Inheritance Tax Planning
12 Nov 2009
Reshma Field, Partner, Private Client
New Inheritance Tax Rules
The Inheritance Tax rules have changed. In his Pre-Budget Report, the Chancellor announced that from the 9th October 2007 spouses and civil partners can transfer the nil-rate band not used on the first death to the survivor for use on their death.
The amount that can be transferred is worked out as a percentage of the nil-rate band unused on the first death. That percentage is then used to increase the nil-rate band available to the survivor.
It's not as complicated as it may sound and the examples below should help to clarify matters.
Examples
1. Mr A dies leaving everything to his wife, Mrs A. Therefore, Mr A does not use any of his nil-rate band. Mrs A then dies and she is entitled to her nil-rate band of £325,000. (1) She is also entitled to claim 100% of Mr A's nil-rate band, that is another £325,000. Mrs A will therefore have a nil-rate band of £650,000 available.
2. Mr B dies leaving a gift to his children of £162,500 and the remainder to Mrs B. Mr B therefore uses 50% of his nil-rate band. When Mrs B dies she is entitled to her own nil-rate band. She is also entitled to claim the 50% of Mr B's nil-rate band that he has not used. This will increase her nil-rate band by 50% and she will therefore have a nil-rate band of £487,500.
Inheritance Tax is then only payable if the estates left by Mrs A and Mrs B are above their respective nil-rate bands.
Inheritance Tax and You
The reform of Inheritance Tax may have consequences for you. If you already have a Will you may wish to review it with us in light of these new rules. Furthermore, at Buss Murton Law we recommend that you review your Will every five years, or sooner if your financial or family circumstances change.
If you don't have a Will then the new rules can simplify the drafting process. The Inheritance Tax reforms may reduce the need to rely on vehicles such as nil-rate band discretionary trusts, although they may still be appropriate in some cases.
Whether you would like us to review your existing Will or advise you on making a Will, Buss Murton Law has the expertise and experience to help. Please contact Mrs Field on 01892 510222 or email rfield@bussmurton.co.uk for further information.
Reshma Field is a partner in Private Client and is available on 01892 502320 or rfield@bussmurton.co.uk
(1) This is the Nil-Rate Band for tax year 2009/2010