Following on from yesterday's post 'don't take your spouse for granted', I thought I would comment on a different tax where, with detailed planning, you could benefit from your spouse's allowances. I am of a certain age where I don't always think about death but those of you more morbid than me should think about their Estate and Inheritance Tax Planning. I will be focussing today on the Nil rate band. The nil-rate band is the value of an estate that is not subject to Inheritance Tax currently set at £325,000.
The legislation allows that the proportion of any Inheritance Tax Nil Rate Band, that was unused on a person's death be transferred to their spouse, if the second death is on or after 9th October 2007. This applies even if the first death was before 9th October 2007. The amount of allowance to be transferred is determined by the rate of the nil rate band on the later death. If part of the allowance was used on the first death, the unused percentage is applied on the later.
What if the deceased had several spouses? In this situation the maximum allowance that can be transferred is restricted to one nil rate band. As a result, the married couples combined nil rate band now stands at £650,000 for 2010/11.
The basic idea of the legislation is that the estate of a surviving spouse will be able to claim the unused proportion of any previously deceased spouse's IHT nil rate band. With careful planning you may be able to save a large amount of tax.
In theory this sounds very simple but in realty the process of getting this through HMRC is quite tricky so make sure you speak to your accountant and perhaps even review your will to make sure it is tax efficient.
For further information please do not hesitate to contact me mitch@ljd.uk.com
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