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Guidelines aim for clarity

CHANCELLOR of the Exchequer Alistair Darling caused quite a stir in the October 2007 Pre-Budget Report when he announced that any inheritance tax nil rate band left unused on the death of a person could effectively be transferred to their widow, widower or registered civil partner for use in computing the inheritance tax liability on the survivor’s death after October 9 2007.

For civil partnerships, the first death must have occurred on or after December 5 2005, the date when the Civil Partnership Act came into force.

Before this change it was necessary to use complex will planning to ensure that the surviving spouse benefited from the assets of the first to die but could still take advantage of the nil rate band from the first death.

The rise in property values has meant that many couples have large estates where all the value is in the family home and so they are caught in the trap of needing all the estate to stay with the surviving spouse but then having to pay inheritance tax on the second death.

The change means that the combined estate on the second death can be up to double the nil rate band, currently £312,000, so up to £624,000 before inheritance tax becomes payable.

However, in order to claim the nil rate band from the first death it will be necessary to prove that it was not used on that death. HMRC has published for discussion some guidelines as to what information is required, which includes:

Death certificate;

Marriage and/or civil partnership certificate;

Copy of Grant of Representation (in Scotland, Confirmation);

All wills and codicils;

All relevant Deeds of Variation.

These documents will help establish the entitlement to make a claim. To quantify the claim, it will be necessary to provide:

Copies of returns and relevant information on forms IHT 200, IHT 205 (in Scotland C5) or other full written details of the assets in the estate;

Details of how the estate was passed, including intestacies and assets passing by survivorship;

Any relevant valuations;

Details of trusts set up and gifts made in the seven years preceding death.

Fortunately, HMRC seems to be taking a pragmatic view and accepts that where the death was many years ago much of this information will not be available.

But, where more recent deaths and future deaths are concerned, I would recommend that the information be gathered now, or at the time, and put safely with, for example, the will of the surviving spouse.

Where claims are incomplete or estimated, executors can expect to come under scrutiny.

Negotiation may be necessary in some cases.

For more information or assistance, telephone 01908 687800, e-mail mail judith.hooper@bakertilly.co.uk or visit www.bakertilly.co.uk