Pre budget speech 2007 - Changes to IHT

Inheritance Tax

Legislation will be introduced in Finance Bill 2008 to allow a claim to be made to transfer any unused IHT nil-rate band on a person's death to the estate of their surviving spouse or civil partner who dies on or after 9 October 2007.


This will apply where the IHT nil-rate band of the first deceased spouse or civil partner was not fully used in calculating the IHT liability of their estate. When the surviving spouse or civil partner dies, the unused amount may be added to their own nil-rate band.

The transferable allowance will be available to all survivors of a marriage or civil partnership who die on or after 9 October 2007, no matter when the first partner died/dies.

The claim to transfer unused nil-rate band is made on the death of the surviving spouse and nothing needs to be done on the first death although it will be necessary to keep records of the proportion of the nil-rate band that is unused.

If someone survives more than one spouse or civil partner, then on their death they may be able to claim additional nil-rate bands from more than one estate. However, the maximum that can be transferred is limited to the nil-rate band in force at the relevant time. In other words, the surviving spouse could never have a nil-rate band in excess of double that applying at the time of his/her death.

The amount that can be transferred will be based on the proportion of the nil-rate band that was unused when the first spouse or civil partner died.

Examples

On the death of the first spouse the chargeable estate is £150,000 and the nil-rate band is £300,000. This means that 50% of the nil-rate band is unused. If the nil-rate band is £325,000 when the surviving spouse dies, then that is increased by 50% to £487,500.
On the first death none of the original nil-rate band was used because the entire estate was left to a surviving spouse. Then if the nil-rate band when the surviving spouse dies is £350,000 that would be increased by 100 per cent to £700,000.

Implications

These changes are a simplification to the estate planning of married couples and civil partners. This is an opportunity to review the need for nil-rate band trusts and complex schemes involving the family home. There is also a welcome retrospective element to this change as it will benefit many couples where one of them has already died with unused nil-rate band as long as the other dies after 9 October 2007. Detailed guidance from HMRC has been promised "shortly".

Trust and Tax planning are not regulated by the Financial Services Authority.