inheritance tax

Inheritance Tax

Thanks to the recent budget, it is no longer necessary for married couples and those in a civil partnership to enter into complex Will Trusts in order to preserve their Nil Rate band Allowance, currently £325,000.

The Chancellor has allowed married couples /civil partners to carry over any unused percentage of the allowance of the first spouse to die and tag it onto the survivor's so that on 2nd death both allowances are able to be used to defray a potential inheritance tax problem.

This is how it works.

Mr A dies on the 1st Jan 2006 with an estate of £400,000 which he leaves entirely to Mrs A. Mrs A dies on the 10th October 2007 and leaves an estate of £600,000 equally between her two children. When Mrs A dies the nil-rate band is £3000,000. As 100% of Mr A's nil-rate band was unused, the nil-rate band on Mrs A's death is doubled to £600,000. As Mrs A's estate is £600,000 there is no IHT to pay.

It should be noted that unused percentage of the first spouse to die is calculated as a percentage of the second person's allowance at the time of the second death.

DON'T FORGET ! Your inheritance tax allowance has increased to £325,000 for the tax year 2008-2009

but will be staying at this sum for the foreseeable future.