It would be easy to assume that a married couple or civil partnership can now leave all their estate to the survivor, knowing that two nil rate bands will be available on the second death and that no specific planning needs to be undertaken on the first death. This is certainly going to be the case where the combined estate is at or about the current nil rate band.
Felicity and Gerald are married and live in a property which is currently worth £250,000. They have savings of another £100,000. The combined estate is just above the current nil rate band and they may have been advised to undertake planning to use some of the nil rate band on the first death. Now they can leave their estates to each other on the first death because they have sufficient leeway with two nil rate bands (£600,000 currently) unless the value of the property increases by a substantial amount.
They should ensure that they write Wills and they should always keep their position under review to ensure that the value of their combined estates fall within the two nil rate bands. |
Planning is still likely to be needed where the joint estate is currently at or above the level of two nil rate bands and there is some significant property owned by the couple. The danger in simply leaving everything to each other is that property price growth could easily outstrip the growth in the IHT nil rate band and leave a tax problem on the second death.
Helen and Ian are married and live in a property currently worth £500,000. They have savings of £100,000. The combined estate is just on the double nil rate band level. They decide to leave everything to each other. Ian dies in 2010 when the value of property has risen overall by say 10%, so the house is now worth £660,000 and the cash is still £100,000. There is no IHT payable on Ian's death but all the assets now fall into Helen's estate.
Helen dies in 2012 when the IHT nil rate band is, say, £380,000 and the value of the property has risen to £720,000. The total estate will be £820,000 and the IHT nil rate bands available will total £760,000 (£380,000 x 2). This will leave a tax bill of £24,000 payable on Helen's death, being (£820,000 - £760,000) x 40% = £24,000.
If some planning had been done on the first death by, for example, leaving an interest in the property to a trust, then the same proportion of the growth in the value of the property would have been outside Helen's estate and it is likely that the tax charge on her death would be significantly reduced if not removed all together. |
Where the joint estate of the couple is already above the aggregate of two nil rate bands then IHT planning should always be given serious consideration at the earliest opportunity.
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