| The position with regard to Inheritance Tax and Wills | | | | up to £3,000 p.a., which will be exempt from IHT. |
| has been subject to a degree of change following the | | | | Transfers can also be made using the previous year's |
| Pre-budget Report on 9th October 2007. This article | | | | exemption if it was not used during the previous year. |
| aims to give you a balanced view of the changes | | | | Small gifts Gifts up to £250 can be made each |
| which were implemented. | | | | year, during an individual's lifetime, to any number of |
| The situation before 9th October The basic inheritance | | | | beneficiaries. The gifts cannot be part of larger gifts |
| tax position for married couples and civil partners | | | | and they do not include gifts to trusts. |
| before October 2007 was fairly straightforward. The | | | | Normal expenditure out of income Regular gifts made |
| threshold for Inheritance Tax is £325,000 (tax | | | | out of income which do not lower the donor's standard |
| year 2009-2010), with the balance potentially being | | | | of living are also exempt from IHT. |
| subject to tax at 40%. If the first spouse died and left | | | | A frequent use of this exemption, and also of the |
| everything to the survivor then, on the first death, there | | | | £3,000 annual exemption, is to pay regular |
| would be no inheritance tax payable, due to the | | | | premiums to life assurance policies arranged under |
| availability of spouse exemption. However, in this | | | | trust for children or grandchildren. This is a very |
| situation the nil rate band of the first to die had not | | | | effective way of transferring regular amounts using |
| been fully utilised. With the survivor owning all of the | | | | the exemptions. |
| assets there was a bunching effect which meant that, | | | | Gifts for education or maintenance Transfers to the |
| on their passing, there could be a substantial inheritance | | | | donor's children who are either under 18 or are in full |
| tax bill since they only had their own Inheritance Tax | | | | time education, or provision for a dependent relative, |
| threshold to set against the bunched estates. | | | | are exempt, providing they are considered to be |
| The situation after 9th October For second deaths | | | | reasonable. |
| occurring on or after 9th October 2007 the inheritance | | | | Marriage gifts Gifts up to specified levels may be |
| tax impact of the 'bunching' of estates at the time of | | | | made on marriage which will be exempt from IHT. |
| that death can be reduced by the survivor's Executors | | | | Gifts to charities, political parties, or for national benefit |
| making a 'transfer claim' to the tax office. The effect | | | | Gifts to charities, political parties or for the national |
| of this claim is that the proportion of unused nil rate | | | | benefit are exempt from IHT. |
| band on the estate of the first to die can be clawed | | | | Businesses or Agricultural assets The value of some |
| back for the benefit of the second estate. A transfer | | | | business and agricultural assets may be reduced |
| claim would involve ascertaining the proportion of the | | | | wholly or partially. If you would like further details |
| unused nil rate band of the first to die and then | | | | please ask us. |
| transferring that to be set against the taxable value of | | | | Insurance Policies An insurance policy can be arranged |
| the survivor's estate. The effect of this is that if none | | | | to cover the tax liability on death. |
| of the nil rate band had been utilised on the first death | | | | Who pays the IHT and when is it due? The tax is |
| the estate of the survivor could claim back the full | | | | payable by the legal personal representatives of the |
| value of their unused nil rate band. Meaning, in effect, | | | | deceased. It is due 6 months after the end of the |
| that the available nil rate band for the second estate | | | | month in which death happened. However, the |
| would be £650,000 (being £325,000 x2). | | | | personal representatives are not able to obtain the |
| It must be remembered that the Inheritance Tax | | | | authority to administer the estate until the IHT has been |
| threshold has not been increased to £650,000. | | | | paid, so in practice it is often paid before the due date. |
| Annual exemption Each individual can transfer assets | | | | |