04/02/2008 Update to Inheritance Tax
Update - Inheritance Tax
Next year’s Finance Bill is set to introduce a ‘transferable nil rate band’, this means that where a spouse or civil partner has died and has not used all of their nil rate band, the percentage which is unused can be transferred to their surviving spouse or civil partner if they die on or after 9 October 2007.
So, if the first spouse or civil partner to die has not or does not use their nil rate band, the survivor’s beneficiaries can utilise this on the second death.
For example:
1. Adam died on 1 October 1999 leaving an Estate of £300,000
- He left £100,000 to his children and the remaining £200,000 to his widow Eve
- The nil rate band at the time was £200,000, so Adam has one half of his nil rate band unused and transferrable.
- Eve then dies on 1 December 2007 when the nil rate band was £300,000.
- Eve has her £300,000 nil rate band plus one half of £300,000 from Adam’s unused percentage of his nil rate band, a further £150,000. Eve can therefore leave £450,000 to her children free of Inheritance Tax.
The benefit of the new regime is that in most cases on the first death, unless you have particularly complicated tax affairs or business or agricultural property, a simple will gifting everything to each other will suffice. Records will have to be kept of the unused portion of the nil rate band for future use but complicated discretionary trusts won’t be required.
If you already have a Nil Rate Band Discretionary Trust Will, is it still necessary and what are the benefits?
- It can offer flexibility to provide for other members of the family and future generations
- It can protect monies from divorce or bankruptcy of children
- It could shelter growth and keep it away from the estate of the second spouse or civil partner to die.
- It could shelter monies from care home fees
- The changes don’t provide savings to partners who are not married or in a civil partnership.
In all, the advice is as always to keep your wills under review. People with existing nil rate band discretionary trust will don’t necessarily have to update them, but people making new wills may think twice now that they are not necessarily required for basic inheritance tax planning.