Inheritance Tax 
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Inheritance Tax: Couples
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See the Articles & Advice section for a wealth of information on tax planning.Estate Planning For Married Couples/Civil Partners
One of the most important exemptions is the Nil Rate Band. Every individual has their own Nil Rate Band allowance (currently £312,000). An added benefit for spouses/civil partner is that anything they leave to each other is also exempt. Great news huh? Well actually, utilising the 'spouse' exemption to the full is not always a wise idea.
Every married couple/civil partnership has the potential to save up to £105,200 in Inheritance Tax for their family by simply following a simple planning strategy, and the only thing that the strategy involves is ensuring that the first spouse/partner to die uses their Nil Rate Band on transfers which are not made to their widow or widower/partner. If spouses/partners were to give everything they have to each other, they would be wasting one of their nil rate band allowances due to the spouse exemption.
This effectively boils down to actually volunteering to give the Government an extra £105,200 in tax, and let's face it, who wants to do that?!
Example:
Fred dies leaving his estate valued at £2,000,000 to his son Mike who subsequently ends up with a £694,800 Inheritance Tax bill!! Fred was in fact a widower, and within his estate there was a property worth £263,000 which he had inherited from his wife Michelle who had died earlier in the year.
Since Michelle left her property to her husband, it was exempt anyway and her Nil Rate Band was never used. Alternatively, what Michelle SHOULD have done was to leave the property to their son Mike, and no Inheritance Tax would have been payable on her death as it was covered by the Nil Rate Band.
But when Fred died, his estate would have been worth £263,000 less, thus saving £105,200 in Inheritance Tax.
A non-spousal legacy - such as the one to Mike in the above example - need not be one specific property. There is nothing to prevent the legacy from being a whole group of assets, or simply worded as a legacy equal to the Nil Rate Band to be paid out of the general assets of the estate.
Not THAT Well Off?
The above strategy works well where, like Fred and Michelle, there are ample assets. But what if you are not that well off and cannot afford to give such large sums of money upon the death of one spouse? bearing in mind that the widow/widower will need to retain sufficient assets to support them for the rest of their life which includes in most cases, the family home.
The strategy which can be employed in these circumstances is one known as 'The Widow's Loan Scheme'. This is where all (or most) of the assets of the estate is left to the surviving spouse/partner as specific bequests, but leave a sum equal to the Nil Rate Band to a Discretionary Will Trust, of which the surviving spouse along with other family members would be a beneficiary.
The surviving spouse/partner consequently owes the Discretionary Trust a sum equal to the Nil Rate Band and they can simply give an IOU for that amount to the Trust. When the surviving spouse/partner themselves then die, the amount of the IOU is deductible from their estate, thus doubling the Nil Rate Band!
The above scheme has been confirmed and endorsed by the HMRC Inheritance Tax Offices and the Inland Revenue who have explicitly stated they recognise the scheme in principle as far as Inheritance Tax calculation is concerned providing it is done properly. This 'doing it properly involves very careful drafting of the Will ensuring that the Trustees have power to accept IOUs.
