The law concerning inheritance tax as it relates to nil rate bands has changed, read on below for more information What is the nil rate band? The nil rate band is the amount of an individuals estate that is subject to 0% inheritance tax - basically the pre-tax amount. Currently this is £312,000 - with inheritance tax of 40% being charged on all sums over the nil rate band. What is the new law? When a surviving spouse dies after 9 October 2007, the nil rate band available at their death can be increased by the percentage of the nil rate band that was not used on the death of their spouse.  The percentage is applied to the level of the nil rate band when the survivor dies. In the above example, if the surviving spouse died in November 2007 their executors could make a claim to transfer the nil rate band of the first to die.  As none of the nil rate band was used on the death of the first spouse, 100% is available for transfer.  Applying this to the nil rate band when the surviving spouse died, there would be £600,000 available as a nil rate band and no inheritance tax would be payable. Should NRBDTs now be removed from Wills? Some arguments for removing these trusts are:

  • Removing them from your Will would simplify the administration of the estate.
  • If they are not removed there may be set-up and administration expenses.
  • The nil rate band in force at the date of the survivor's death may have increased by more than the value of the assets in the trust.
  • The surviving spouse's interests are at the mercy of the trustees (although if there are clear letters of wishes and trustees are carefully chosen this should not be a problem).

  However: There are also a number of reasons why a NRBDT may still be useful:

  • It will protect assets from business creditors or divorce settlements.
  • Assets in the trust will not be taken into account for means testing if your spouse needs to go into a nursing home.
  • The assets may increase in value faster than the nil rate band (which could by future legislation even be frozen or reduced).
  • It will protect the intended ultimate beneficiaries, for example if the surviving spouse remarries without making a new Will.

  What should I do? Don't panic.  There are means by which your executors can, within two years of your death, either effectively add a NRBDT to your Will, or bring a NRBDT to an end which will have the same consequences for Inheritance Tax as if the Will had been rewritten. Whether a trust is the right thing for your Will will depend on your personal circumstances.  If you wish to discuss this further please contact a member of our wills, probate and trusts group and we will be happy to help you.

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