When a surviving spouse or civil partner dies, their estate will benefit from any unused IHT nil rate band of their previously deceased spouse or partner. The transferred proportion is uplifted to the same fraction of the nil rate band in force at the date of the second death. However there are some limitations, especially if one or both partners have been married more than once.
Most IHT planning is not related to the tax year end, though this is as good a time as any to review your will. There are a number of reliefs and exemptions, some of which are related to the tax year.
- Gifts totalling up to £3,000 in a tax year are exempt from IHT. If you made no gifts to use this exemption in 2007/08, you can make IHT-free gifts of up to £6,000 before 6 April 2009. If you have already used your £3,000 exemption for 2008/09, you could delay your next gift until after 5 April to take advantage of the 2009/10 exemption (but remember 5 April is a Sunday).
- Regular gifts out of excess income can also be exempt. You need careful documentation to prove that you make the gifts from income rather than capital.
- If IHT planning in the past has left you liable to income tax on ‘pre-owned’ assets, consider whether you could save money by paying something for the benefit you receive – eg rent on a property previously given away but which you continue to live in. This is a complicated area of tax and you should obtain specialist advice.
Useful link: www.hmrc.gov.uk/cto/customerguide/page1.htm – HMRC guide to inheritance tax.
Planning point: The IHT rules under which widows and widowers inherit their deceased spouses’ unused nil rate bands may lead many couples to alter wills drawn up before 9 October 2007, when this provision was introduced.Last Updated
