Pre-Budget Statement - Oct 2007

The Inheritance Tax (IHT) changes announced by Alistair Darling on 9th October legitimised the doubling of the Nil Rate Band (NRB) exemption level for married couples (and civil partners). The changes announced have immediate effect so that married couples are allowed a total estate of £600,000 (in the financial year April 2007 - April 2008) without being liable for IHT.

In practice because spouses have always been able to give their estate to their spouse without IHT, the new allowance only really takes effect after the second death. This means widows/widowers have to be allowed this new total exemption; thankfully there is no time limit on this so that someone could have been widowed 5, 10, 20 years ago and still be eligible for the full double NRB allowance.

Single people and unmarried couples still only have individual allowances of £300,000 each.

For Will Writers and their clients, most Discretionary Will Trusts (DWTs) for IHT mitigation are no longer required. In fact the new regime has further benefits for clients because the relatively unfavourable tax regimes for DWTs no longer apply.

However, the present advice is to make no changes to existing Wills for a month or two. Although the changes announced have immediate effect, in practice they will be written into the Finance Bill 2008 and will apply retrospectively to estates being wound up after 9th October 2007.

For the future other services offered to your clients could include:

Replacing the DWT with a Lifetime Interest in Property - previously this could not be included in an IHT saving Will because it is not discretionary. It caters for concerns about:

a) the value of the family home being protected against the provisions of the Community Care Act. This ring-fences at least half the value of the property - maybe more than half because the part in trust from the deceased spouse should reduce the chargeable value of the survivor's share.

b) a surviving spouse/partner remarrying and the possibility of the testator's own children not inheriting their share of the jointly owned house.

Of course both these require the severance of joint tenancy but this will already be in place if a DWT is being replaced.

General DWTs (not NRB amounts) - clients wishing to prevent absolute access to unreliable children (alcoholics, drug addicts, psychotics, bankrupts, etc.).

NRB DWTs for unmarried couples. Much more rarely than before , they may still be of use to UNmarried couples for assets owned in sole names. Jointly purchased houses would still require tenancy severance. Each partner could leave an NRB amount to a DWT so the surviving partner would get the use of the funds but without increasing their own IHT liability.

Amounts above the current £600,000 have always been subject to IHT on the excess Mitigating IHT on this excess portion has always been in the province of a financial adviser. As most users of the Legacy program are either financial advisers themselves or working with someone who is, nothing much has changed in this respect.

However, to cater for the now smaller percentage of clients who still have significant IHT problems we are considering the introduction of a new range of trust services and/or products. More details will be available in early 2008.

The current Legacy Will templates and Tutorial will be adjusted as soon as possible to reflect all of the above. A patch to update your program will be available at the same time and will be announced on our News page.