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In the Chancellors Pre Budget Announcement in October 2007 significant changes
were made to the Inheritance Tax rules for married couples and couples living
with civil partnerships. The key change announced was the ability for married
couples or couples in civil partnerships to pass on any unused percentage of
their Nil Rate Band Inheritance Tax Allowance.
Despite this change if you are a married couple or same sex couple in a civil
partnership and have assets with a total value above £600,000 Inheritance Tax
could to still be one of the biggest liabilities your family is ever likely to
face. If you fail to plan for Inheritance Tax your family may have to sell the
family home or other assets to fund the bill.
 The
choice is simple plan and give the money to your kids or other family members,
don't plan and give your money to the taxman.
If you are a couple cohabiting or living together, there is no spousal relief
from Inheritance Tax, this means that all of your partners assets over £312,000
will be subject to the 40% inheritance tax.
This is money you, if you were the beneficiary of their Will would have to
pay. There is also no right to transfer the nil rate band. This puts you at a
sever disadvantage and as a recent National Consumer Council reports says also
puts you in the highest group at risk through not having a valid Will.
If you are an unmarried couple cohabiting urgent consideration needs to be
given to your Inheritance Tax Liability as unmarried couples do not benefit from
spousal exemption like married couples and couples living in a formally
recognised civil partnership.
Many people also undertook Nil rate band planning prior to this change and
are unsure what effect their current Wills may have. It may be possible to
update or renew existing Nil Rate band Wills to offer additional protection
against potential long term care costs.
Under the old Inheritance Tax rules for married couples you only had a nil
rate band allowance of £312,000, by utilising Nil Rate Band Discretionary Trust
Wills you could ensure that you effectively used both your partners and your
£312,000 Nil Rate Band allowance, thus achieving a inheritance tax free sum of
£600,000.
With the changes announced by the Chancellor as a married couple you
automatically have thee right to carry forward any unused percentage of the Nil
Rate Band and utilise this percentage when the second partner of the couple
dies.
This has two implications:
- By having a Nil Rate Band Discretionary Will in place you could end up
paying more Inheritance Tax than if you just left the residual of your
estate to your partner on first death.
- As you no longer benefit in terms of inheritance tax by having the Nil
Rate Band Discretionary trust in your Will this could be removed and
potentially be replaced by a different sort of trust to provide protection
for half of the value of the estate from potentially being assessed for long
term care costs.
 Whereas
Inheritance Tax could previous diminish the value of your estate by 40% for
everything above £312,000, care costs could potential reduce the total value of
your estate to £13,000. Let us be clear about this is after the first
partner has died the remaining partner needs to go into a care home the local
authority will expect you to make some contribution if you have total assets
including the value of your home of more than £13,000. If you have total assets
of more than £21,500 you will be expected to pay all of your own care costs.
With care homes in Wiltshire costing around £32,000 per year this can soon eat
up all of the equity you have spent a lifetime building up.
If you are a married couple or living in a civil partnership with assets
below £600,000 you should consider updating your Wills if you already have them
or writing them if you do not to ensure your estate has some level of protection
against care costs.
If you are living with your partner and have assets over £312,000 one of our
Inheritance Tax saving Wills can ensure your assets are protected from
Inheritance Tax up to the value of £600,00.
If you still have concerns about inheritance tax, or your current Wills or
would like to understand how you can now protect significant portions of your
assets against care costs please give us a call to arrange a free consultation..
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