There was some good news in July when the Finance Act introduced new rules which extended exemption from inheritance tax (IHT).

As a result, married couples (and civil partners) will benefit because the nil rate band has been extended to include both spouses which means when one dies, the first £312,000 will not be liable for IHT.

And up to £624,000 will be sheltered on the death of the second partner.

But this does not mean that you can relax as far as wills are concerned.

wills should always be kept under review (generally every five years), not only because of changing family circumstances, but also because of relevant changes in the law, and in the IHT rules. The latest changes are a case in point.

For example, the new rules need to be reviewed, and if you die without leaving a will, the intestacy rules can have very unfortunate consequences which can lead to great expense and worry at a very difficult time. wills should also be considered if you are within any of the following groups: • Couples with estates worth more than the nil band (and those older couples worried about care fees) • Couples where either or both have children from previous relationships • Unmarried couples, or those who have been married more than once • Couples with estates of unequal value, or with business or agricultural assets • Widows and widowers (where record keeping may be very important) Before the proposed new rules were announced in October 2007, many couples made wills containing nil band discretionary trusts, as a way of securing the nil band on both deaths.

Initially it was thought the new rules would make this approach redundant. In fact, this technique still makes a good deal of sense in particular family circumstances.

For those couples with existing wills containing such trusts, it is recommended that the wills be reviewed. The additional flexibility afforded by such trusts may be important, and the trusts retained. It is possible to exercise powers of appointment in favour of the surviving spouse within two years of the first death, to bring the trusts to an end. The new rules can then operate on the death of the survivor. They are based on double the nil band applicable on the second death, rather than linked to the nil band which applied on the first death.

The government has pledged the nil band will increase to £350,000 over the next two years and, if the Conservatives take power, the Shadow Chancellor’s headline-grabbing pledge to increase the nil band to £1,000,000 (and £2,000,000 for spouses) may apply. Consider the case of Jack who died in May 1996, (when the nil band was only £200,000), leaving everything to his wife Jill and without having made any lifetime gifts in the previous seven years.

On Jill’s death now the first £624,000 (twice the current nil band) of her estate will be exempt from IHT.

If Jack had left £100,000 to his son, either by a lifetime gift or in his will, then the proportion of the £200,000 nil band unused would have been 50 per cent. On Jill’s death now, the exempt amount will be £312,000, plus a further 50 per cent of £312,000, making a total of £468,000.

Even if Jack’s estate had only been worth £150,000, the proportion unused will be transferred, so that it does not matter about the size of the first estate.

For widows or widowers (or rather their children) the new rules bring an unexpected and no doubt welcome relief as they will potentially apply irrespective of the date of the first death, which may have been several years earlier. In such cases it is important the relevant records are retained, including in particular, the will and probate of the deceased spouse, and preferably estate accounts. The bad news is that the new rules do not assist unmarried couples, whether with or without children.

It is all the more important for such couples to make wills as the survivor will have no automatic entitlement to the deceased partner’s estate, and there will potentially be a double charge to IHT on the same assets.

This can be minimised by the use of wills with discretionary trusts. Also, the rules do not really help couples where one spouse has a foreign domicile, in which case spouse relief for IHT is severely limited to only £55,000.

As a result, the new IHT rules are helpful to married couples but not to others. They relate to tax matters, not to the wider issues which are covered by wills. The change should provoke a review of all such issues to ensure that your family is protected and expensive mistakes are avoided.

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