Where there’s a Will… 25 Mar 2019

The Finance Act 2008 effectively doubled the Inheritance Tax allowance for married couples.

All married couples who have made tax efficient wills, catchily known as ‘Nil Rate Band Discretionary Trust’ (NRBDT) Wills, should, if they have not already done so, review their current circumstances and consider making new Wills, as the main purpose of NRBDTs, of saving inheritance tax, no longer applies. NRBDTs were used to get around the difficulty that where the surviving spouse inherited the whole estate on the first death, on the second death there was only one nil rate band, currently £325,000, to offset against the 40% Inheritance Tax which applies on the value of the estate over the nil rate band.

Via the mechanism of the NRBT Will the nil rate band of the first spouse was preserved without depriving the surviving spouse of access to estate monies.  The tax saving at its highest was £120,000 before the new rules came in to force.

The Finance Act 2008 put in place a statutory mechanism which achieves the same result without the need for this type of Will.  It does so by allowing, where the nil rate band on the first spouse’s death has not been fully utilised, the unused percentage to be applied on the second death.  On current figures this gives a tax free allowance of £650,000 on the second death.

To achieve this result it is necessary to produce routine paperwork to HMRC on the second death, such as the death certificate of the first spouse, the Inland Revenue account for the first spouse’s estate, the Grant of representation and the couple’s marriage certificate.

There were always some disadvantages to the NRBDT Will.  The most obvious ones being that the surviving spouse does not have immediate and absolute access to £325,000, detailed documentation must be put in place on the first death resulting in increased legal fees, and annual tax returns may well be required for the duration of the trust.

NRBT wills do have other possible advantages such as protecting against care home contributions from the widow/er, but with the main purpose of them now being achievable more easily and cheaply, those with NRBDT Wills should review them and consider making more straightforward Wills. The surviving spouse can then receive the whole estate outright, without any loss of  the combined tax allowance of £650,000 on the second death and without the need for complex and expensive legal documentation to be put in place.

If you have any questions regarding the above or would like advice on making a Will please e-mail Jan Atkinson or call on 0207 485 8811. You can also fill in our online enquiry form.

Please visit our Wills, Probate & Disputed Estates pages for more information on the services we offer.

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