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Whilst this is desirable from and administrative perspective, is it practical when it is becoming increasingly important to keep records of accounts to ensure the availability of transferable nil rate bands (NRB) and residence nil rate bands (RNRB) between spouses?
Each individual currently has £325,000 available to leave free of inheritance tax on their death (the NRB). There is also the RNRB which allows an individual to leave their residence (up to the value of £175,000) to their direct descendants free of inheritance tax.
Both the NRB and RNRB are transferable between spouses which means that if the first spouse dies and their estate does not use either allowance, on the second death there is potentially £1,000,000 available to leave free of tax (provided the conditions of the RNRB are met).
Lifetime gifting within seven years of death effects the availability of the NRB on death. If gifts are made in excess of the NRB this can mean inheritance tax is payable by the recipient of that gift on the death of the donor. This can be a complex issue but with careful planning and Will drafting your wishes can be recorded in a clear and concise way.
When administering an estate the executors are required calculate any inheritance tax due and to report gifts made by the deceased in the last seven years to HM Revenue & Customs. Gifts between spouses or gifts under the inheritance tax threshold in an estate where there is no inheritance to pay would mean that a formal return may not be required. Although inheritance tax is not payable here, gifts made in the seven years prior may be chargeable to inheritance tax and would alter any available transferable NRB available. This, amongst other reasons, is why it is so important to keep financial records during your lifetime.
If you are planning on making lifetime gifts or are an executor administering estate and would like some advice please contact Debbie Gale, Lisa Whelan or Sarah Pitman in our probate team.
Contributor: Sarah Pitman
07 April 2021