Inheritance tax
Couples can now combine their inheritance tax allowances

New rules announced in the Pre-Budget Report allows couples to combine their inheritance tax allowances and will make it simpler for them to shelter up to £600,000 of assets from tax. The ‘nil-rate band’ for inheritance tax (IHT) was previously £300,000 per person. What the measures announced by the Chancellor will do is bring together the existing allowances of married couples, civil partners, and widows and their late spouses. The chancellor also said he will increase these allowances to £350,000 per person, or £700,000 for a couple, by April 2010.

It was already possible for couples to combine their IHT allowances in this way. But they could do so only by using a Will-and-trust arrangement. The first partner to die needed to have a Will that would pass assets to the survivor up to the value of the nil-rate band, and then place the remaining assets in a trust. Now the trust will not be needed to make full use of both allowances.

Changes announced

  • IHT allowance (the nil-rate band before the tax is paid) of £300,000 is now transferable between spouses or between civil partners, giving couples a combined allowance of £600,000
  • the IHT allowance rises to £350,000 per person in April 2010, giving couples a combined allowance of £700,000
  • widows, widowers and bereaved civil partners can now claim the combined allowance
  • increased IHT allowance from April 2010 is not a tax cut, the £350,000 allowance was announced in this year’s Budget

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This article is for your general information and use only and is not intended to address your particular requirements. This article is based on our understanding as at the 11 October 2007. The content of the article should not be relied upon in its entirety. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without appropriate professional advice after a thorough examination of their particular situation. Any references made to the Pre-Budget Report may be subject to the Finance Bill becoming law.
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