Everyone likes to think that they can leave an inheritance to benefit their children and grandchildren. Having worked hard all your life, paid your taxes and built up your savings, you want to pass on your estate to your family when you have gone. You may be unhappy to learn that there is a potential threat to this plan – inheritance tax. Inheritance tax is a tax that many people don’t think about and assume it’s something that only affects the rich. However, as the value of homes have risen so much over the last few years it’s now something that affects thousands of families. The current starting point from when you have to pay inheritance tax is £325,000 for the 2010-2011 tax year . This is commonly known as the ‘nil rate band’. This allowance will remain the same for 2010 – 2015.
Following the issue of Alistair Darling’s Pre-Budget Report, the nil rate band – currently £325,000 per individual as noted above – will become transferable. The estate of a surviving spouse or civil partner will be able to benefit from any unused inheritance tax nil rate band of their deceased spouse or partner. This will apply on the death of a surviving spouse or partner after 8 October 2007, regardless of when the first death occurred.
The amount of the nil rate band available for transfer will be based on the proportion of the nil rate band that was unused when the first spouse or partner died. The unused proportion will be applied to the amount of the nil rate band in force at the date of the surviving spouse or partner’s death.
If a person marries more than once, the nil rate band of the survivor can only be increased by a maximum of 100%.
We are happy to discuss strategies to help clients maximise the advantage of the allowances by utilising strategies which are available to them. Contact PFM to discuss this further.
