HOMEWORK for widows and widowers…as set by Mr Alistair Darling
Widows and widowers are being advised to carry out quite a lot of homework and research as a result of the proposals announced by the Chancellor of the Exchequer Mr Alistair Darling in his statement to the House of Commons on 9th October 2007.
It’s in the best financial interests of these people’s sons, daughters and grandchildren to have this work carried out. So if you have a parent who has been widowed, and your parent isn’t that interested in doing the work, I recommend that you offer to help your parent do the work! You could be much better off in the long run if you do.
The problem
Many married couples in the past made straight forward Wills leaving everything to each other. This was very inefficient so far as Inheritance Tax was concerned and led on current figures to up to £120,000 in Inheritance Tax being paid (unnecessarily) on the second death. A way round this was for the couple to make a small adjustment to their house deeds and then make what lawyers call "nil rate band discretionary trust” Wills. Many couples never got round to this and ended up only using one of the possible two personal allowances from Inheritance Tax which are available.
Now Mr Darling has announced that married couples can claim between them two allowances (and thereby save up to £120,000.00 in Inheritance Tax per family) without having to adjust their house deeds and make nil rate band discretionary trust wills.
But the new allowance will only be permitted if on the second death the Executors can certify that on the first death all or part of the allowance which was then available was not used – because for example the first to die left everything to the surviving spouse, as is commonly the case.
What to do
So that on the second death full allowances can be claimed, the family at this stage should go through the papers relating to the estate of the parent who has died – to include finding his or her Will, any accounts which were drawn up at that time, any Grant of Probate and Deed of Variation. If you don’t have these papers and a lawyer handled the case, these documents or copies of them should still be in his file if he or she has retained it. It’s best to write to the lawyer now to get hold of the papers because there is a risk that he or she may have adopted a policy of only retaining “old papers” for 6 years or so, and you will want to get hold of them before they are destroyed. Once you have all the papers, you will calculate (with the help of your lawyer if needed) whether any of the available allowance was used at the first death and if part was used, what proportion was used. Having analysed the situation, these papers and calculations should then be preserved so that on the second death, the appropriate forms can all be completed easily - and full allowances can be claimed on the second death – thereby saving perhaps up to £120,000 in the long run.
The legal context
Mr Darling's proposals have not yet become law. That will not happen until July or August 2008. However the Inland Revenue are currently treating, to a large extent, his proposals as if they were already the law. You can claim the new allowance and, if entitled, will be awarded it, but the Revenue in their small print make it clear that should Mr Darling's proposals not become law, they have the right to claim from you the tax which you would have paid had he never made these proposals in the first place!
The new allowance is quite simple. The surprising thing is that it enables the Executors of persons dying after 9 10 07 to claim allowances which were "unused" by persons who may have died a very long time ago, and whose family have perhaps long since given up all hope that an allowance such as this could be claimed. Widows and widowers making their Wills in recent years may well have carefully calculated the values of the gifts that they are making in their Wills and would be surprised now to learn that the people inheriting under their Will are receiving far more than they had ever intended!
RICHARD WARNER
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