24 April 2008
AXA Wealth Management warns that many couples could lose the benefits of the new transferable nil rate tax bands for inheritance tax, if the new rules are not fully explained. People should seek the help of an adviser to ensure that they understand the implications of the new rules.
In his pre-Budget report, the Chancellor of the Exchequer 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 to their surviving spouse or civil partner. The new rules mean that any proportion 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 subsequent death. In tax year 2008/2009 a maximum of £624,000 will therefore be available on the death of the survivor.
Many couples in today's society, however, will not benefit. The main requirement for couples to qualify for the transferable nil rate tax band is that they must be married, or be civil partners. Therefore the growing number of people who live together* as 'common law' partners, have children together and have joint banking facilities and mortgages together, will not be able to benefit from the new rules.
There is perhaps an assumption that people will just be handed the second nil rate band allowance. Even if you are married or have had a civil ceremony, the next major issue is that the executor of the second spouse or civil partner to die must be prepared with all the paper-work required in order to be able to make a 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 also have full knowledge and documentation of all trusts and gifts from a partner's previous marriage or even marriages.
Added to this is the extra complication that in order to claim the allowance, an executor must produce up to 10 separate documents***, some of which may have been completed many years ago.
The new rules also state that you will need information from the executor of the first of the couple to die's estate, but often married couples are the executor for each other, so if an adviser is doing this when both spouses have died he or she will often not have the first executor to talk to.
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, in some circumstances, significant advantages compared to the new rules.
Mark Wilkinson, head of development for AXA Wealth Management says: "Family life today differs hugely from 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 the light of the most recent changes to the inheritance tax rules, even more people are realising the value of expert advice."
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For further information:
Becky Holmes, Press Office, +44 (0)1256 798310
Nicola Wraight, Press Office, +44 (0)1256 852041
Christine Wood, FD, +44 (0)20 7269 7253
Notes to Editors
* http://www.guardian.co.uk/world/2005/jul/26/law.features11 The Guardian Tuesday July 26 2005: Figures from the Office of National Statistics show that the number of couples who were cohabiting rather than married trebled from 5% of the total in 1986 to 15% in 1999. In 2001/02, nearly 29% of women under 60 were cohabiting.
** http://www.bcft.co.uk/Family%20breakdown%20in%20the%20UK.pdf The conflation of marriage and cohabitation in government statistics – a denial of difference rendered untenable by an analysis of outcomes. Harry Benson Bristol Community Family Trust. September 2006.
*** Documents required about the first death:
- a copy of the Inheritance Tax return (IHT200, IHT205 or C5 in Scotland) or full written details of the assets in the estate and their values
- death certificate
- marriage or civil partnership certificate for the couple
- copy of the grant of representation (Confirmation in Scotland)
- copy of the Will, if there was one
- a note of how the estate passed if there was no Will
- a copy of any Deed of Variation or other similar document if one was executed to change the people who inherited the estate
- any valuation(s) of assets that passed under the Will or intestacy other than to the surviving spouse or civil partner
- the value of any other assets that also passed on the death of the first spouse or civil partner, for example jointly owned assets, assets held in trust and gifts made in the 7 years prior to death
- any evidence to support the availability of relief (such as agricultural or business relief) where the relievable assets passed to someone other than the surviving spouse or civil partner
AXA Wealth Management
AXA Wealth Management comprises the IFA operations of Sun Life Assurance Society and AXA Equity and Law after their operations were merged in 1997. The majority of AXA Wealth Management's business comes from independent financial advisers, the rest from appointed representatives.
In the UK the two AXA companies offering the Wealth Management proposition are, Winterthur Life UK Limited (registered no.3116645) and AXA Sun Life Services PLC (registered no.3424940).
Winterthur Life UK Limited and AXA Sun Life Services PLC are authorised and regulated by the Financial Services Authority. Both companies are registered in England and have their registered office at 5 Old Broad Street, London, EC2N 1AD.
AXA
AXA UK is a part of the AXA Group. AXA Group is a worldwide leader in Financial Protection.
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