FL Memo Ltd © 2007

Tax Memo 2007-2008 Newsletter Issue 1

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Inheritance tax

 

Nil rate band and couples

See TM ¶6580

Transfers to spouses are exempt from inheritance tax. So where the estate of one spouse is transferred to the other on death, this can result in a wasted nil rate band.

A change is being made which means that on the death of the surviving spouse on or after 9 October 2007, his estate can claim any unused nil rate band arising on the first death. This has retrospective effect so unutilised nil rate bands arising on deaths before 9 October can be added to those of widows and widowers.

 

Example 1. Mr A died and left everything to his wife, so that none of his nil rate band was used. If the nil rate band is £350,000 when Mrs A dies, the nil rate band available to her personal representatives will be £700,000.   2. If Mr A had made chargeable transfers of £150,000 when the nil rate band was £300,000, this would result in 50% of the nil rate band being unused. So if Mrs A dies when the nil rate band is £350,000, this is increased by 50% to £525,000.

 

Alternatively secured pensions

See TM ¶6610

When the estate of a pension member includes a residual pension fund which is liable to inheritance tax, a further tax charge occurs on the death of the dependant who received the benefit of the fund.

In a move which mirrors the changes to couples outlined above, any unused nil rate band on the first death will be available on the second death.

 

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