The Great Big Inheritance Tax Giveaway – or is it?
23 October 2007
Who will be better off due to the Chancellor’s recent announcement that married couples will now be able to utilise two tax free allowances of £300,000 on death?
The new rule, which also applies to civil partners, can be complicated. In this article, Simon Palmer, Head of Private Client services at Brachers solicitors in Maidstone, explains the changes.
Let us assume in these examples that the poor husband perishes first.
Question 1 - How does it work?
Answer - Each spouse can give away £300,000 on death to someone other than his wife. Now, if the first person leaves everything to the surviving spouse (and for this read civil partner as well) then when the surviving spouse passes on she will have two allowances of £300,000. .
Question 2 – To whom does this apply?
Answer – The new reliefs apply to anyone dying after 9th October and includes all widows and widowers going back, with no time restriction.
Question 3 – What if the husband used up part of his nil rate band allowance under the terms of his will or failed lifetime gifts?
Answer – These are taken into account and will reduce the £600,000 exemption when the widow passes on.
Question 4 – What if the widow had outlived more than one husband?
Answer – This is becoming complicated. Old allowances can be added but the total on the widows’ death will be limited to £600,000.
Question 5 – My specialist solicitor prepared wills which include nil rate band discretionary trusts. Should we dismantle them now that the allowance is automatically available?
Answer – These wills have survived the test of time - and this budget. There are advantages in keeping the nil rate band discretionary trusts going. They are:-
1. We advise clients to have these specialist wills not just to save tax but also to give a level of control over the widower’s estate.
2. The trusts are very flexible and can be brought to an end should the trustees agree.
3. The trusts give helpful control at a time when the survivor may be losing mental capacity.
4. The trusts can benefit people other than the survivor if this is necessary.
5. The assets in the trust are not taken into account when calculating means tested benefits for the survivor.
6. If the value of the assets grows within the trust beyond the nil rate band existing at the time of the survivor’s death, then this is still exempt from the IHT charge on the widow’s death.
7. Additional tax can be saved where the husband owned a farm or certain business assets.
Question 6 – Taking advice from my specialist solicitor at Brachers will he still recommend a nil rate band discretionary trust?
Answer - We will look at all of your circumstances, and it is quite probable that we will continue to advise the establishment of a nil rate band discretionary trust for the reasons set out in question 5 above. Remember too, that governments come and go and the law can change. At present, the discretionary trust in the husband’s will has survived many changes to tax legislation and is still the most effective tax planning tool for the wealthy client.
Question 7 – Was it all smoke and mirrors then?
Answer - Well, no. For those spouses who did not use up their nil rate band allowance on the first death it is good news. Those persons without tax planning wills are now going to be helped. However, for those of you who took specialist advice, you were ahead of the game already, and the new rules will not save any more tax than had already been achieved by having expertly prepared wills.
Question 8 – So what should I do now?
Answer – If your spouse has died within the last two years then consider taking advice as soon as possible, but otherwise do not panic. Keep your nil rate band discretionary trust wills and review them in the normal course of events.
Latest Events
- July 2008
Forthcoming Events
