Legal/Finance
Inheritance tax: prepare to claim for new allowances
28th May 2008
Changes in the law will affect surviving partners
New inheritance tax (‘IHT’) laws are expected to come into force this summer, allowing additional IHT allowances to be claimed on the death of widow(er)s and surviving civil partners.The new rules allow any unused portion of the nil rate band on the first death, to be carried forward and claimed on the death of the survivor. The nil rate band is an amount (currently £312,000) that passes free of IHT.
Penny Wright, a solicitor at the Newbury office of Thomas Eggar LLP, said: “If you are the surviving partner of a marriage or civil partnership, it is important for you to gather together information relating to your deceased partner’s estate to enable your executors to claim the allowance on your death.” In particular, they will need:
n Death certificate and marriage/civil partnership certificate.
n Copy of the Will (if any) and Grant of Representation.
n Copy of the Inland Revenue IHT Account.
n Evidence (e.g. estate accounts) of what assets and liabilities were in the estate, their value and to whom they passed.
n Details of other assets brought into account for IHT purposes (such as jointly owned property, trust funds, lifetime gifts).
n Details of any applicable relief such as agricultural property relief or business property relief.
Ideally the above information should be kept with your Will, or somewhere readily accessible to your executors.
The new rules apply where the second death occurred on or after October 9 2007, regardless of when the first death happened.
Example
To illustrate the above: Mr H died in June 2007, when the nil rate band was £300,000, leaving a legacy of £100,000 to his children and the rest of his estate to his wife. Two-thirds of his nil rate band was unused, because everything passing to his wife was exempt from IHT. Mrs H died in May 2008 when the nil rate band was £312,000. Her executors can carry forward Mr H’s unused nil rate band, and claim an extra £208,000 (two-thirds of £312,000), so that a total of £520,000 passes free of IHT.
Unmarried couples
The above provisions do not apply to unmarried couples, who should ensure that their Wills are kept up to date to ensure that their wishes are followed, for example that their partner is adequately provided for.
Nil Rate Band Discretionary Trusts
Many people’s Wills contain discretionary trusts intended to make use of both spouses’ nil rate bands.
Penny Wright said: “These still work and do not normally need to be changed. In fact they often have additional benefits, such as preserving assets for future generations by protecting against your spouse’s nursing home costs, claims by your children’s divorcing spouses and other creditors.”
For more information, please contact Penny Wright at Thomas Eggar LLP on (01635) 571000 or penny.wright@thomas eggar.com
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