Devil very much in the detail

In an effort to dilute the impact of Inheritance Tax (IHT) the UK Government announced measures that would mean a couple having an allowance of £1 Million GBP before IHT would arise.

At least that's the way newspapers reported it at the time when the measures were announced. However, as always in matters like this the devil is in the detail and everyone should be aware of just how these allowances can be applied.

As of today each individual has a nil-rate band allowance of £325,000. So, you could assume that when one of the couple dies the surviving spouse would automatically have a total of £650,000 allowance.

In theory that assumption is partly correct. The nuance is that the allowance is not automatically passed to the surviving spouse (or partner in a civil partnership). To receive the unused nil-rate band allowance the surviving spouse has to apply to HMRC to receive it.

Given that property values tend to rise over time the additional allowance may be something that the surviving partner may need to rely on and therefore would need to apply for.

By the way, I'm ignoring the recently available Residential nil-rate band allowance amounts in the scenario above but, once again, this would need to be applied for where a transfer is required.

In many instances executors on first death do not seek formal probate of an estate and this is where problems could arise in settling the estate on second death as any transfer of allowance must be proven. This means that accurate records need to be kept if delays and frustrations are to be avoided.

It's important to understand that the above information applies only to married couples or those in a civil partnership. If a couple are living together but have no formal relationship no transfer of allowance is possible and other measures need to be taken to mitigate the issues described above.

Zen Legacy can provide information on the benefits of using professional services for probate that could avoid many of the problems described above.

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