Changes to inheritance tax treatment for married couples and civil partners

More and more people are becoming concerned about inheritance tax largely due to significant increases in house prices in recent years. This has meant that there has been considerable pressure on the government to change the rules relating to inheritance tax. This week, the Chancellor proposed new rules relating to inheritance tax for married couples and civil partners and these offer hope to some people.

In the past, it has been common for married couples and civil partners to leave all of their assets to each other when the first of them dies. There would be no inheritance tax to pay because of the 'spouse exemption'. An inheritance tax  problem may then have arisen on the second death, as the survivor's estate would consist of their own assets and their spouses assets. On the second death, there would be a tax free amount (known as the nil rate band which is currently £300,000) and any assets above this amount would then have been taxed at 40%.

To reduce the inheritance tax bill on the second death solicitors and accountants have often advised clients to include in their Wills a gift of the nil rate band either to someone other than the surviving spouse (ie. the children) or into a discretionary trust. The proposed rules will mean that there is no need to structure Wills in this way, if the only aim is to try to reduce inheritance tax. Under the proposed rules if the nil rate band of the first to die is not used then it can be transferred to the second to die. For instance, where a wife dies and leaves all of her assets (worth say £300,000) to her husband there is no tax to pay at this point because of the spouse exemption. When the husband dies, his assets amount to say £600,000.Under the proposed rules there would be no inheritance tax to pay because the husband's own nil rate band is used and so is that of his wife.

There can be other reasons aside from inheritance tax for including trusts in a Will and the main one is asset protection. ie. protecting assets if your spouse remarries or needs residential care and you should discuss these with your advisers.

If you would like further advice on the changes to Inheritance Tax planning or advice on Wills, Probate and Tax Planning contact Ann-Marie Davies, Solicitor at WBW Solicitors.

Offices in Newton Abbot – Torquay – Bovey Tracey and Exeter.

Web: www.wbw.co.uk
Email: lawyer@wbw.co.uk
Tel: 01392 202404

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