Chancellor Alistair Darling announced in his
Pre-Budget speech a change to the way in
which the inheritance tax (IHT) nil rate
band of £300,000 can be used for married
couples and civil partners.
In order to understand the implications of
the change it is important to have an understanding
of the principles of IHT. Transfers of property
between spouses or civil partners are generally
exempt from IHT. This means that if an individual
dies and leaves some or all of their property
to their spouse or civil partner, then this
is not chargeable to IHT. If they do not have
sufficient assets which they are willing or
able to leave elsewhere then they may not fully
use their nil rate band.
This problem with ‘wasting’ the
nil rate band, combined with large increases
in the value of many family homes, has meant
than many families had been inadvertently drawn
into the IHT net.
The Pre-Budget change means that any nil rate
band unused on the first death may be used
when the surviving spouse or civil partner
dies.
This change is effectively backdated for widows
or widowers whose spouse died before the announcement
of the change, as long as the ‘surviving’ spouse
or civil partner dies on or after 9 October
2007. The amount of the nil rate band available
for transfer will be based on the proportion
of the nil rate band which was unused when
the first spouse or civil partner died.
The following gives an example of how the
rules will work:
Mr Smith’s Will states that on his death
he will leave his estate including his share
of the family home to his wife. At the date
of his death the nil rate band is £300,000.
On Mrs Smith’s death she will be able
to make use of her own nil rate band of say £350,000
(which is the band proposed for 20010/11) together
with the unused percentage of her late husband’s
nil rate band being a further £350,000.
Her total nil rate band will be £700,000.
This is a significant change that will affect
many families. Please do contact us if you
would like more information on this issue and
how it will affect your circumstances.
Internet link:
HMRC
notice |
