You may have heard in the recent Autumn statement that the Inheritance Tax Nil Rate Band is to be frozen until at least April 2028.

What is the Nil Rate Band?

Essentially the Nil Rate Band is the amount of your estate you can pass to your beneficiaries before an Inheritance Tax liability will arise.

If your estate exceeds this value, anything over and above over this is taxed at 40%, in simple terms.

The current Nil Rate Band is £325,000. This figure may be familiar to many because the threshold hasn’t changed since 2009. Of course, as inflation takes effect, the true value of the Nil Rate Band will decrease in real terms. With ever increasing house values, it is easy to appreciate how many more estates will exceed this figure in value resulting in Inheritance Tax being payable.

If the Nil Rate Band had increased in line with the Consumer Price Index, it should have been set at around £465,000 in April 2023 and would have produced a £56,000 Inheritance Tax saving on average.

However, as the government struggles to balance the books and ensure adequate tax income over the next parliament, it has frozen the Nil Rate Band for even longer than originally stated – in turn, this will increase the tax burden on many more estates.

How to preserve your Nil Rate band

For most, trying to ensure they have the full amount of Nil Rate Band available for their executors to offset against their estate is one simple step they can take to reduce their estate’s Inheritance Tax liability.

Manage your lifetime gifting

The total value of any gifts you have made in the 7 years before your death is deducted from the amount of available Nil Rate Band that can be used on your death. For example;

Susan makes a gift of £250,000 in cash to her daughter, Kate on 24th March 2013. Susan dies on 18 August 2018. Susan has died within 7 years of the date of making the gift and as such, her executors only have £75,000 of available Nil Rate Band.
If Susan had lived until 25th March 2020, she would have survived a full 7 years and the £250,000 would not have used any of her Nil Rate Band up, her estate would have benefitted from the full £325,000 allowance.
This is the “7 year clock” you may have heard being referred to when making lifetime gifts.

It is important therefore to make lifetime gifts as soon as possible and as early in life as you can. This will increase the chances of you living the 7 year period.

Needless to say, there are lots of other factors to consider and this is a very simplified example – making lifetime gifts is not a feasible or advisable option for some.

Keep records of your spouse or civil partner’s affairsIf you have survived your spouse or civil partner, it is often helpful to ensure your executors have easy access to a copy of each of the following:

• their Will (if there was one);
• any inheritance tax returns submitted to HMRC on their estate’s behalf;
  their death certificate;
• your marriage or civil partnership certificate;
• ideally a schedule of their assets and liabilities;
• and their Grant of Probate (or Letters of Administration)

It is necessary to have these to hand as it will help your executors establish how much of your late spouse’s or civil partner’s Nil Rate Band can be transferred and offset against your estate. This is know as the Transferable Nil Rate Band.

Your executors should seek advice in this regard. Ensuring the maximum amount of Transferable Nil Rate Band is used could save your estate a further £130,000 of Inheritance Tax. The rules can be complex, particularly if you didn’t inherit all your late spouse’s or civil partner’s estate.

Ensure you leave your estate to the right people
In addition to the Nil Rate Band (and potentially, the Transferable Nil Rate Band), your estate could benefit from an allowance called the Residence Nil Rate Band. This allowance of £175,000 is available to offset against the value of your main residence. To qualify for this additional allowance, the property must be left to direct descendants such as your children or grandchildren.

There is also the possibility of transferring your late spouse’s or civil partner’s own Residence Nil Rate Band too. The rules around this are complex and your executors should seek advice.

The Residence Nil Rate Band and Transferable Nil Rate Band could, together, save your estate up to £140,000 in Inheritance Tax so it is important they are considered.

If you left your estate to a Discretionary Trust, for example, your estate would not, on the face of it qualify for this additional allowance – even if children or grandchildren are named as potential beneficiaries. It will be necessary to consider whether the practical advantages of gifting your estate and property to a trust of this nature outweigh the potential loss of the additional allowances.

In conclusion
Despite the Nil Rate Band dropping in value in real terms since 2009 and despite the fact it will continue to do so until 2028, it is still a valuable allowance to maintain and preserve. If you have any doubts as to what Nil Rate Band your estate may be able to benefit from, get in touch 0800 84 94 101.

We are often asked by clients what they need to do in the first few days or weeks following the death of a family member or friend and the first step is always the same.

It is essential to ascertain very early on whether there is a Will – whether there is or not will determine if individuals need to act as administrators and administer the estate in accordance with the intestacy rules or act as executors and administer the estate in accordance with the Will itself.

Establishing whether there is a Will also determines who will inherit the deceased’s estate i.e., who the beneficiaries are.

So, the initial step is look for a Will

The obvious place to look is the deceased’s home and amongst their paperwork.

A Will may not always be marked up as obviously as you might think and could be less than a page in length. It is important to look very carefully to ensure you haven’t missed what could simply be a sheet of paper.

The original Will should bear the deceased’s “wet ink” signature as well as those of the two witnesses. It is common, however, particularly if a solicitor prepared the Will for the original to be stored with the firm and the deceased to simply have a photocopy of the signed Will at home. You will eventually need to obtain the original.

If you cannot find an original Will or a copy of it, you may instead find a draft, unsigned version. This may have been sent to the deceased from a firm of solicitors. If so, look for any other letters from a solicitor (or will writer). The letters would normally be on the firm’s letterheaded paper, contain a reference number and, of course, contact details.

Get in touch with the solicitors and request they confirm whether a Will was ever prepared and signed with their assistance.

If the deceased had several properties or a business, it is also a good idea to ensure these additional properties or business premises are searched.

Ask friends and family

Whether you do find a Will or not amongst the deceased’s paperwork it is still always a good idea to speak with other family members or close friends of the deceased to check whether they have any information that may suggest there is a later Will or a Codicil. A Codicil is a document prepared in order to make changes to an existing Will. If there is a Codicil then the deceased’s last “Will and Testament” will consist of both the Will and the Codicil and both must be secured. It is possible to have more than one Codicil.

Ask advisors

If the deceased had an accountant or financial advisor for example, we suggest you also contact them. They may know more than friends and family about the deceased’s arrangements.

What if you still can’t find a Will?

It is important you start thinking about taking other reasonable steps to assure yourself there isn’t one.

You could instruct a search agent who will carry out the above steps either for you or in addition to you, just to be sure.

They can also make enquiries with local solicitors and go further afield, if necessary, for example, if the deceased previously lived in a different area of the country.

An agent may also commission a Will search via a national Will Register. These searches aren’t conclusive as it is not legally required to register a Will on a register of this nature. A negative result for a Will on the register is not evidence in itself that there is no Will but is further evidence that there isn’t one in place.

What do you do next?

If you do find a Will, the next step is to be sure that it is a valid Will. If a solicitor did prepare it and supervised the signing, it is highly likely there will be no issues with validity. However, if the Will was prepared at home by the deceased, the situation may be very different. We suggest you seek specialist advice, and our private client team can help in those circumstances.

Establishing whether there is a Will or not and whether it is valid is essential in all cases. You need to have taken reasonable steps in all the circumstances to satisfy yourself that either there is no Will or if there is one, that it is in fact the last Will.

Administering the estate incorrectly can be costly for you personally so always best to be sure.

If you have any questions or you want to make your own Will, contact the Private Client team.