Transferring the nil rate band

Transferring the nil rate band

The Pre-Budget Report of 2007 introduced a welcome change that simplified the steps that need to be taken in order to avoid paying unnecessary inheritance tax (IHT). The change assists married couples and civil partners who are currently entitled to an IHT allowance or nil-rate band (NRB) of £325,000 each.

Essentially, the change allows any unused allowance on the first death to be carried forward and claimed on the second death. Therefore if, for example, a husband dies first leaving his entire estate to his wife, the total allowance that can be claimed against the wife’s estate is now £650,000. This applies to cases where the second death occurs on or after 9th October 2007 – and it does not matter how long previously the first death occurred.

Before the change, the usual method of ensuring that the allowance was fully utilised on the first death was to make a Will including a nil-rate band discretionary trust (NRBDT). This was a fairly sophisticated device adopted by more and more people to offset the IHT effects of sharply increasing property values. NRBDTs are no longer necessary to avoid IHT and although they can be brought to an end quite easily on the first death, those who currently have Wills that include them should consider whether they should be removed so as to avoid complications.

Some reasons remain for including a NRBDT, or some other form of trust, in a Will e.g. to protect part of the estate from charges for long term care or to ensure that children or other nominated beneficiaries inherit on the second death. Trusts that take in assets that qualify for IHT business or agricultural relief on the first death generally remain effective.

We are able to advise on this complex area and assist with all the necessary form filling and data collection.

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