The Widows' IHT Tax Break

Aside from the obvious emotional aspects, being widowed can have a significant and detrimental financial impact on the individual. As well as from the potentially reduced income, there are a number of tax implications that may be suffered.

However, it is important to remember that various tax breaks exist for widows and widowers.

Aside from an increase on the individual’s pension allowance, there is an important addition to the Inheritance Tax (IHT) allowance that will be of particular benefit to the descendants of a widow and the beneficiaries of their will.

Nil-Rate Band

As is explained in articles elsewhere on this site, married couples and civil partners can transfer assets to the value of the nil-rate band (that is, the amount below which inheritance tax is not levied) directly to their spouse or civil partner in the event of their death. As such, the Inheritance Tax allowance of the surviving spouse or civil partner is basically doubled. At current levels that would mean the surviving spouse would have an effective nil rate band of £624,000.

This is clearly of significant benefit for the beneficiaries of the surviving spouse’s will. However, many widows are finding it impossible to claim this tax break as a result of administrative problems.

It is common practice for solicitors to destroy documents six years after their creation. This poses problems because, in the event that property has been transferred to a spouse, there may be no legal record. As such, it is impossible for the family to prove that this has taken place. Furthermore, many properties are jointly owned by couples. When one of the couple dies and the property is passed into the sole ownership of the surviving individual, it is again unlikely that there will be any record of this having occurred. As such, many beneficiaries end up paying 40 per cent Inheritance Tax when they are not legally obliged to do so.

Collecting the Documents

If you are considering making a claim under the new Inheritance Tax nil-rate band laws, which came into force in October 2007, you will need to gather a number of important documents. Primary amongst these are the will, certificates of marriage and death, and a grant of probate. According to HMRC you will also require things like tax returns, but claims will apparently normally be upheld if you can provide the basic documents listed above.

The documents you require will normally be held by the surviving spouse’s solicitor or accountant. However, if the solicitor or accountant has destroyed these documents, or if they have gone out of business, you should be able to find what you need in the public records. Wills and grants of probates are held by the relevant local probate office, while certificates of death and marriage are accessible through the General Register Office. In all cases there will be a small fee for obtaining copies of the documents; the fee will vary depending on the speed with which you require the documents, but it could be as little as £5.

Inheritance Tax can remove a significant chunk from your assets when they are passed on to your beneficiaries. It is therefore vital that you take steps now to ensure they pay no more than they are obliged to.