Wednesday 17th October 2007
The government is to effectively double the amount of assets a couple can have before inheritance tax (IHT) is charged, it has claimed.
In the 2007 pre-Budget report, the government observed that many individuals leave their worldly possessions to their spouses upon death.
Subsequently, if the total assets held by the couple exceed £300,000, IHT is levied on the surplus when the surviving partner dies.
But by allowing the £300,000 tax-free allowance to be transferred to the spouse, the government argues that the full £600,000 granted to the couple as individuals may be made use of when leaving an inheritance.
"The government will therefore make the IHT system fairer by ensuring that if a persons tax-free allowance is not used on their death, it can be transferred to their surviving spouse or civil partner," the pre-Budget report states.
Kelvin Lillywhite, consultant at independent financial adviser (IFA) Best Advice Financial Planning, welcomes the development.
He explains that historically, couples have evaded incurring IHT by placing funds into a trust which is legally held to be outside the dead partners estate.
But the new rules mean that no such trust is required, providing the couple is married or are civil partners, he notes.
"There were a lot of couples who didnt do it, but now youre going to inherit the nil-rate band regardless," he asserts.
In addition to simplifying the inheritance process, this could mean a greater amount is left to descendants, Mr Lillywhite advises.
This is because the costs involved in setting up a trust, as described by the IFA, "can be quite sizeable".
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