money

Statutory Legacy sum set to be raised later this month

The government has confirmed that it has laid a Statutory Instrument to set a new Statutory Legacy (fixed net sum) of £322,000 which will come into effect on 26th July 2023.

The Statutory Legacy is the sum – which currently stands at £270,000 – to which the surviving spouse or civil partner of a person who dies intestate but with children is entitled to first from the estate before the remainder is shared.

The applicable legislation, the Administration of Estates Act 1925 (the Act), was amended in 2014 to implement most of the reforms recommended in a 2011 Law Commission report, Intestacy and family provision claims on death. It sought to modernise and simplify the law to create a fairer and more comprehensible set of rules, and to make the process of administering an estate faster and easier for people during a difficult and emotional time.

“This is good news for people struggling with the cost of living crisis and rising inflation,” said Ian Bond, Partner, Irwin Mitchell:

“The average house price in England and Wales is currently £286,489 as of April 2023 which means that a married couple with children together – where the deceased passed away owning the house in their sole name – would currently have the first £270,000 passing to the spouse, the rest split between the spouse and the children.

[This potentially requires] a property to be sold, whereas with the new figure of £322,000 the average house will pass all to the survivor. As more adults in England and Wales don’t have wills than do, this is a benefit to those who fail to make a will.”

Why has the sum been raised?

Below is the justification, as per the Ministry of Justice:

Schedule 1A to the Act resulted and sets out the requirements for changes to the sum.

Schedule 1A mandates a five-year period before the expiry of which a new fixed net sum for statutory legacy should be set and identifies the methodology to for doing so. The current the Statutory Legacy sum of £270,00 was set in January 2020 pursuant to those provisions. The next review of the sum would normally therefore have been due by January 2025.

However, the legislation also provides that if the inflation rate increases by 15% or more from the base rate applicable to when the statutory legacy was previously set, then the Government must review the sum and take steps to either make a negative statutory instrument to increase it according to the change in the consumer prices index (CPI) or seek to set a different sum, calculated by an alternative approach, by laying a draft instrument before Parliament for affirmative resolution.

This trigger point was reached in December 2022 when the Consumer Price Index (CPI) for November 2022 was published showing an increase of 15.023% over the CPI used to set the last fixed net sum, which was that for November 2019 – the “base month” – as published in December 2019.

However, the CPI inflation figure for January 2023 showed a fall in inflation before it rose above it again in the CPI inflation rate figure for February and published in March.

Having undertaken a review, the Government has decided that the most appropriate approach to expedite the matter and provide certainty for families affected is to set a new rate linked to the latest inflation rate represented by the change in the CPI.

In accordance with the methodology set out in paragraph 7 of Schedule 1A to the Act, the Ministry of Justice calculated the change in the CPI from that in the “base month” to that in the “current month”, June 2023, and applied that to the last sum to identify the increase. In addition, in accordance with the Act, that figure must be rounded up to the nearest multiple of £1000. Therefore, as the increase was 19% over the specified period, after rounding up, the increase on the existing sum is £52,000. Accordingly, the Lord Chancellor is setting the new sum as £322,000.

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