News
Where there’s a will
October 2008
 Jan Atkinson of Osbornes explains how you can make sure your inheritance tax is less taxing
At a time when you would think that Labour would herald good news with fanfares and drum rolls, the Finance Act 2008 quietly became law in July of this year. The Act effectively doubles the Inheritance Tax allowance for married couples provided that certain hoops are jumped through.
All married couples who have made tax efficient wills, catchily known as ‘Nil Rate Band Discretionary Trust’ (NRBDT) Wills, should review their current circumstances and consider making new wills, as their main purpose, of saving inheritance tax, no longer applies. NRBDTs were used to get around the difficulty that where the surviving spouse inherited the whole estate on the first death, on the second death there was only one nil rate band, currently £312,000, to offset against the 40% Inheritance Tax that applies on the value of the estate over the nil rate band. Via the mechanism of the NRBT Will, the nil rate band of the first spouse was preserved without depriving the surviving spouse of access to estate monies. The tax saving at its highest was £120,000.
The Finance Act 2008 puts in place a statutory mechanism that achieves the same result without the need for this type of will. It does so by where the nil rate band on the first spouse’s death has not been fully utilised, allowing the unused percentage to be applied on the second death. On current figures this gives a tax free allowance of £624,000 on the second death.
To achieve this result it is necessary to produce routine paperwork to HMRC on the second death, such as the death certificate of the first spouse, the Inland Revenue account for the first spouse’s estate, the Grant of representation and the couple’s marriage certificate.
There were always some disadvantages to the NRBDT Will. The most obvious ones being that the surviving spouse does not have immediate and absolute access to £312,000, detailed documentation must be put in place on the first death with consequential legal fees and annual tax returns must usually be filed for the duration of the trust.
With times being as they are, the opportunity to save money is not to be ignored and now therefore is a particularly appropriate time for those with NRBDT Wills to review them and consider making more straightforward Wills. The surviving spouse can then receive the whole estate outright, without losing the combined tax allowance of £624,000 on the second death and without the need for complex legal documentation to be put in place.
janatkinson@osbornes.net
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