Following the announcements on the 9th October the profession is still uneasy about the Treasury’s new proposals regarding the transfer of unused Nil Rate Bands between married couples and civil partners it is worth considering the effect of immediate adoption of the changes. Estate planners are already working to Mr. Darling’s proposals, even though they will not take place before April 2008, but there are obvious drawbacks to this.
These are:
1. Where the nil rate band increases at a slower rate than owned assets, such as the family home, lower rates of inheritance tax will be payable where those assets are owned by a NRB trust that was created by the first partner to die, rather than using the new provision of transferring an unused nil rate band on the surviving partner’s death.
2. The nil rate band for 08/09 and 09/10 have already been set (£312,000 and £325,000 respectively) but from that point it remains unclear the impact that the old legislation (the Inheritance Act 1984 s.8 which links the NRB to inflation as measured by the Retail Price Index) will continue to have.
3. Where all residue is left on discretionary trusts on the death of the surviving partner, the effect of the transferable NRB will not be taken into account when charging IHT within that trust on 10 yearly anniversaries. Only one NRB will be taken into account for tax calculation purposes.
Most importantly;
4. In light of the present Governments reversals of tax policy during the discussions on the Finance Act 2006, which introduced substantial changes to the treatment of trusts for tax purposes, it cannot be guaranteed that the draft legislation will be enacted in it’s present form.
