IHT nil rate band - Case study
The People
Mr and Mrs R had an estate of £800,000. Mrs R had been widowed previously, before marrying Mr R.
The Problem
Mr and Mrs R would have a combined Inheritance Tax nil rate band of £650,000. This would leave £150,000 subject to IHT, resulting in a charge of £60,000. As Mrs R had been widowed previously, she was entitled to a transferable nil rate band from her first husband. However, this would be wasted without planning being included in their Wills.
The Solution
Discretionary trusts to the value of the available IHT nil rate band were included in Mr and Mrs R’s Wills.
If Mrs R died first, she would have an available IHT nil rate band (including the transferable nil rate band from her first husband) of £650,000. This sum would be placed in trust and could then be lent to Mr R. On Mr R’s death, his estate would repay the £650,000 to the trust, reducing his estate to £150,000. As this is below his available IHT nil rate band, no IHT would be payable.
If Mr R died first, he would only have a single IHT nil rate band of £325,000. This sum would be placed in trust and could be lent to Mrs R. On Mrs R’s death, her estate would repay the £325,000 to the trust, reducing her estate to £475,000. Mrs R’s executors could then claim the transferable nil rate band from her first husband, giving an available IHT nil rate band of £650,000. As the value of her estate would be below this, again no IHT would be payable.
In either case, IHT of £60,000 could be saved entirely.
Who to contact
Shaun Parry-Jones
Partner
Email
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