Are you aware of new changes to Inheritance Tax charges?

Inheritance Tax (IHT) is only paid if the taxable value of your estate when you die is over £312,000 (2008-2009 tax year). The first £312,000 of a person’s estate is known as the IHT nil-rate band because the rate of IHT charged on this amount is currently set at 0%, so is free of tax.

Where assets are transferred between spouses and civil partners, they are exempt from IHT. This can mean that where the first to die leaves all their assets to the survivor, the IHT exemption applies and the nil-rate band is unused and effectively lost.

Previously, a surviving spouse or civil partner could only benefit from one nil-rate band on their death unless they had completed tax planning during their lifetime (e.g. by completing Nil-Rate Band Discretionary Trust Wills).

However, it will now be possible for married couples and civil partners to benefit from both parties’ tax-free amounts. The unused nil-rate band (or part unused) can now be transferred and used by the survivor’s estate on their death. This provision only applies where the survivor died on or after 9 October 2007.

For example, if on the death of the first spouse, they leave legacies totalling £156,000 to their children and the rest of their estate to their spouse, the sum of £156,000 would be chargeable to IHT (due to the spouse exemption from IHT). Since this amount is less than £312,000 the legacies pass free of IHT, and 50% of the nil-rate band would be unused. This unused amount can be transferred into the estate of the survivor. If when the survivor dies the nil-rate band is £325,000, then that would be increased by 50% to £487,500.

This means that in many cases Nil-Rate Band Discretionary Trusts in Wills will no longer be necessary. However, such Trusts may still be useful in cases involving;

• nursing care fees
• children from a previous marriage
• agricultural or business property.

If your Wills already include Nil-Rate Band Discretionary Trusts you do not need to change them. On the first death your Solicitor will be able to draft a simple document transferring the fund to the surviving spouse.

These changes mean that less people will be affected by IHT but everyone will still need to take advice to ensure that IHT is not an issue, or that steps have been taken to reduce any liability.

If you need any IHT advice, please contact a member of our Private Client teams.