. There are however some situations when a Grant is not required:

  • Grant of Probate is not required for assets below the value of £5,000, however individual banks, building societies and other financial institutions may set a higher risk limit in terms of the sums that they are prepared to release without sight of a Grant. These limits can range from £5,000 to £50,000 depending on the institution so the executors should check the position with the provider. Where the total value with the provider is below its specified limit, they will typically release the funds to the executors on sight of a certified copy of the death certificate and evidence proving their entitlement to claim the funds (such as a copy of the Will appointing them as Executors and/or an indemnity).
  • Jointly owned investments and savings will automatically transfer to the surviving owner on first death. Jointly owned property (i.e. land and buildings) will also pass automatically to the surviving joint owner if they are owned as joint tenants.
  • Property and investments held in a trust created by the deceased during the deceased’s life are owned by the trustees and do not form part of the deceased’s estate (although they may need to provide a copy of the deceased settlor’s death certificate if they were also a trustee).


Obtaining a Grant of Probate

Where a Grant of Probate is required, any tax which is due to be paid, including Inheritance Tax (IHT) must be paid before Probate is granted. While IHT is not officially due until six months after the date of death, it is therefore usual practice for the Executors to submit the relevant IHT forms together with the Probate application.

A full IHT return will need to be completed if the estate is over the inheritance tax threshold and tax is payable. A full IHT account will also be required in certain circumstances. The full IHT return is made up of form IHT400 plus any other relevant supplementary forms from the IHT400 series. These forms, along with IHT421 (Probate Summary) should be submitted to HMRC and any IHT due must be paid.

If there is inheritance tax to pay and there are no funds immediately available to the Executors to discharge the liability, the Executors can consider:

  • Using HMRC’s Direct Payment Scheme which allows banks, building societies and other financial institutions to make payments directly to HMRC from money held in cash or investments in the deceased’s name.
  • The executors can borrow funds from a bank or from an estate beneficiary to pay the IHT bill. Alternatively, they could lend the funds to the estate themselves.
  • For certain asset classes, such as shares and property, HMRC will allow payment to be made in annual instalments over a period of ten years in acknowledgement of the fact that such assets may not be easy to liquidate. Where the instalment option is taken, interest is payable.

Once the IHT bill (or the first instalment of it) has been paid, Probate can be granted and the Executors can then begin the process of collecting in the deceased’s assets, paying off debts and distributing the estate in accordance with the terms of the Will.

Dealing with investments after the death of the investor

Before the Executors can distribute any of the deceased’s estate, they will need to ascertain what funds are required to satisfy debts and other liabilities, if any. They will need to approach banks and other financial institutions with whom the deceased held accounts and investments, provide the necessary evidence of entitlement to receive the proceeds, such as the Grant of Probate or Will and complete the necessary forms to request payment.

Banks and other financial institutions will usually be happy to pay to an account in the name of the Executors or, where the Executors have appointed a solicitor to deal with the estate administration, to the solicitor’s client account.

Investments will automatically vest in the Executors without the need for any transfer or assignment, however if the Executors want to pass the assets on to a beneficiary, the necessary formalities for transfer of ownership will need to be followed. These will vary depending on the type of investment, for example:

  • Shares and collectives will need to be transferred by stock transfer;
  • Single premium investment bonds, Life Assurance s or redemption versions, will require a Deed of assignment. The assignment will not give rise to a chargeable event and will mean that, when the bond is surrendered, the gain will be assessed with reference to the tax position of the beneficiary with the benefit of top-slicing (back to the commencement date of the plan) where relevant.
  • Property and land can only be transferred by formal conveyance and the Executors will usually need to enlist the services of a solicitor to do this.

Where the Will isn’t specific with regards to which asset is left to a specific beneficiary, the Executors can decide how to satisfy the beneficiaries entitlement. The Executors may choose to sell assets and satisfy beneficiaries entitlements with cash; or they may ‘appropriate’ assets to beneficiaries in full or part satisfaction of their entitlement to share in the estate.

The Executors will need to consider the type of asset involved, its tax treatment and the practicalities of a transfer of ownership before deciding how to proceed.


The tax advantages of an ISA will continue until the end of the estate administration period or until the third anniversary of the death of the account holder if sooner. Consequently, if the executors sell ISA investments during this period, there will be no tax to pay even if a gain has been made since the account holder’s death.

As with other investment types, the executors may choose to transfer the ISA investments to one of the estate beneficiaries in full or part satisfaction of their entitlement (provided the investments are not needed to satisfy estate liabilities).

