Less taxing times ahead!
Safeguarding an inheritance…your questions answered

Q: After hearing the announcements made in the Pre-Budget Report relating to inheritance tax (IHT), I would like to know if I can still leave everything to my spouse without paying this tax?

A: The Chancellor has not changed the so-called ‘spousal exemption’, which means that assets passed between spouses or civil partners are free of IHT regardless of their worth. The change relates to the amount of money a couple can leave to their heirs, in most cases their children.

Q: Prior to the Pre-Budget Report, I thought that both my wife and I had a £300,000 allowance and were able to leave up to £600,000 between us without incurring inheritance tax?

A: This is correct but the reality was that many people never took advantage of this, particularly in regards to the inheritance of the family home, as this involved changing the ownership of the home, drafting new Wills and setting up a trust. The changes announced in the Pre-Budget Report mean that far more couples could utilise their joint inheritance tax exemption, and it should be far simpler for families to ensure that more of their assets go to their heirs, rather than ending up in the hands of HM Revenue & Customs.

Q: Who can take advantage of this new 'couple's allowance'?

A: It is estimated that this change could benefit some 12 million married couples and those in civil partnerships, plus a further three million widows and widowers. For the first time they will be able to transfer their individual allowance, so when the first spouse dies, their share of the home and any other assets could be transferred to the surviving spouse. But on the death of the second spouse inheritance tax will be paid only if assets exceed £600,000 in the current tax year.

Q: So how much less tax will people have to pay?

A: Assuming you have avoided paying IHT on the full £300,000 (in other words your estate is worth at least £600,000), this means that your children could have avoided a tax bill of £120,000.

Q: I have lived with my partner for 39 years, but have not married. Will we also be able to benefit from the announced changes relating to inheritance tax?

A: No. This change is for married couples and civil partnerships only. Single people and those who co-habit will not benefit. However, as you both have an individual allowance of £300,000, you will collectively be able to pass on £600,000 nil rate tax to children or other heirs.

The crucial difference is that you cannot leave assets of more than £300,000 to each other without being subject to inheritance tax. And, of course, if assets are transferred between you on the death of the first partner this will ‘mop up’ any inheritance tax allowance.

Q: My spouse died before these changes were announced. Will I still be able to benefit?

A: The government has back-dated tax legislation and, for once, this will be beneficial to taxpayers. Anyone whose spouse has already died, regardless of how long ago this was, should be able to utilise the full ‘couple's allowance’. But note that if your wife or husband did leave significant gifts elsewhere, for example to children, grandchildren or into a trust, these will be deducted from their £300,000 allowance. But any unused allowance will be added to your own exemption when distributing your estate to heirs.

Q: I already have a trust in place in order to make the most of both mine and my husband's IHT allowances. How is this affected?

A: The chances are that this is a nil-rate band discretionary trust. These are fairly straightforward to set up and are usually included in your Wills. If both you and your spouse are still alive, the trust hasn't been created yet – there will be a codicil in your Will that will set up the trust on the death of the first spouse. Following the Pre-Budget Report changes announced, it would be a good time to review your Will and estate planning.

Need more information? Please email or contact us with your enquiry.

Levels and bases of, and reliefs from, taxation are subject to change.