The introduction of the Transferable Nil Rate Band on 9th October 2007 has made it easier for married couples and civil partners to make more effective use of the inheritance tax exemptions available on death.
Everyone’s estate is exempt from Inheritance Tax up to a certain limit. In the year 2011-2012 this limit is £325,000. This threshold is known as the nil rate band.
In the past married couples had been forced to look at tax planning to avoid the problems that arose when everything was bequeathed to the surviving spouse on the first death. As gifts between spouses are exempt from inheritance tax, prior to October 2007, the nil rate band of the first to die was effectively wasted. The issue being that on the second death the single nil rate band of £325,000 was often not enough, meaning a charge to IHT for the beneficiaries left behind.
For deaths which occur on or after 9th October 2007, it is possible to transfer the proportion of the unused nil rate band of the first spouse (or civil partner) to die to the second spouse (or civil partner) to die. This means that on the death of the second spouse there is now a maximum nil rate band of up to £650,000. The amount of the nil rate band to be transferred will depend on whether any of it was used up (by gifts to someone other than the spouse) on the first death.
It is even possible to transfer the nil rate band if the second spouse has re-married, making the transferable nil rate band a useful tool in minimising any liability to inheritance tax.
In order to take advantage of the transferable nil rate band the persons dealing with the estate on the death of the second spouse need to formally claim it on the inheritance tax forms.
It is therefore advisable to seek advice if you are an executor/personal representative of an estate in this situation or if you have concerns as to whether your Will makes the best use of the transferable nil rate band.
Poorly drafted wills can lead to undesirable results which sadly often do not materialise until it is too late. It is always wise to ensure that you consult a fully qualified professional who can draft a Will based on your individual requirements and needs. Many people are not aware that whilst Will writers often offer a cheaper service, they are not required to be qualified or insured, in stark contrast to Solicitors, who are highly regulated.
Please contact our Wills and Probate Team if you would like more information about this article.
