Author Alison Budge

Issue September 08

Pub Suffolk Business Magazine

Changes to Inheritance Tax in October 2007 have alleviated the problem for wealthy couples of allowing the survivor of them access to their combined assets, without wasting the amount that could pass free of tax on the first death. Getting round this problem generally used to involve convoluted arrangements.

NOW the proportion of the nil rate band (‘NRB’) unused on the first death, can be claimed on the death of the second spouse, at the rate then in force. Since the NRB has historically increased, a second NRB at a future higher rate, is likely to be more valuable than on the first death. The current NRB is £312,000, becoming £325,000 next tax year and £350,000 the year after.

Similar provisions apply to partners in civil partnerships as to spouses in marriages.

The NRB is considered to be ‘unused’ on the first death, to the extent that it passes to a spouse (or another exempt beneficiary such as a charity). Gifts to others in the seven years before death, use up part of the available nil rate band, except for gifts of fully relievable assets such as agricultural and business property. So a spouse can give agricultural and business property to anyone by Will, or in the preceding seven years, whilst still retaining a full NRB to transfer.

A NRB is also considered available for transfer, even if the first spouse to die left an estate worth less than the nil rate band, or indeed nothing.

The possibility of transferring the NRB applies to deaths from 9th of October 2007, regardless of when the first death occurred. However, if the first death occurred before 1973, when there was no spouse exemption, the NRB may have been used up by the estate passing to the spouse.

Executors have to apply within two years of the second death for the transfer of the NRB and supply death and marriage certificates, the earlier grant of probate and Inheritance Tax return. Details of joint accounts and gifts seven years before the first death, are also required. All these may be difficult to obtain after many years, since no-one knew then that they would be needed.

Although the Revenue may accept briefer details if the problems are explained, it is sensible for a widow or widower to assemble the information required to claim the NRB transfer for their own estate. They may remember the details better; and may be the only one entitled to ask for copy documents.

Simple Wills which pass estates outright to a spouse may now be tax effective, but give no control over the ultimate destination of assets and no protection from care fees. Alternatively the surviving spouse could be given a life interest over some or all of the estate. This provides protection for capital, and still qualifies for transfer of NRB. Trustees of existing Discretionary Trust Wills can exercise their discretion within two years of the date of death, to obtain either of these possibilities. The new arrangement is then ‘read back’ into the Will.

Widows or widowers who have remarried, may be able to make use of the NRB transferred from their deceased spouse, by leaving legacies to their children, without their second spouse then losing the double NRB. Alison Budge Partner, Private Client Department

Alison Budge

Partner, Private client department

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