Inheritance Tax – The Changes

The changes of the Inheritance Tax laws and the effects to you.

Transferable Nil Rate Band

Following the pre-Budget report in October 2007, married couples or couples who are in a Civil Partnership can combine their Nil rate band on the second death.

For example if spouse/Partner A dies and they only use £100,000 of their £312,000 allowance, then the remainder £212,000 they could have used to leave gifts tax free can be added to their spouses allowance. Thus on the death of second spouse/partner B, they would be able to leave their £300,000 plus the £200,000 from their spouse’s allowance tax free.

Use of Discretionary Trusts

Do you still need one?

This depends on the individual.

Discretionary Trusts are used for some of the following reasons:

  • Ensure that the monies are protected from care fees. Once your assets have been put into trust, they do not belong to you and therefore do not form part of your Estate.
  • The assets would be preserved in case the second spouse re-marries ensuring that the children would remain the ultimate beneficiaries. Thereby ensuring the control with the eventual destination
  • Once the assets have been put into trust, the value is crystallised. Therefore the increasing value of the asset will have no Inheritance Tax consequences.
  • Discretionary Trusts can also provide a safeguard with the uncertainties in the law.