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Inheritance Tax Calculation
Example 1: Mr and Mrs X each own £350,000. None of the assets are agricultural or business assets and they have made no lifetime gifts. When Mr X dies he leaves everything to Mrs X and there is no Inheritance Tax to pay, as they are married. However, when Mrs X dies, she has £700,000 (her own £350,000 plus Mr X's £350,000). £700,000 less the current limit (known as the Nil Rate Band) of £325,000 = £375,000 £375,000 is taxed at 40%, so unless you are able to use the new "transferable allowance" there is an Inheritance Tax Bill of £150,000. Example 2: Again, Mr and Mrs X each own £350,000. This time Mr X dies having prepared a Tax Efficient Will. The Will leaves an amount up to the current Nil Rate Band to a Trust (for the benefit of his wife and children) and everything else to Mrs X. Again there is no Inheritance Tax to pay, as they are married. When Mrs X dies, she has £375,000 (her own £350,000 plus Mr X's £350,000 LESS the £325,000 he put into the Nil Rate Band Discretionary Trust). £375,000 less the current limit of £325,000 = £50,000 |
 £50,000 is taxed at 40%, so there is an Inheritance Tax Bill of £20,000, which is a potential saving of £130,000 compared to Example 1. The key benefit is the flexibility the Trust provides for your family. The Nil Rate Band figures are based on the figures for the financial year 2010/2011. There has been much publicity regarding the "transferable allowance" for Inheritance Tax. We believe that, even with these changes, there will still be many benefits to your family by including a Discretionary Trust in your Will. If you would like to discuss this or for more information, please contact us! |
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