With the Chancellor having announced updates to the IHT rules (Oct 2007) many couples think that they don’t need to worry about tax or even making a Will at all. Unfortunately they have been lulled into a false sense of security, and by not making appropriate Wills today they may be impacting their family for many generations to come.
Certainly the new rules bring a benefit. For a married couple (or civil partners), when the 2nd member passes away their executors can go back and claimed the unused portion of the Nil Rate Band from the 1st death (Nil Rate Band is the amount that can be passed on without paying IHT, currently £312,000 in 2008/09). It means that a couple can leave everything to each other and yet still exploit both NRBs when leaving their estate to family. However, simply relying on this useful tax saving rule means that they miss out on many other ways of protecting the family’s inheritance from tax and other future claims upon their assets.
The rules apply where the 2nd member of a couple dies on or after 9th October 2007 – so they may have been widowed very many years before that but the new rules can still benefit the family. However, where a couple simply live together then the new rules do not apply.
If a widow remarries then the benefit is retained, but sophisticated Wills are required for both members of the new marriage in order to exploit it to the full.
Inheritance Tax Limits
The planned Nil Rate Band limits for coming years have been published in the Budget. They are shown here along with the figures for previous years. Any gifts to legal spouse (or civil partner) are exempt from the calculation, as are gifts to UK-registered charities. Gifts made during the last 7 years of the deceased’s life may also be included in the estate. Once an estate exceeds the NRB, the tax is payable at 40% on the excess.
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