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Will planning

The Finance Bill 2008 would appear, on the face of it, to signal a return to much simpler Will planning.   Is this really the case?

Traditionally, as property passing to the surviving spouse is exempt from inheritance tax ('IHT') the nil rate band ('NRB') was effectively wasted on the death of the first to die if the bulk of the estate was left to the survivor, giving rise to a large IHT liability on the survivor's death.

It is now possible (provided the second spouse was married to the first spouse when he or she died) on the second death to use the unused NRB in relation to the estate of the first spouse to die. 

All in all, this is a good development (due to receive Royal Assent shortly) however whilst the press and many commentators have suggested that the NRB Will structure is no longer required there are still many circumstances where it may be the most appropriate structure. 

Such a structure:-

  • Can act as an asset protection structure for children on a second marriage; 
  • Can provide an effective barrier against the payment of care fees;
  • When used as part of an overall wealth management structure, for the benefit of the remaining family members;
  • Will be useful if certain asset types increase at a quicker rate than the NRB.  
  • Most importantly, can be successfully used as part of an overall strategy to preserve business property relief and/or agricultural property relief.
  • Can help protect against future changes to the law!  What would happen if the NRB which appeared to be available as at the first death suddenly disappeared as a result of changes in the law prior to the death of the second spouse.  At least by engineering a chargeable transfer on the first death this means that the NRB has definitely been used. 

In short, the position is not quite so clear cut for the reasons set out above and specialist advice is required now more than ever. For clients with existing NRB Will arrangements the message is leave well alone.  The structure still works and there should be sufficient flexibility within the arrangements to terminate the NRB trust after the first death after proper consultation with the family advisers. 

Beware, however, unravelling such arrangements once the period of two years has elapsed since the date of death!  To unravel such arrangements after the first two years is disastrous as the NRB will have been claimed and the assets returned to the surviving spouse's estate where they will potentially face a liability to inheritance tax of 40%. 

That said, existing arrangements should continue to be reviewed and monitored on an annual basis and annual meetings of the trustees should be maintained.   The existing arrangements do work and it would be unrealistic to think HMRC will lose interest in such arrangements.

If you require further advice or assistance please contact the Private Client department at Higgs & Sons by calling 01384 342100.

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