Why IHT allowance transfer will prove tricky

People will find it almost impossible to take advantage of being able to transfer Inheritance Tax (IHT) allowances, claim legal experts. Married couples and civil partners were considered winners when the Chancellor announced in last week’s Pre Budget Report that they would be able to fully utilise their total nil-band rate of £600,000 by transferring unused allowances in the event of death. However, this is not an automatic entitlement. Howard Burns, a wills and probate lawyer at national law firm Lewis Hymanson Small, explains: “People will find it extremely difficult to make an IHT allowance transfer claim as they need to provide comprehensive records to HMRC for unused allowances to be calculated. “This could prove particularly difficult where the first spouse died a number of years ago. The vast majority of solicitors only keep client records for seven years and many individuals fail to keep accurate financial records.” Under the new allowance transfer rule, surviving spouses and civil partners do not need to make any claim when the first spouse or civil partner dies. A claim only needs to be made upon the death of the widow or widower. At this point, beneficiaries can add the two IHT allowances together and only pay tax on anything above the threshold. For married couples and civil partnerships, the combined threshold is currently £600,000 and is due to rise to £700,000 by 2010. Burns continues: “The concern is the amount of detail which the still unpublished transfer claims form is likely to require. In theory, the transfer of allowances is a good idea that should benefit millions of people across the country. In practice, supposed executors will miss out as completing a claims form is likely to require full and accurate records of how the first person to die used their nil-band rate. Executors will need to provide records of what the person owned and who their estate was left to. “In addition, to make a claim, executors will probably need to produce birth, marriage and death certificates for the first person to die as well as a copy of their will. Making a transfer claim could be a long and drawn out process. People should ensure that they keep accurate records of their estates and entrust copies of documents to executors.”