Inheritance Tax Mitigation Inheritance Tax was described by one Chancellor of the Exchequer as, “broadly speaking, a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue” - Lord Roy Jenkins Each person can leave to their estate up to £325,000 (2010/11) before inheritance tax is liable at 40%. This is termed the nil rate band. In his Pre-Budget Report, the Chancellor of the Exchequer announced that from 9 October 2007, it will be possible for spouses and civil partners to transfer their nil-rate band allowances so that any part of the nil-rate band that was not used when the first spouse or civil partner died can be transferred to the individual’s surviving spouse or civil partner for use on their death. Where a valid claim to transfer unused nil-rate band is made, the nil-rate band that is available when the surviving spouse or civil partner dies will be increased by the proportion of the nil-rate band unused on the first death. For example, if on the first death the chargeable estate is £150,000 and the nil-rate band is £300,000, 50% of the nil-rate band would be unused. If the nil-rate band when the survivor dies is £325,000, then that would be increased by 50% to £487,500. This means that, together with house prices falling markedly, the probabilities of estates having to pay Inheritance Tax are much lower than hitherto. Nevertheless, the estate of parents who have houses worth £500,000 with life cover and other assets amounting to £250,000 would still pay (£750,000 -£650,000) x 40% = £40,000 tax on the second death. Strategies to avoid this ‘voluntary levy’ are many and need cost little or nothing. Completing our Inheritance Tax calculator here may give you peace of mind or discovery of a tax your estate would rather not pay. Ask us to call you back here to talk about legitimate ways to mitigate the tax burden for both you and your family and to make your money work harder for you.