Freezing of IHT Nil Rate Band
The Budget last month saw the announcement that The Chancellor will be freezing the nil rate band for the next four years. It was initially announced in the 2009 pre-budget report that legislation would be introduced this year to freeze the level for the tax year 2010/11 at the current rate of £325,000. This has now been extended to cover the next four tax years so the nil rate band will not be increased again until the tax year 2015/16.
In contrast the Conservatives have stated they would raise the allowance to £1m although it remains to be seen if this would be implemented.
The freezing re-opens the scope for some very effective tax planning when making Wills particularly as estates and trust funds may grow more rapidly than the nil rate band.
For example: if H dies when the NRB is £325,000 and leaves 90% of his NRB unused, and W dies when the NRB is £600,000 the W’s executors can claim her NRB plus an enhancement of £540,000 (90% of £600,000). This makes the transferable NRB very generous. The greater the increase of the NRB between deaths the more generous the allowance is.
By contrast, where there is little increase between deaths (achieved by freezing the NRB for four years) utilising the transferable element is not always the best option. Instead the funds could be hived off after first death into a trust to allow these trust funds to grow at a faster rate than the NRB. This may see the return of NRB trust Wills.
Report by the Society of Will Writers on 21st April 2010
