Inheritance tax was introduced on March 18th 1986, prior to this date other estate taxes applied, Capital Transfer Tax and Estate Duty. Where a surviving spouse dies on or after October 9th 2007 and their spouse died before the introduction of the current inheritance tax provisions, a claim may still be made for the nil-rate band of the surviving spouse to be increased by reference to unused allowances on their spouse.
The new rules announced on October 9th 2007 will not change the effect of existing Wills. So people who have, for example, a nil-rate band trust written into their Will do not have to take any action as a result of this measure. But if someone wants to change their Will to take account of the new rules, that change can usually be made by a Codicil, rather than having to rewrite the Will.
Mr Smith dies on April 16th 2007 with an estate value of £410,000. His wife is the sole beneficiary. Mrs Smith then dies on August 12th 2009 and leaves an estate valued at £610,000. This is then shared equally between her two children. When Mrs Smith dies the nil-rate band is £325,000. As 100% of Mr Smith's nil-rate band was unused, the nil-rate band on Mrs Smith's death is doubled to £650,000. As Mrs Smith's estate value is £610,000 there is no Inheritance Tax to pay on her death.
If the figures above are changed then there will be a different outcome on IHT owed e.g.
Mr Smith's £410,000 to Wife, Mrs Smith's £670,000 to her two children, n.r.b £325,000 X 2 = £650,000, estate value £670,000, IHT owed £20,000.
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