In his Pre-Budget Report on 9 October 2007, Alistair Darling announced new rules, which are now in force, to allow spouses and civil partners to make full use of their combined nil rate bands (NRB) for Inheritance Tax (IHT). The NRB for tax year 2007/08 is £300,000, giving married couples and civil partners the combined total they already had of £600,000. What is new is the way the unused NRB from first death can be transferred and used in the estate of the second to die.
In response to the Pre-Budget Report, Standard Life has launched a new NRB Flowchart to assist financial advisers in their all important fact-finding process with clients. In addition to whether a client has previously been widowed, there are now many variables that need to be taken into account when advising clients on estate planning.
For situations where a client is widowed, at first glance the new IHT rules seem simple to understand, but it is not just a case of assuming that a client automatically has a double NRB where the client has been widowed. There are a number of factors which affect this, including what lifetime gifts were made by the deceased and also the terms of the will. Record-keeping now becomes vital, to ensure a detailed note is kept of what NRB was unused in the first estate. A Gift Record document is included in the client literature section of the Estate Planning Solutions Pack.
When considering the suitability of a Loan Plan, little has changed in the advice process since that trust does not involve making a gift for IHT purposes. With Gift Plan or Discounted Gift Plan, the only impact on the advice process arises where the widowed client does have an enhanced NRB and therefore decides a direct investment without a trust wrapper meets their needs. It should be borne in mind however that clients can still benefit from making a gift and living 7 years, which can secure them an additional NRB, so lifetime gifting is not ruled-out where a client has been widowed.
For more information and literature please visit our Estate Planning site on adviserzone or speak to your account manager.
Any reference to legislation and tax is based on Standard Life’s understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.
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