Reducing your Inheritance Tax Liability

Since Alistair Darling’s announcement in his pre-budget report of November 2007, a spouse’s Nil Rate Band (NRB) is transferable between married couples/civil partnership. Simply put this means the Nil Rate Band doubles from £325,000 to £650,000 (current rate for 2009/2010).

Mr & Mrs Eastgate (or civil partnership equivalents) have an estate - including home, cash, investments, life insurance, etc, worth £900,000. They wish to give everything to each other when the first partner dies, and on the second death, they wish everything to go to their children. Mr Eastgate dies first and leaves everything to his wife. There is no tax payable on his death, because gifts between spouses are exempt from Inheritance tax.

However, by only making "normal" wills, the problem arises when Mrs Eastgate dies.

Tax is payable on Mrs Eastgate's death as follows:

Mr Eastgate's assets of £450,000 pass to Mrs Eastgate on his death, on Mrs Eastgate's death; all her assets pass to their children. Tax is payable at 40% on amounts over £650,000 (2 x NRB), therefore Mrs Eastgate's estate will incur a tax charge of £100,000. This means that their children will only receive £800,000, instead of £900,000. The Inheritance Tax Bill on Mrs Eastgate is sizeable and represents a considerable charge on the estate and lost inheritance to their children.

Inheritance Tax Bills can still be reduced!

In the years previous to Mr. Darling’s announcement, a large part of estate planning was based around Discretionary Trusts to ensure couples were utilising their NRBs efficiently. However, there are still options available to reduce the impact of Inheritance Tax on estates in excess of the £650,000, maximising the amount beneficiaries will receive.

For a free, non-obligatory discussion or to arrange a personal visit, complete our contact form now.

There is no cost for an initial consultation.