Thackray Williams

A recent report stated that there has been a dramatic fall in the number of families paying Inheritance Tax (IHT). This is due in part to the change in IHT rules in October 2007, coupled with the general fall in value of assets in the last few years.

The new IHT rules enable the Personal Representatives of the second spouse/civil partner to die to utilise the percentage of the unused nil rate band allowance of the first spouse who died, subject to certain conditions.  In many cases, the estate of the survivor would have their own allowance and an additional allowance which transferred across from the first spouse’s estate.  This would mean that on current figures, IHT would only be an issue if there is more than £650,000 (double the current allowance of £325,000 in tax year 2009/2010) in the estate. 

The transferable allowance is not given automatically, however, but must be claimed by the Personal Representatives when administering the estate of the second spouse.  There is a time limit in which the claim must be made, and the Personal Representatives will need to file a full Inheritance Tax Account to the Inland Revenue, together with supporting documents to successfully mitigate the Inheritance Tax liability that would otherwise fall on the estate.

The fall in the value of assets, to include property and shares, has also contributed to less estates being chargeable to IHT.  It is important, however, that Personal Representatives also know that it is possible to claim back any IHT paid if the assets fall in value from the date of death to the date of sale.  Again, this is not automatic and must be claimed by the Personal Representatives by completing the appropriate forms within the prescribed time limits. This is within 4 years from the date of death in relation to the sale of property and one year in respect of shares.

There are circumstances which can reduce the allowance that can be claimed and in order to ensure that the Personal Representatives comply with the Inland Revenue requirements within the prescribed time limits and claim the maximum possible reduction in IHT it is recommended that Personal Representatives take professional advice at the earliest opportunity.

For more information about inheritance tax contact Anthony Macey, email: anthony.macey@thackraywilliams.com