Inheritance Tax (IHT)
The IHT nil rate band has been increased to £325,000 in 2009/10. This is slightly more than statutory indexation. The rates of IHT will remain the same as in 2008/09.
As announced by the Chancellor in his 2009 Pre Budget speech, the nil rate band will not increase to £350,000 in 2010/11 and will now remain at £325,000.
No changes are proposed to any of the IHT exemptions currently available.
Any unused portion of the nil rate band from the first death of a married couple or civil partners may be used to enhance the nil rate band on the second death, provided (a) the second death occurs on or after 9 October 2007 and (b) the legal personal representatives make a claim for the enhancement within two years of the end of the month in which the second death occurs. The date of the first death is not relevant in determining the availability of the enhancement on the second death.
Example
First Death (Assume the NRB is £325,000)
Estate on First Death £400,000
Left to Spouse (exempt) £335,000
Left to Children/Trust £ 65,000
In this case £65,000 of the NRB was used, which represents 20% of the Nil Rate Band. So, 80% of the NRB was not used.
Death Of Survivor (Assume NRB remains at £325,000 and Estate values are unchanged)
Estate of Survivor £400,000
Received from Spouse £335,000
Total Estate £735,000
Survivor’s Own Nil Rate Band £325,000
NRB Passed from First Death £260,000* £585,000
Taxable £150,000
* ie 80% of CURRENT NRB (£325,000)
The new rules will apply on the death of a surviving spouse/civil partner even if the other spouse/civil partner died before 9 October 2007. However, HMRC have stated that it will be up to the executors to show how much of the NRB was not used on the first death, and as proof they will be required to produce all the relevant documents (or certified copies) in relation to the first death - eg death certificate, marriage certificate, Will, probate, Deed of Variation (if applicable).
Obviously the longer the period since the first death the more difficult it will be to prove how much was not used. Therefore, it is extremely important for widows and widowers to check now whether they still have these documents so that their estate will not lose out. We will be happy to advise on this and calculate how much of the previous might be available.
Despite the IHT changes, it may still be advisable to set up Trusts within a Will so that the NRB on the first death is fully used. Please contact us if you would like us to review your Wills.