The Chancellor announced on 9th October 2007 in his pre-Budget report that nil rate bands will be transferable between spouses and civil partners. Although the announcement has been billed as a “doubling of the nil rate band”, prior to this, with careful planning, married couples and civil partners could achieve a collective nil rate band of £600,000 by incorporating a nil rate discretionary trust into their Wills. Technically therefore there has not been any increase in an individual’s nil rate band.
The new rule will benefit spouses and civil partners who have not made full use of the nil rate band on the first death. Surviving spouses and civil partners will now be able to utilise their deceased partner’s nil rate band which would otherwise have been wasted. The rule is retrospective and will apply to second deaths occurring on or after 9th October 2007. For example, where Mr Smith died in September 2003 leaving all of his estate to Mrs Smith and Mrs Smith subsequently dies in December 2007, Mrs Smith can add a proportion of her late husband’s unused nil rate band to her own and set these against the value of her estate for IHT.
The new rules place clients who have not taken steps to safeguard against IHT in their Wills in the same position as clients who have. The new rules do not of course apply to co-habiting couples whose numbers are growing at a much faster rate than married couples.
Discretionary Will trusts will remain a useful planning tool for many clients, for example, couples with joint wealth in excess of two nil rate bands, those who own Business or Agricultural property and those with complex family circumstances.
Once the finer details regarding the Chancellor’s proposals become clear we hope to provide further guidance as to the implications for clients. In the meantime we would reassure clients who have made nil rate band discretionary Will trusts that it is not necessary for them to take any immediate action.
