Inheritance

• Lifetime gifts
• Planning in your Will
• Deeds of variation

Most married couples leave their estates to each other and then, when the second spouse dies, to their children. Transfers between husband and wife are exempt from Inheritance Tax so, when the first spouse dies, there is no Inheritance Tax payable. However, if no measures have been taken, when the second spouse dies ,if the estate if worth over the Nil Rate Band (currently £300,000), the children may face an Inheritance Tax bill.

It can be worthwhile for couples to consider making a ‘Nil Rate Band Discretionary Trust’. In very basic terms, when the first spouse dies, their full estate is not transferred to the surviving spouse but placed in a Discretionary Trust of which the surviving spouse and children can be beneficiaries. Potentially, there could currently be a saving of £120,000 i.e. 40% of £300,000. You can download our information sheet on Nil Rate Discretionary Band Trusts.

Under the current law, it is possible to vary where your entitlement under the Will of the deceased person passes by entering into a Deed. This opportunity is often used to help with reducing a future liability to Inheritance Tax. Any such Deed needs to be completed within two years from the date of the death of the person concerned and will also need to meet with other technical formalities.

It may be worth taking expert advice from our Trusts and Probate team to try and minimise your Inheritance Tax liability and ensure that more of your estate passes to your intended beneficiaries.

In his Pre-Budget Report presented on 9th October 2007 Alistair Darling, the Chancellor of the Exchequer, announced the introduction of a “transferable Nil-Rate Band” between spouses and civil partners. It will now be possible for the surviving spouse or civil partner to “double-up” on the Nil-Rate Band on gifts made by them under their Will.

Prior to 9th October 2007 if a spouse or civil partner died leaving part of the Nil-Rate Band unused then the unused part was lost. With effect from 9th October 2007 the unused allowance may be transferred to the surviving spouse/civil partner. It is understood that the operative date of 9th October 2007 applies to the second death and the date of death of the first spouse/civil partner is irrelevant. Accordingly in a generous move the Chancellor is permitting widows, widowers and surviving civil partners to make use of any allowance unused by their partner.

It is understood that claims for the transfer of the unused part of the allowance will need to be made by the personal representatives on the survivor’s death when an Inheritance Tax return is submitted.

For many tax payers who have written Wills with a view to creating a Nil-Rate Band Discretionary Trust upon the first death they may wish to consider revising their Wills to avoid the complexities which arise from the creation of a Trust. However, there may be a number of situations where some type of Trust arrangement may have advantages - for example where there is a second marriage and/or some planning is required towards the possibility of future care home fees. It is recommended that professional advice is obtained.

This article will be updated once the full implications of the Chancellor’s Pre-Budget Report may be considered.