Wills, Trusts & Estates News

Recent changes to inheritance tax (IHT) affecting married couples and registered civil partnerships - Sion Roberts

The new law

As a result of the Finance Act 2008, it will be possible for the personal representatives of spouses and registered civil partners to apply to HM Revenue & Customs and transfer the unused proportion of the inheritance tax free allowance (nil rate band) to offset and inheritance tax liability which arises on the death of the surviving spouse or civil partner i.e. any part of the nil rate band that was not used when the first spouse or civil partner died, can be transferred to the individual's surviving spouse or civil partner for use on their death.

The technicalities

The new law will only apply to married couples or same sex couples who have signed the civil partnership register.
The new law will only apply if the surviving spouse dies after the 9 October 2007. It does not matter whether the first spouse died before or after this date.
The nil rate band is the value of each person's estate which can be left without attracting any liability to inheritance tax. For the financial year 2008 /2009 the limit is £312,000.
The amount which is transferable is the amount which was not utilised by the first spouse to die to offset any inheritance tax liability. This includes gifts made in wills or possibly during the lifetime.
The unused proportion of the nil rate band must be claimed by the surviving spouse's personal representatives within 2 years of death.

The impact

The new law will not affect unmarried couples or spouses or civil partners where the combined value of the estate does not exceed the nil rate band.
For those eligible, the new law could save up to £124,800 in inheritance tax.
The new law will not affect the validity of existing wills - whether or not those wills already contain provisions to mitigate inheritance tax liability.

Is it really this simple?

Making the application to transfer the unused proportion of the nil rate band will involve completing an Application Form to H M Revenue & Customs. The Application Form will involve ascertaining the unused nil rate band of the first to die. Will suitable records exist? Accounts and files are usually destroyed (including solicitor's files) after seven years. Records may not include the details of joint property transferred at the time of the first death. Records may not include the details of lifetime gifting which would limit the available nil rate band at the time of the first death. This means that Applicants could be at risk of either being unable to make their case to the Tax Office or losing out. We would strongly advise that professional help is sought at the time, or as soon as possible after the first death. The surviving spouse should have the requisite information and personal knowledge which can be recorded and detailed now for the sake of clarity and administrative efficiency.
Clients who have made tax efficient provision in their existing wills can be confident that they still work. It is also likely that despite these changes, such will planning remains appropriate in most cases where the value of joint estates exceeds the basic £312,000 Inheritance Tax Free nil rate band.

What should I do?

Eligible couples - calculate the value of your combined taxable estate. This should include the value of properties, savings and other investments and also any liabilities such as mortgages, loans and other debts.
Consider your existing wills to ensure that they meet your needs. If the value of your estate exceeds the nil rate band, contact your legal advisor to discuss matters. Remember that the new rules only provide a potential inheritance tax saving for estates worth up to twice the threshold. If the value exceeds this amount, then additional options should be considered to minimise inheritance tax liability.
Surviving spouses - Consider the value of your estate and whether any part of your spouse's nil rate band could be re-claimed by your personal representatives. Arrange an appointment with your legal advisor to discuss matters.

At Lees our Wills, Trusts & Estates specialists can advise and prepare a pack which can be utilised to save time, fees and tax on the second death. To make an appointment contact:

Birkenhead Office, 0151 647 9381, Mark Duckworth, David Watters, Gillian Knowles or Jessie Hughes.

Heswall Office, 0151 342 6273, Sion Roberts

West Kirby Office, 0151 625 9364, Sion Roberts

Chester Office, 01244 409970, Gillian Knowles or Jessie Hughes

Sion Roberts

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