Q and A Tax with Mark Green, head of tax and estate planning, Legal & General Wealth

The transferability of the IHT nil-rate band between married couples and civil partners.

Mr and Mrs Tate are planning to visit their financial adviser to discuss inheritance tax (IHT). They have heard about the transferability of the IHT nil-rate band between married couples and civil partners announced by Alistair Darling on 9 October.

‘We’re quite certain the nil-rate band would help us,’ Mrs Tate says. ‘But we’re not sure what we need to do to make sure we get the full benefit of the changes. Do we need to do anything at all?’

‘You’re right to visit me,’ I exclaim. ‘To take advantage of the transferable nil-rate band, you have to be careful about keeping your will up-to-date and about lifetime IHT planning.’

‘What impact does the chancellor’s new rule on transferability of IHT nil rate band have on couples?’ asks Mr Tate.

I tell him the transferable nil-rate band will be available to all survivors of a marriage or civil partnership whose spouse or partner dies after 9 October. The transferable band will help in overcoming the problem that has existed for married couples and civil partners until now, namely the potential loss of the nil rate band after the first death in the couple.

Quick off the mark, Mrs Tate wonders: ‘So how will that affect what couples currently do to plan for IHT exposure?’

‘Well,’ I say, ‘over the years various strategies have been adopted to take advantage of the nil rate band on first death. One of the largest growth areas in recent times has been IHT planning for the family home. One common arrangement has been the one known as the nil-rate band debt scheme. Under this arrangement, let us assume that you made wills that passed your assets to the survivor and created nil-rate band discretionary trusts. On your death, Mr Tate, your assets (including your share of the family home) would have passed to your wife. But an amount equivalent to your unused nil-rate band would have been charged against those assets for the benefit of your discretionary will trust.

‘When you eventually die, Mrs Tate, your estate would be obliged to pay back that debt to your husband’s discretionary will trust. The benefit of this arrangement was that the nil-rate band upon the first death was not wasted. As a result, the survivor could continue to live in the family home.’

Mr Tate considers this for a moment. Finally, he asks: ‘Does this mean, then, that wills are no longer a necessary part of estate planning?’