Saving inheritance tax (“IHT”)

The old system

It used to be the case that, to use (rather than waste) the nil tax band for IHT (currently the first £325,000 of the estate), a gift of up to the amount of the nil tax band could be “hived off” – either outright to other beneficiaries or to a discretionary trust that could include the surviving spouse, children, grandchildren, etc as potential beneficiaries. The rest of the estate would then pass to the surviving spouse and be exempt from IHT because gifts between spouses are exempt. Then on the death of the surviving spouse, their nil tax band will be available so, using current figures, up to £650,000 could be left and taxed at nil, with the rest being taxed at 40%.

Transferable nil IHT tax band

However, this is no longer needed, because now any unused nil tax band on the first death can be transferred to the surviving spouse, who then has a double nil tax band. As a result, on the first death, all the deceased’s estate can be left to the surviving spouse (exempt from tax) and on the survivor’s death £650,000 (the two nil tax bands combined) can be left to children, etc, taxed at nil, with the rest of the estate still being taxed at 40%.


I should mention that this only applies to husband and wife (or civil partnership) situations, as the “spouse exemption” does not apply in any other circumstances.

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