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Wrong Claims Lead to Delays in Claiming Inheritance Tax Allowances- 11/05/2010
Children trying to claim their inheritance without paying tax on their parents’ estate are facing long delays due to a complicated claim form and onerous record keeping requirements, according to a leading Shropshire lawyer specialising in wills, trusts and estate planning.
Jane Hughes, Partner in the Wills Trusts and Estate Planning Department at law firm FBC Manby Bowdler LLP, says that, as a result, up to 70% of claims to Her Majesty’s Revenue and Customs (HMRC) to transfer an unused Inheritance Tax threshold are wrongly made.
Since October 2007, any unused Inheritance Tax threshold can be transferred from a late spouse or civil partner to the second spouse or civil partner when they die. This can increase the Inheritance Tax threshold of the second partner - from £325,000 to as much as £650,000 in the current 2010-11 tax year.
However, to transfer the unused threshold, the executors for the second spouse to die need to send certain forms and supporting documents to HMRC, and it is here that the mistakes are made.
“Most commonly the calculations for the proportion of the first spouse’s nil rate band which can be transferred are wrong, or else the documentation is simply not complete,” explains Mrs Hughes, who is based in FBC Manby Bowdler’s Shrewsbury office.
“Married couples and civil partners benefit from ‘spouse exemption’ in addition to their respective ‘nil rate bands’, which means essentially that no tax whatsoever is paid on assets passing to the surviving spouse on the first death. However, in order to claim the transfer of the first spouse’s entire nil-rate band, proof has to be provided that it was not used, along with documents such as the death certificate, will, marriage certificate and grant of probate.
“Gathering such documents and proof, such as a list of all gifts made seven years before the first spouse’s death, can be a difficult task, especially if the first spouse died many years before the second, so we advise that on the demise of the first parent, children keep good records which will help expedite the claim later,” says Mrs Hughes.
“Getting the claim right first time is also important, as inheritance tax is payable six months after the death, so instead of documentation from HMRC agreeing that their inheritance is free from tax, the children may be facing an unwarranted tax bill.”
FBC Manby Bowdler provides a comprehensive service, providing advice on wills, estates, probate and inheritance tax planning, including claiming nil-rate band transfers.