2 April 2008

The new rules introduce some flexibility in how the rules work on the death of a spouse or one party to a civil partnership.

IHT Nil Rate Band

The current nil rate bands as previously announced by the chancellor:

            £300,000             2007/08

            £312,000             2008/09

            £325,000             2009/10

            £350,000             2010/11

Background

Following the party manoeuvrings on the level of IHT Nil Rate Band of 2007, the 2008 pre-Budget report announced that from 9 th October 2007, new rules applied to those in marriages and civil partnerships.

New Rules

Parties to a marriage or civil partnership can now transfer any unused nil rate band to the surviving spouse or civil partner.   The rules are also back-dated to include those estates currently held by widows and widowers, where the nil rate band was not used or not fully used on the first death.

Estates valued at more than the nil rate band pay IHT at a rate of 40% on the value in the estate over the nil rate band.   While inter-spouse transfers are exempt from IHT, often arrangements were not made to ensure that both nil rate bands were fully utilised.

A key improvement is that from 9 th October 2007, as mentioned above, a proportion of the unused nil rate band from the death of the first spouse or civil partner can be used on the second death.   The amount that can be transferred will be based on the proportion of the nil rate band unused at the date of the first death.   This proportion is somewhat confusingly applied in the same proportion to the nil rate band in force at the date of the second death.

While the new rules appear to negate the need for trust arrangements, they may still have merit for unmarried couples or where a couple's tax affairs are more complex.

  If you want more information contact us or visit on our website at www.laytonlee.co.uk