27 April, 2017
Following the introduction of the new Residence Nil Rate Band in April, it is now an ideal time to review your current will and ensure that it not only meets your current needs but is also tax efficient.
Many people, particularly married couples, still have wills in place leaving a gift of the Nil Rate Band in a discretionary trust with the residue often passing to their spouse or children. These wills were very common pre 2007 when the Nil Rate Band was not transferable between spouses, meaning that if it was not utilised on the first death, it was lost entirely.
In 2007, the law changed meaning that married couples can now transfer their unused Nil Rate Band to their spouse on their death. This means that the surviving spouse now automatically has a Nil Rate allowance of £650,000 to use against their estate if the first spouse to die has left everything to them. The change in the law in 2007 effectively removed the need for preserving the Nil Rate Band of the first spouse to die in a discretionary trust which resulted in many married couples amending their wills back to simple mirror wills.
However, there are still lots of married couples out there who have discretionary Nil Rate Band trusts in their wills either because they have never got around to amending them, are unaware of the change in the law or perhaps have kept the trusts for another reason other than tax. Following the introduction of the new Residence Nil Rate Band, it is now essential that people with these wills have them reviewed by a solicitor, particularly if they will benefit from the new tax allowance. This is because these trusts fall foul of the criteria applied to enable an estate to claim the new allowance, namely that property is being left absolutely to a direct lineal descendant. As property left within a discretionary Nil Rate Band trust is not being left as an outright gift to a direct descendant, that person's estate would not then be entitled to claim the new Residence Nil Rate Band.
Therefore looking ahead, anyone who has a will containing either a Nil Rate Band discretionary trust or indeed any other type of trust and may need to utilise the new tax allowance, should have their wills reviewed without delay to avoid unnecessary costs and the potential loss of additional tax exemptions.
If you wish to review your will, please do not hesitate to contact Jennifer Wilkinson in our Wills, Probate, Tax and Trusts department or alternatively call Freephone 0800 975 2643 or send any question through to Forbes Solicitors via our online Contact Form.