Inheritance Tax News

The Chancellor recently announced a Pre-Budget change to the entitlement to the Nil Rate Band ("NRB") for married couples and civil partners.

It should be noted that the changes apply to estates where the surviving spouse or surviving civil partner died on or after 9 October 2007.

The general effect of the proposed legislation is to allow any unused proportion of the NRB arising on the death of the first of the couple to die to be applied to the NRB figure applicable as at the date of the death of the survivor and added to the survivor's own NRB.

The additional NRB must be claimed within two years of the end of the month in which the survivor died.

Example - Jill died on 10 October 2007. She had been married to Jack for many years and he died on 20 April 2002. Jack's Will had left specific legacies totalling £20,000 to the children and the balance of his estate, worth £210,000 to Jill. The NRB for the tax year was £250,000.

On Jill's death the current NRB was £300,000. Her estate (including the assets inherited from Jack) was valued at £580,000.

Providing a claim is made within two years of the end of the month in which Jill died, Jill's estate will be entitled to a NRB of £576,000 and £4,000 will be chargeable at 40%.

The figure of £576,000 is the sum of Jill's own entitlement to a NRB of £300,000 and the proportion of £300,000 that reflects the unused NRB on John's death. John did not use 92% of the then current NRB (£230,000/£250,000 x 100).

The use of NRB tax planning for couples is not over. A comparison of the increase in NRBs and the increase in house prices demonstrates this. In the above example, if the £210,000 left to Jill by Jack had represented an interest in a house and a legacy of this amount had been left to a discretionary trust, the trust property would have been worth £344,000 at the date of Jill's death compared with the additional NRB of £276,000. An additional £68,000 would have been "sheltered" from Inheritance Tax, saving tax of £27,200.

Nigel Ginniff

The legislation referred to in this News item is in draft form only and is subject to change. Advice should be sought before any transaction or tax planning is completed.