Any transfers between a husband and wife, or civil partner, are exempt for inheritance tax which means that none is payable upon the death of the first spouse.

With the death of the surviving spouse, however, this tax then becomes due on the estate held by them, should its value exceed £650,000.

Any balance over the threshold of £650,000 is liable to taxation at a rate of 40%; however, it is still very important to ensure that wills and trusts are put in place to make sure that your estate planning runs smoothly.

Creating a standard will, in which all inheritance is left to the spouse, may avoid the paying of inheritance tax. Whilst it is possible to leave up to £325,000 without this tax becoming payable, for example, to your children, this could leave your spouse with some financial difficulties.

In the case of joint estates, it is no longer necessary to have Nil Rate Band Discretionary Trusts if the value is under £650,000 but in some situation, they can prove to be very useful indeed. For mitigation of inheritance tax, Nil Rate Band planning is not usually considered; however, it is often used for protection in certain situations.

Some of the Major Benefits of Discretionary Trust Schemes

    • Access to Financial Funds by the Surviving Spouse
    • The surviving spouse may be entitled to interest free loans which then become repayable upon their death, thereby further reducing their IHT liability.
    • If the surviving spouse requires long term care, all assets which are held in trust are not deemed to be capital.
    • It ensures that assets which are held in trust are passed to your children, rather than those of a new partner of your spouse, should they re-marry.
    • Offers a degree of protection against bankruptcy, should it occur.

Other Important Considerations

Upon death, all joint assets are passed directly to the surviving spouse and are not passed under the will. These assets cannot be used to fund the Trust Fund. It is possible that it may be necessary to equalise the respective estates to be certain that both spouses have sufficient assets each, so that the Nil Rate Band Trust can be used to its greatest effect.

In the vast majority of situations, it is the family home which is the largest asset owned by both spouses, together. It may, on occasion, be necessary to divide any properties between the spouses in order to ensure that each has sufficient sole assets to be able to satisfy the Nil Rate Band Trust. With each then owning 50% of the property, on the death of the first spouse, their 50% share can be used to satisfy the Nil Rate Band Discretionary Trusts.

By using specialist terminology within the trust, it is possible for the surviving spouse to remain in possession of the whole property, but the value of the share of the deceased person will be out with the surviving spouse’s estate. All assets in this type of trust arrangement can not be regarded as capital held by the spouse, should they require long term care.