Wills and inheritance tax update - Everyday Law Spring 2008

13 March 2008

A new Inheritance Tax (IHT) rule will have an impact on how married couples and civil partners consider their estate planning and Wills.

Draft legislation published after the Chancellor’s Pre-Budget Statement in October 2007 permits any unused percentage of a spouse’s or civil partner’s Nil-Rate Band allowance to be transferred to the survivor’s estate, on a claim by the survivor’s personal representatives. The transfer is available on deaths after 9 October 2007, regardless of when the first spouse or civil partner died. This will have greatest impact where the entire estate is left to the survivor, making no use of the allowance on the first death (currently £300,000, and set to increase to £350,000 by 2010/2011).

It is the percentage of unused allowance that can be transferred, meaning that on the second death a maximum double allowance could be available. So, if the survivor dies  in 2010/2011 the maximum allowance would be £700,000.

Many couples have made their Wills tax-efficient by using a discretionary trust, to make full use of both their allowances. Whilst it may seem that a trust is not now necessary for tax savings, in some cases it can still save IHT, and other reasons may make the use of a trust beneficial. One reason is asset protection. Another is to provide tax planning opportunities for the next generation. A trust also caters for more complex family circumstances (such as second marriages), and it is a key planning tool if you have assets qualifying for business or agricultural property relief.

Additionally, a trust is still an important consideration for unmarried couples, who
do not benefit from the new IHT rule.

What action should you take?
 

• If you already have a tax efficient Will by  way of a discretionary trust, you do not necessarily need to change it. You can decide after the first death whether or not  to keep the trust running.
• If you have a tax efficient Will with a specific legacy to someone of the Nil-Rate Band allowance, you may want to review it to confirm that it is still appropriate.
• If you have a basic Will, you might want to consider the non-tax benefits of using a trust.
• If your spouse or civil partner died before 9 October 2007, and in the last two years, discuss with your adviser whether to keep the trust or wind it up to take advantage of   the new rule.
• If your spouse or civil partner died over  two years ago and your personal  representatives will be able to make a claim under the new rule, keep a record of all information needed to make the claim on your death. This includes your  partner’s death certificate, the Will, probate papers and your marriage certificate. We can provide a complete list of required documents.

Despite this positive move by the Government, it is a relatively small reform and many will still be affected by IHT. A detailed consideration of all estate planning opportunities is recommended.

For more information please contact Sarah Bogard

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