When planning to provide for your loved ones after you are gone, it can be easy to focus only on your physical and financial possessions. However, if you are a creative person, you might be overlooking some assets which are potentially very valuable, your intellectual property.
Many creative people wish to be remembered after death for the works they have made. To create, is to live on after you have died in some form, whether that is through art, music, books, inventions, or any other kind of creative product.
Whether you wish for this posterity or not, the question of who own the rights to your creations can affect many things. It can change the way your works are used, presented, or sold, and determines which of your loved ones may benefit from the value those works may have.
If these matters are important to you, you need to know what your intellectual property is, and what will happen to it after you are gone.
What is intellectual property?
Your intellectual property encompasses your rights over the unique works or products you have created. An idea alone, however, will not count as intellectual property.
As the name suggests, intellectual property is something you own. It is sometimes referred to as ‘intangible property’ as, unlike other property such as your house or possessions, intellectual property is not something you can physically touch.
There are many rights which may constitute your intellectual property. They include:
- Artist Resale Rights (ARR)
- Library lending rights
The intellectual property rights you have over your creations normally allow you to do what you like with them, to the exclusion of everyone else, although more than one person can own the intellectual property for a creation. For example, co-authors of a book would both have intellectual property rights in the work.
Intellectual property is treated separately from any physical manifestations of your work. If you have painted a picture, the painting, as an object, would be counted as one of your possessions. However, if you sell or give away the painting, this does not necessarily mean you are giving away your intellectual property rights to it. If you retained these rights, you would be able to continue making and selling prints of the image, for example.
What will happen to my intellectual property after I die?
Your intellectual property will form part of your estate when you die. This means several things:
- It will be passed according to your Will if you specifically made provision for who should receive it. There is no need for all your intellectual property to go to the same person or organisation; the intellectual property for different works can be dealt with individually if you wish.
- If you did not make provision in your Will, all your intellectual property will go to whoever is the ‘residuary beneficiary’ of your estate. The residuary beneficiary is the person (or people) who will receive the remainder of your estate after all specific gifts have been made and/or debts and liabilities have been settled.
- If you did not make a Will, or your Will is invalid, your intellectual property will pass with the rest of your estate to whoever inherits under the intestacy rules.
Essentially, if you do not make a Will, or you do not specifically refer to your intellectual property within your Will, you cannot clearly determine who will inherit your intellectual property.
Is my intellectual property considered for inheritance tax purposes?
Yes. This is another reason why you should consider your intellectual property when planning for your estate. Overlooking the value of your intellectual property can cause difficulties. Depending on the value of your intellectual property, your estate may have to pay an increased amount of inheritance tax from that which you were expecting. This can upset even the most careful of estate plans, perhaps meaning your estate cannot ‘afford’ to make some of the gifts you have specified.
For more information on how inheritance tax is calculated, have a look at our factsheets on inheritance tax planning.
Valuing intellectual property of inheritance tax can be a complicated issue. The value attributed to it will be the ‘market value’ at the time, in accordance with provisions in the Inheritance Tax Act 1984. Working out what that means to your estate may be tricky. Often, specialist accountants will be needed for the more complicated intellectual property situations.
Reducing inheritance tax on intellectual property
Inheritance tax reliefs and exemptions can often help to reduce the amount of tax your estate may have to pay. Although intellectual property does not benefit from a specific relief, a measure called Business Property Relief may be able to help reduce its taxable value.
Business Property Relief
If the intellectual property is owned by a business, which you either own or have an interest in, you may be able to have some, or all the value of the intellectual property ignored for the purposes of inheritance tax.
A ‘business’, for this relief, is given quite a wide definition in the Inheritance Tax Act 1984. It includes ‘a business carried on in the exercise of a profession or vocation but does not include a business carried on otherwise than for gain.’ Therefore, a non-profit organisation would not be eligible.
There are some other conditions which you must meet for your business to be eligible, however:
- You must have owned the business (or your interest in the business) for at least 2 years.
- The business cannot be wholly or mainly concerned with:
- Dealing in securities, stocks or shares
- Dealing in land or buildings
- Making or holding investments
To find out more about Business Property Relief, have a look at our blog post on the subject.
What should I do about my intellectual property?
The following steps may help you to plan passing on your intellectual property to those you wish to receive it:
- Consider how much your intellectual property might be worth. As mentioned above, an exact valuation will be tricky, particularly for substantial amounts of intellectual property. You may already receive royalties which can help you put some figures on your intellectual property. However, in complex situations it may be best to seek advice from a specialist accountant or financial adviser.
- Consider who you would like to receive your works after you are gone. Many things might influence your decision, such as who you think would best take care of your creative legacy, or who you would like to receive a valuable, or potentially valuable, asset.
- Keep a full record of all your created works. This can help your heirs with identifying all the intellectual property to which they are entitled. Also consider including additional information such as the contact details for the relevant publishers of a written work, for example.
- Speak to a specialist Wills and probate solicitor to make sure your wishes are put into action. This will involve ensuring the provisions of your Will are correctly drafted to give effect to your intentions.
How we can help
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