IHT: Transfer of unused nil-rate band

The Pre-Budget 2007 Report published on Tuesday 9th October announced various changes, one of them referring to the inheritance tax (IHT).
Previously, married couples could transfer an unlimited sum to each other when one died without paying inheritance tax. But when the survivor died, their estate was then taxed at 40% on anything exceeding £300,000.
Couples can now transfer their allowances to each other. When the first person dies, they can transfer their allowance to the second person. When the survivor dies, their beneficiaries can add the two allowances together.
In other words, the change in IHT is concerned with ”the transfer of any unused nil rate band allowance on a person’s death to the estate of their surviving spouse or civil partner.”
It is important to remember that there is a ”permitted period”which is the time limit within which a claim must be made by the personal representative. This is two years from the death of the survivor spouse. If the claim is not be made within the time limit, than a claim may be made by any other person who could be liable to the inheritance tax.
By 2010, the combined tax-free allowance for couples will rise to £700,000.Experts emphasise the need to keep good records, especially where the spouse who dies first does not use the whole of their IHT allowance.
Although this is a great news for married couples or those in civil-partnerships these changes will not help unmarried or non-civil partnership couples, or siblings who share homes.
If you would like to know more details about the way IHT works, you can visit Taxfile’s accountants in South London.

1 reply
  1. Adrian says:

    Although the chancellor has tinkered with Inheritance Tax he has not really given anything away that could not have been achieved with Inheritance Tax saving Wills prior to his budget.

    It does mean that many people who had Nil Rate Band Inheritance Trust Wills written need to have them examined as they could be potentially be worse off by having them.

    The way some of these Wills are written means that on first death from the couple the Nil Rate band is used to transfer money into the Nil Rate Band Trust. If the second partner from the couple dies some years later they may not benefit in the uplift of the nil rate band allowance.

    This is quite complicated but if the first partner died in 2007 and the Nil Rate Band Trust was in acted then the second partner died in 2010 they total IHT free allowance could have been £700,000 but if the IHT Will transfers the nil rate band in force at the time of first death they would have used 100% of the nil rate band allowance and thus only achieve a total of £650,000, free of inheritance tax. The longer the period between the first partner dyeing and the second partners death the bigger this gap will get.

    If you are married or in a civil partnership you should consider either updating your wills or writing wills to include an asset protection trust to help protect a portion of the estate from potential care cost assessment, if you should need to go in to longer term care after the death of the first partner from the couple. Where as inheritance tax could only be applied at 40% on assets over the £300,000 nil rate band if you need long term care the local authorities could drain all of your assets down to a value of £13,000 a much bigger threat.


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