Docklands Solicitor

- As a rule of thumb, on death every individual has a ‘Nil Rate Band’ (NRB) of £325k they can leave free of Inheritance Tax (IHT) to a ‘taxable’ beneficiary - which in general terms is anybody other than a spouse/civil partner, charity or political party(!).


- Anything gifted to taxable beneficiaries over this NRB is liable to IHT at 40%

- Since October 2007 any transfers to spouses or civil partners are free of IHT on 1st death, and the surviving spouse can add the proportion of unused NRB of the 1st to die to their own NRB on 2nd death, so that a maximum of £650k can be left on the survivors death to taxable beneficiaries.

- However, it is not quite so simple as that - well it wouldn’t be with the government involved would it? To enable HMRC to rake back rather more in tax, they look back at any ‘lifetime gifts’ the deceased had made in the 7 years prior to their death and under certain circumstances these gifts, made up to 7 years previously, will be deducted from the deceased’s available £325k NRB at the time of death.

- eg - If Mr Smith had given his son £100k (~30% of his NRB) six years before he died, he would only have £225k of his NRB left to gift after his death. If he then left his entire estate to Mrs Smith, on her death she would have her own NRB + the unused 70% or her husband’s NRB to leave free of IHT.

- These lifetime gifts are known as ‘PET’s’ or ‘Potentially Exempt Transfers’, and the ‘7 year rule’ should be an important consideration for people with substantial assets looking at long term tax planning. If you have sufficient free assets you can basically gift up to £325k at 7 yearly intervals and after that time has elapsed, the gifts will no longer be considered in your estate for IHT purposes.

- If you are considering making such provisions you should always take professional advice from a taxation specialist such as an accountant or a specialist financial advisor dealing with tax planning, to ensure you are maximising the tax planning opportunities without potentially getting yourself into trouble with the tax man!

- For people without the need for such lifetime tax planning, there are ways of protecting your estate from IHT within your Will, particularly important for unmarried couples where there is no tax-exempt spousal transfer, and unless it is protected on 1st death, there will only be one NRB available to pass on 2nd death.

Rahcael Rodgers (Will Writing and Estate Planning) Tel: 07841 868 828

Labels: civil partner, inheritance tax, lifetime gifts, spouse