Advisers are set to benefit from confusion about whether people qualify for the transferable IHT nil rate tax band and how it can be claimed, according to AXA Wealth Management.
In his pre-Budget report, the Chancellor announced that for deaths on or after 9 October 2007 it will be possible for spouses and civil partners to transfer their unused inheritance tax nil rate band allowances.
This means that any part of the nil rate band that was not used when the first spouse or civil partner died can be transferred to the surviving spouse or civil partner for use on their death. In tax year 2008/2009 a maximum of £624,000 is available.
However, AXA warns many couples in today’s society are unaware they will not benefit at all as they must be married or civil partners to qualify. The growing number of people who live together as ‘common law’ partners, have children, joint banking facilities and mortgages, will not be able to benefit from the new rule.
For those who will qualify, there are also many administrative hurdles to jump through before the transfer can be made.
AXA Wealth says: “There is an assumption that people will just be handed the second nil rate band allowance but even if you are married or have had a civil ceremony, the next major issue is that you must be prepared with all the paper-work required to claim.
“Given that re-marriages have increased to make up 17% to 40% of all weddings from 1970 - 2003, there is an increased emphasis to have full knowledge and documentation of all trusts and gifts from a partner’s previous marriage or even marriages.”
There is also the extra complication that in order to claim the allowance, an individual must produce up to 10 separate documents, some of which may be dated back several years.
The rules also state information is needed from the executor of the first of the couple to die’s estate but often married couples are the executor for each other.
Furthermore, the discretionary will trust nil rate band planning method, which was a popular way for married couples and civil partners to ensure that they used both available nil rate bands before the new rules came in, can still offer significant advantages when compared to the new rules.
Mark Wilkinson, head of development for AXA Wealth Management says: “Family life today differs hugely to ten or twenty years ago, and advisers play an important role in helping individuals plan for their own specific circumstances.
“Couples in the UK want to feel confident that their loved ones will be left in the best possible situation if they are faced with the death of a spouse or civil partner. In light of the most recent changes to inheritance tax rules, even more people are realising the value of expert advice.”
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