INHERITANCE TAX

DARLING’S 3 CARD TRICK

In his first pre Budget Report delivered to a packed House of Commons on 9 October 2007 Alistair Darling announced that he had doubled the Inheritance Tax (IHT) threshold from £300,000 to £600,000 much to the consternation and annoyance of the Conservatives who had trailed a policy of abolishing IHT completely at their conference only a few weeks before.

Clearly rattled by the positive affect the announcement of the Conservative’s IHT plans had in the opinion polls the Government decided to come clean with its own version of this policy after (so the spin goes) months of internal debate and deliberation. 

Prior to this announcement IHT was charged at 40% on assets worth more than £300,000 that someone leaves behind when they die, unless they are left to a spouse.  When the surviving spouse died the same £300,000 rate applied.

What has changed?  As ever the devil is in the detail and the headlines do not match up to reality. 

If you are married or are in a civil partnership nothing has changed.  What Mr Darling has done is on the face of it to make (as between married couples) the IHT threshold transferable, allowing couples to combine their IHT allowances and so escape tax on the first £600,000 of the amount they leave behind when they die.  This measure will be backdated ‘indefinitely’ and it will increase to £700,000 by 2010.

Even before these changes were announced married couples could leave a total of £600,000 to (for example) their children by the first to die giving the children £300,000 and the balance over the IHT threshold to the surviving spouse and on the surviving spouses death another £300,000 but paying 40% IHT on any balance.

The alternative was to create what were termed ‘nil rate band trusts’ whereby the first £300,000 of the first partner to dies Estate was put into trust for their heirs on death.

For anyone else, single, divorced, cohabiting (but not married) these ‘changes’ do not apply and IHT will be charged at 40% on an estate worth over £300,000.

Duncan Rann, Senior Partner and Head of Tax and Private Wealth Management at Sandersons Solicitors, commented that, ‘whilst on the face of it these changes make wealth transference on death easier between married couples, careful thought still needs to be put into how this is structured for combined estates worth over £300,000, rather than £600,000.  My view is that married couples, whose joint estate exceeds or is likely to exceed £300,000, would be foolhardy to put their faith in the new legislation and would be gambling on believing the headlines and not considering the effect of the detailed provisions when they come into force.  The safe strategy would be to continue to put in place sophisticated nil rate band will planning to avoid being caught out.  The alternative is very much a gamble and no proof against unannounced future changes or the application of the legislation.  ’

‘My view is that anyone (married or unmarried) should give careful and regular consideration to how their estate should be dealt with on their death and in-particular the making and updating of a Will.’

Whatever your circumstances, contact Geraldine Martin (Beverley) or Geoff Davis (Hull)  for detailed advice.

Tel:       01482 324662

Fax:      01482 223110

e-mail:  enquiries@sandersonssolicitors.co.uk

 Source: Yorkshire Today, November 2007