Advice & information • Wills, trusts & probate

Inheritance tax — new rules on the nil rate band

New rules mean that a proportion of the nil rate band can now be passed on to a spouse or partner.

In the past, it has not always been possible to use up the whole of the Inheritance Tax nil rate band when someone dies while also ensuring that the surviving spouse has enough money under his or her control to guarantee financial independence.

Following the Pre-Budget Report of October 9, 2007, any unused part of the nil rate band can be transferred to the estate of a surviving spouse or civil partner. This will be considered as a proportion of the nil rate band, rather than a fixed sum, so that its value may increase by the time of a later death.

The new rule will be helpful for spouses or civil partners who wish to provide for each other as their main priority, but also hope that their heirs can benefit from their nil rate bands. It will be particularly useful for people whose principal asset is their house, but have little cash to pass on to the children on the first death.

On the other hand, those who have children by a previous marriage, or who own business or farming assets, or other significant assets apart from the matrimonial home, may still wish to use the Nil Rate Band Trust format.

As we understand the new rule, existing wills that include NRB Trusts do not have to be changed, since these could be unscrambled very inexpensively after the first death if the trust is no longer the best way to protect the family finances.

We stress that this rule may change to a degree when the Pre-Budget Report is translated into the Finance Act 2008.

Further information

If you would like to know more, or wish to speak directly to a solicitor, please email us or call your nearest office.