Changes to the Inheritance Tax rules

Changes to the Inheritance Tax rules

Prior to October 2007, if the first spouse left their entire estate to the surviving spouse, this would pass free of Inheritance Tax thanks to the spousal exemption rules. However, this means that the first spouse’s Nil Rate Band (NRB) allowance was unused and therefore lost.

The Transferable NRB- In 2007, the chancellor announced a new regime. This allowed the use of two NRBs without requiring any formal tax planning in the Wills.

The new regime does not simply double the NRB; it allows unused NRB to be transferred between spouses. To do this, the executors of the survivor’s estate must make a claim for the percentage of the unused allowance to be brought forward and applied to the estate of the surviving spouse.

Reducing the tax burden

Trusts may have long term tax advantages in cases where capital depreciation is anticipated to outstrip future increases of the nil rate band.

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