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Inheritance TaxUpdating note following the Pre-Budget Report:
The 2007 Pre-Budget report had a number of “unintended consequences” which require careful consideration.
The new rules allow:
‘A transfer of any unused nil-rate band from a deceased spouse or civil partner (no matter when they died) may be made to the estate of their surviving spouse or civil partner who dies on or after 9 October 2007. Claims for the transfer of the unused nil-rate band amounts will be made by the personal representatives of the second spouse or civil partner to die, when they make an IHT return.’
What is the impact of these changes?
If you have already have Wills in place that incorporate nil-rate band discretionary trusts:
- You will not benefit from these new rules; but
- You will need to review your Wills, as the new rules provide for the proportionate amount transferred to the surviving spouse to be based on the level of the nil-rate band at the time of the second death whereas in a nil-rate band discretionary trust the amount of the assets that are transferred to the trust and effectively put outside of the estate of the surviving spouse is frozen at the level of the nil-rate band at the date of the first death. As the IHT threshold increases annually, the beneficiaries of the surviving spouse could, therefore, be disadvantaged to quite a considerable extent, unless there are other, compelling reasons (such as making provision for step-children) to establish a discretionary trust on the first death.
If you have Wills in place that do not incorporate nil-rate band discretionary trusts:
- Depending on the terms of your Wills, you are likely to benefit from the changes;
- If your Wills were made some time ago, you need to review these to ensure that the provisions made within them remain relevant to your current circumstances.
If you do not have Wills in place:
- You should review your position, as the rules of intestacy (dying without a valid Will) are unlikely to allow you to leave your estate as you would wish. The rules of intestacy could, also, dilute the availability of the nil-rate band when it passes to the surviving spouse.