So what is Inheritance tax?
It would be impossible for me to cover all aspects of IHT here but I hope to provide you with a brief understanding of the basics of the important issues you may wish to consider when writing or updating your will.

Inheritance tax (IHT) or death duty as it used to be known, is due on the value of your estate (everything you personally own (whether in your own name or jointly with another at the time of your death) if it amounts to more than the tax free (zero rated) slice (NRB. The NRB is generally increased each year and for the tax year April 2008-April 2009 it is £312,000.

Everything over the NRB of £312,000 is taxed at the rate of 40%. There is no tax payable for estates passing between husbands and wives or civil partners, however there would be tax payable when the survivor passes the final estate to their beneficiaries, i.e. your children.

To estimate the value of your estate, add together the value of all your possessions including your home, car, personal belongings, cash, investments and so on, plus the proceeds of any insurance policies and business assets. From this figure, deduct your debts and reasonable funeral expenses.

This total is your net estate and everything over the NRB of £312,000 is taxed at the rate of 40%. There is no tax payable for estates passing between husbands and wives or civil partners, however there would be tax payable when the survivor passes the final estate to their beneficiaries, i.e. your children.

On October 9th 2007, legislation changed in that married couples and civil partners will be able to benefit from the unused nil rate band as at the date of the first death - up to a maximum of twice the nil rate band (currently 2 x £312,000=£624,000).

How will this affect me?
It is common for married couples and civil partners to leave their assets to their spouse in their will. As transfers between (UK domiciled) spouses were and still are exempt from inheritance tax, it was likely that the nil rate band of the first to die was wasted.

This new legislation will mean that if married couples and civil partners leave all their assets to their spouse, the survivor will benefit from both free entitlements, not just one.

This will benefit all married couples and civil partners, especially those whose only main asset is the family home and where the income from other assets is essential for the continuing maintenance of the surviving spouse.

Do I need to change my will?
If you are one of the many couples who currently has a tax efficient discretionary will in place, leaving the nil rate band on discretionary trust for the benefit of your spouse or family achieves the same outcome as the new rules. Therefore there is no IHT benefit to gain from the discretionary trust. However, you now have the opportunity to replace the discretionary trust with a Property Trust to protect your home from unwanted third party beneficiaries and care home fees. You were unable to do this with a discretionary trust in place.

WillScript - making sure your Will is done!