According to the professional advice website, unbiased.co.uk, poor Inheritance Tax (IHT) planning will cost UK taxpayers £1.3bn this year.And with the IHT exemption threshold frozen at £325,000 for three years, it’s essential to plan ahead and avoid overpaying taxes.One way to ensure you don’t lose out, if you are married or in a civil partnership, is to claim your partner’s unused IHT allowance or ‘nil rate band’.Since October 2007 it has been possible to transfer any unused Inheritance Tax threshold from a late spouse or civil partner to the second spouse or civil partner when they die. For the 2011-12 tax year, this could result in a £650,000 IHT tax threshold for the second partner.The threshold can only be transferred after the death of the second partner which must have occurred on or after 9 October 2007. The executors or personal representatives of the second partner to die can transfer the nil rate band from one partner to the other by applying to the HMRC.You will need to supply a copy of the first will, the grant of probate or death certificate and a deed of variation, if the original will was changed.The first step is to work out what percentage of the threshold you can transfer. If all of the estate of the first partner was left to the second partner 100% of the threshold was unused. The executor can transfer the full percentage when the second spouse or civil partner dies, even if they die at the same time.The value of any non-exempt gifts made by the deceased whilst alive, or any assets qualifying for Business or Property Relief must be deducted from the threshold before you can work out the percentage available to transfer.Claims must be made to HMRC within 24 months from the end of the month in which the second spouse or civil partner dies. The forms you will need to fill in will depend on how much of the unused threshold is being transferred to the second partner and the value of the estate when they die.For full details of the relevant requirements and worked examples go to the HMRC website hmrc.gov.uk. The law states that Inheritance Tax must be paid before any beneficiaries receive a share of the estate. In order to alleviate the stress on your family during bereavement it makes sense to check that your financial affairs are in order before you die.
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