08 April 2010 #Real Estate
1. The Transferable Nil Rate Band
Prior to 9 October 2007, if the nil rate band (NRB) (£325,000 (20010/2011)) less any non exempt gifts made in the 7 years prior to death) was not used before the first death or passed to the surviving spouse outright, the advantage of the NRB was wasted.
Previously Wills often included a clause incorporating a discretionary trust (‘the NRB Trust`) in which the NRB could be held. The beneficiaries of such trust would include the surviving spouse and family.
For deaths after 9 October 2007, a transferable nil rate band applies. It is no longer necessary, in most cases, for a Will to contain a NRB Trust. Instead, the unused NRB on the first death is translated into a percentage. The percentage is used to calculate the amount of the deceased spouse`s ‘transferable portion` to be used on the second death.
NRB available on first death in 1996 £150,000
Chargeable gifts made 7 years prior to death in 1996 (£40,000)
Non-exempt legacies under the Will on the first death (£20,000)
Balance of NRB available £90,000
Percentage of NRB to carry forward
90,000 / 150,000 x 100 = 60%
NRB available on second death in 2009 £325,000
NRB amount from first death in 1996
60% x £325,000 £195,000
Total NRB available on second death £520,000
(i) The advantages of retaining the NRB Trust
(ii) The disadvantages of retaining the NRB Trust
2. Changes in tax treatment of Trusts and how it affects your will
Following the Finance Act 2006 the tax treatment of discretionary trusts remains unchanged. From 5 April 2006
3. General points to consider in relation to your will
(i) Use a Life Interest Trust to protect the capital of your estate whilst providing the surviving spouse with a right to income. This is especially important if:-
(ii) A separate trust for Business Property and Agricultural Property.
(iii) Jointly Owned Assets automatically pass to the surviving joint owner and can simply be transferred on production of a Death certificate saving legal costs and Probate Court fees.
(iv) If Property is held as "joint tenants", the deceased`s interest passes to the surviving joint tenant. Interests in property held as "tenants-in-common" will pass under the terms of the deceased`s Will.
(v) Bank accounts held in your sole name will be frozen until the Grant of Probate is obtained. Sufficient monies should be held in a joint account to pay household expenses for approximately eight weeks after the first death.
(vi) Joint Deaths - If it is impossible to ascertain which of a couple dies first, the younger is deemed to survive the older. If the younger has left their estate to different beneficiaries or in different proportions, your Wills may not achieve what you had expected. Your Wills should therefore mirror each other.
4. Some general points to consider in relation to IHT planning
Below are some simple ways to mitigate IHT
(i) Exempt Gifts
(ii) Potentially Exempt Transfers (PET)
A PET is a lifetime transfer or gift, which is exempt from IHT if you survive 7 years from the date of the gift.
If you die within 7 years of making the gift, its value at the date of transfer is added back into your estate for IHT purposes and reduces the value of the NRB available to your estate. If the PET becomes chargeable on your death within 7 years, the donee of the gift will be liable for any IHT due.
(iii) Deeds of Variation
If you are the beneficiary of an estate and have no requirement for the funds, you may vary or disclaim your entitlement, within 2 years from the date of death.
(iv) Life Policies etc
You can write trusts over death benefits in pension funds, death in service benefits, term assurance policies and accident policies, so that the benefit does not pass into your estate and is not taxed