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Do we need to change our wills?

Tax | Inheritance Tax Helpful? 8

Asked by cheryljane, submitted 12 November 2010.

Open Quote My husband and I made our wills in 1997. The contents and our wishes have remained the same except I wonder if there should be mention of the Nil Rate Band so that the allowance for the first spouse could pass on to the second. I wonder if we should 'equalise our estate' or if the NRB would pass on automatically?End Quote

Answered by Justin on 15 November 2010

There should be no need to update your wills as any unused nil rate band on the death of the first spouse (or civil partner) is claimed on the death of the second - so in effect it passes on automatically.

In order to claim any unused nil rate band on the death of the second spouse the executors of the estate should:

  1. Calculate the percentage of unused nil rate band on the first death. Obviously, if everything is passed to the surviving spouse then 100% of the nil rate band will be available. Suppose the nil rate band on first death was £325,000 and £65,000 of this was used via gifts were made to other family members, then 80% of the nil rate band will be available to pass on to the surviving spouse.
  2. Collate documents relating to the death including copies of the will and grant of probate.
  3. Send these documents along with form IHT402 to HMRC to claim the unused nil rate band. The nil rate band available for transfer will be calculated as a percentage of the prevailing band at the time of second death, e.g. if the nil rate band was £400,000 on second then £320,000 (80%) could be transferred on our example.

However, I'd double check whether your wills contain instructions to use discretionary trusts that utilise your nil rate bands, as these were common before the rules changed (on 9 October 2007) as a means of utilising both nil rate bands.

Unless you have specific needs (e.g. putting assets in trust that you think will grow faster than the nil rate band) then this part of the will is probably no longer required, in which case just make sure your wills are compatible with the new rules - whoever originally wrote them should be able to tell you very quickly.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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