When trying to reduce potential inheritance tax on married couples estates, it is sensible inheritance tax planning to make wills which utilise both spouses’ nil rate band exemption of £312,000.
The 2007 case of Phizackerley prompted sensational headlines regarding the nil rate band scheme. As a result, many national newspapers have suggested that this case nullifies the nil rate band discretionary trust scheme. However closer examination of the case and its outcome suggests that the headlines may be over hyped.
The main issues coming out of the case are as follows:
- The nil rate band discretionary trust scheme is still a valid and prudent scheme recognised and accepted by the Inland Revenue.
- When implementing a nil rate band discretionary trust on the first death it is important to take appropriate advice and make sure the arrangement is set up properly.
- Provided the nil rate trust is set up properly, the nil rate band discretionary trust scheme will work and be acceptable to H M Revenue and Customs.
- On the facts of the case, if the nil rate trust had been implemented in a particular way, the scheme would have worked and the tax saving would have been successful!
One interesting point to note is the court's finding that where one spouse has worked and the other acted as housewife/househusband, and the house is in joint names, the “working spouse” has effectively given half the house to the homemaker! This is a rather unusual decision as it does seem to contradict matrimonial law which considers the homemaker as making an equal contribution to the marriage by virtue of looking after the family home and raising the children.