If the deceased ISA holder had a surviving spouse or civil partner, they will inherit an additional ISA allowance equal to the value of the deceased's ISA. This is known as an additional permitted subscription (APS). The APS can be made in addition to the usual subscription allowance for the tax year and is inherited regardless of whether the deceased’s spouse inherited the deceased’s ISA investments themselves.

Investment Bonds not in trust

When the sole (or last surviving) bondowner dies, the bond or the proceeds of the bond, would normally need to be administered in accordance with the terms of the Will or if there is no Will the laws of intestacy.

The bond will continue in force if there is at least one remaining life assured or it is Redemption Bond type. The market value of the Bond immediately before the death of the individual, falls within the estate for IHT.

In administering the bond the personal representatives usually have two main options available to them.

(i) Encash the bond with a view to paying the surrender proceeds to the beneficiary(ies) entitled to the bond (or the proceeds of the bond) under the deceased policyholder’s Will or laws of intestacy.

(ii) Vest the legal title in an adult beneficiary by way of an assighment. This would not give rise to a chargeable event as no consideration is involved. The beneficiary could then encash the bond in their personal capacity. If the beneficiary is a higher rate/additional rate taxpayer on vesting, then they could instead consider deferring encashment if their tax rate is likely to reduce in the future i.e. they become a basic rate or non-taxpayer.

Investment Bonds held in trust

It is common for an individual to create a trust and assign their investment bond to the Trustees. The type of trust and whether the settlor was a beneficiary or not, will determine how this should be treated for IHT purposes. Where the settlor isn’t a beneficiary, the value would not usually form part of the estate, depending on when the trust was created, and the bond will continue to be owned and administered by the Trustees.

Where the deceased settlor created a Loan Plan (sometimes referred to as a Gift & Loan Plan) during their lifetime, it will be necessary for the Executors to determine whether any of the deceased’s loan remains outstanding and if so, this will belong to the estate and entitlement to it will pass in accordance with the deceased’s Will. Where the loan has been fully repaid (or waived) during the deceased’s lifetime, the entire investment will belong to the trust.

Tax and other considerations

The period following the date of death, during which the Executors are collecting in the deceased’s assets, paying debts and liabilities, and distributing whatever is left over is known as the period of administration (or the estate administration period). This period lasts until the Executors have fully distributed the estate.

The Executors may need to pay income tax and/or capital gains tax if they receive income or dispose of property or investments while administrating the estate. In this respect, the following points should be noted:

  • Executors pay income tax at the basic rates (currently 8.75% for dividend income and 20% on income from other sources) however they do not have a personal allowance, a dividend allowance or a personal savings allowance available to them.
  • Executors pay capital gains tax at the same rate as is paid by trustees i.e. 28% on gains made on disposal of residential property and 20% on gains made on disposal of other assets.
  • Executors have a full annual exemption available to them in the tax year of death and in each of the subsequent two tax years.
  • Where Executors sell chargeable assets in the administration period, their acquisition cost, for the purposes of calculating the gain, will be the date of death value.
  • Unlike trustees, Executors do not make a disposal for capital gains tax if they transfer chargeable assets to a beneficiary. Instead, the beneficiary is deemed to acquire the investment at the date of death value. The rate of tax payable by the beneficiary and the availability or otherwise of the beneficiary’s annual CGT exempt amount will therefore be factors when deciding which approach to take.
  • Where Executors pass estate income to a beneficiary, the beneficiary will need to declare this on their tax return and reclaim or pay additional tax where appropriate. This can have implications where Executors surrender investment bonds during the administration period.

(i) On encashment of an offshore bond by the personal representatives the chargeable event gain would be subject to a 20% income tax charge on the personal representatives. This is because the gain is treated as income of the personal representatives and is therefore taxed at the basic rate only.

(ii) On distribution of the proceeds to the beneficiary, an amount equal to the chargeable event gain would be treated as estate income in the hands of the beneficiary. The trustees must therefore provide the beneficiary with form R185 (Estate Income) which identifies the source of the income received. The gain is treated as estate income of the beneficiary even though proceeds from the bond are capital. This is because the income of personal representatives forms part of the aggregate income of the estate.

(iii) The income will be taxed at 40% if the beneficiary is a higher rate taxpayer or 45% if the beneficiary is an additional rate taxpayer. HMRC will allow the beneficiary a 20% tax credit for the tax suffered by the personal representatives.

(iv) The tax position for a UK Bond would be the same as above except that the personal representatives would have no basic rate income tax liability and the beneficiaries would therefore have no 20% tax credit.