WILLS AND PROBATE
DISCRETIONARY TRUSTS
If your Will contains a discretionary trust you need to change your Will to take into account the changes announced in the Chancellor's Budget.
Inheritance Tax is generally charged at 40% on any sum by which a deceased's estate exceeds £312,000 (the "nil band rate") subject to the availability of exemptions and reliefs. The most significant exemption is the "spouse exemption" whereby gifts to a spouse are exempt from Inheritance Tax provided that the surviving spouse is domiciled in the United Kingdom.
In bisPre-Budget Report the Chancellor of the Exchequer announced that from the 9 October 2007 it will be possible for spouses and civil partners to transfer any part of their Inheritance Tax nil rate band allowance that was not used when the first spouse or civil partner died to the surviving spouse or civil partner, for use on their death.
Since the 9 October 2007, where a valid claim to transfer an unused nil rate band is made, the nil rate band that is available when the surviving spouse or civil partner dies will be increased by the proportion of the nil rate band unused on the first death.
For example, if, on the first death, the chargeable estate is £156,000 and the nil rate band is £312,000, 50% of the nil rate band will have been unused. If the nil rate band when the survivor dies is £350,000, then that would be incresaed by 50% to £525,000.
The amount of the nil rate band that can be transferred does not depend on the value of the estate of the first spouse or partner to die. Whatever proportion of the nil rate band that is unused on the first death is available for transfer to the surviving spouse or civil partner.
The new rules also allow the unused nil rate band to be transferred from more than one deceased spouse or civil partner, up to a limit of one additional nil rate band. So, if someone has survived more than one spouse or civil partner, then on their own death the additional nil rate band can be claimed for more than one estate. However, the total additional nil rate band accumulated for this purpose is limited to a maximum of the amount of the nil rate band in force at the relevant time.
Before the 9 October 2007 many people were advised to make a Will incorporating a nil rate band discretionary trust to make use of both spouses, or civil partners, nil rate bands. Whilst the new rules will not affect such Wills, they do mean that in many circumstances the inclusion of such a trust may no longer be necessary.
By changing your Will now you will be able to simplify your affairs and avoid the additional paperwork and costs that would arise in the event of your death. You would also avoid a three month delay (from the date of your death) which would, by necessity, arise if the Trust is to be dissolved and advantage taken of the new rules.
For more information please contact the Wills and Probate department on 01494-782291 or email the Team.
