Gardner Leader

Pre-Budget Tax Changes

October 2007

The changes announced by the Chancellor in the pre-budget report on 9th October regarding the transfer of Nil Rate Bands (NRBs) are good news for those affected by Inheritance Tax.

They mean that on the death of surviving spouses or civil partners after 9th October 2007, any part of the Nil Rate Band which was not used when the first spouse/civil partner died can be transferred to the survivor.

A formal claim will have to be made by the executors of the survivor's estate to HMRC for the transfer to apply. This will contain questions about the first estate and identify the extent of the unused NRB. A copy of the Death Certificate, Will and Marriage Certificate will have to be provided; this may be difficult where the first spouse died many years ago. The NRB available to the survivor's estate will be increased by the proportion of the NRB unused on the first death. A formula will be applied to calculate this.

Existing Wills are not affected. People who were prudent enough to take action to use both NRBs by including discretionary trusts on the first death need not change their Wills. An appointment of trust assets to the surviving spouse within 2 years (but not within the first 3 months) will be treated as if the assets had been left to the surviving spouse outright. This will also be the case for Immediate Post Death Interest trusts in favour of the spouse.

However, Wills should be reviewed in the light of these changes and the changes to trusts which were implemented in March 2006. It should also be noted that there will be no merit in creating NRB trusts from now on.

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