You may be hearing and reading about the new inheritance tax threshold of £600,000.00 for couples, announced by the Chancellor in the 2007 Pre-Budget Report as from 9th October 2007.

Confused? A lot of people are.

The Chancellor has not changed the “spousal exemption” rule which allows a husband/wife or civil partners to pass assets between each other inheritance tax free regardless of the value.

By way of background, let us explain the following:

Everyone has what is called a “nil rate band”, which is the value that a person can have in their estate when they die which will not be subject to inheritance tax. The nil rate band is currently £300,000.00, which increases each year. Any value over the nil rate band is taxed at 40% (inheritance tax). What the Government recognised was that couples leaving all of their assets to each other did not utilise both of their nil rate band exemptions.

A lot of people may be thinking, why is there a problem in transferring all of their assets to the surviving spouse/civil partner, especially as the transfer is exempt from any inheritance tax?

The answer to that is as follows:

If the first spouse’s/civil partner’s estate, when added to the surviving spouse’s/civil partner’s estate, is more than the nil rate band allowance (the nil rate band as at the time of the surviving spouse/civil partner’s death) the surviving spouse/civil partner is looking at a potentially high inheritance tax bill.

Before the Chancellor’s recent announcement, a lot of people were having tax efficient Wills drafted to overcome a large inheritance tax bill on the death of the surviving spouse.

So, what difference will the new rules make?

The new rules will allow the unused nil rate band of the 1st spouse/civil partner to die to be transferred to the surviving spouse or civil partner therefore giving the surviving spouse or civil partner double the nil rate band.

The new rules also extend to widows, widowers and bereaved civil partners.

For further information in regard to how the new rules operate, call us now on 01785 213234