What will my inheritance be worth?

By THIS IS MONEY
Updated:

 

My husband died in 1999, leaving £320,000 in a discretionary trust. This is now worth £260,000.

Older woman

IHT confusion: What will be left of my inheritance, after tax?

When I die, can I assume that my IHT protected sum will be the combined total of £624,000 or does the inherited trust of £300,000 remain at that historical value for IHT purposes?

In other words, can my heirs utilise the £40,000 of the trust shortfall and/or the difference between the value of the trust and the current individual allowance, plus my own £312,000 allowance? M.W., Taunton, Somerset

Matthew Cox at Skipton Financial Services replies: Firstly we always say that inheritance tax (IHT) planning is an extremely complex area so we would advise that you seek professional financial advice to confirm your personal IHT situation.

The Pre-Budget Report of 9 October 2007 made it possible for spouses to transfer any part of the nil-rate band not used when the first spouse or civil partner died, to the surviving spouse for use on their death.

For example, if on first death the chargeable estate of Mr A is £156,000 and the nil-rate band is £312,000, 50% of the nil-rate band is deemed to be used.

If the nil-rate band when the survivor dies is £325,000, then the amount available to transfer would be 50% of £325,000 ie £162,500.

The surviving spouse's nil-rate band would then be £487,500 in total (£325,000 + £162,500).

It is unclear from your question exactly when your husband died so we are unsure of the exact nil-rate band at the time of his death.

The nil-rate band was increased to £223,000 on 6 April 1998 rising to £231,000 on 6 April 1999. Either way though, the sum your husband left in his will was above the IHT threshold so he used up 100% of the nil-rate band available to him at the time of his death.

Therefore, when you die, you will not be able to utilise any of your late husband's nil-rate band in addition to your own.

The nil-rate band available to you will be 100% of whatever the nil-rate band is at the time of your death. It is currently £312,000, although the Government has confirmed this will increase to £350,000 by 6 April 2011.

>> Further information: See our special IHT section

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