The press and the Forsyth saga
It recently hit the headlines that the late Bruce Forsyth left all his Estate to his wife "in order to avoid inheritance tax".
It recently hit the headlines that the late Bruce Forsyth left all his Estate to his wife "in order to avoid inheritance tax". It was reported that the rationale was to allow his wife to inherit tax free and would then be able to give away up to £650,000 from his Estate.
This is a bit misleading. Generally speaking, if there is an actual agreement that a spouse will make gifts shortly after a death, HMRC can argue that this was the plan all along and challenge the claim that the whole estate in fact passed to the spouse. If there is no such arrangement in place or the spouse waits for a couple of years before making the gifts, then the gifts will be exempt if the spouse survives 7 years from date of the gifts – there is no £650,000 limit as such. In cases where there is a significant age difference between spouses this can prove to be very effective tax planning opportunity.
Inheritance tax is currently charged at 40% of the total value of all assets wherever they are in the world so far as the total exceeds the nil rate band allowance of £325,000. Anything left to the surviving spouse domiciled in the UK passes tax free. Married couples are able to transfer any unused nil rate band on first death to the survivor potentially increasing his or her tax free allowance to £650,000 which is where the reference to £650,000 come from. Lifetime gifts can however be for any amount – it is surviving 7 years which is the key. For larger gifts in excess of the nil rate band relief is tapered so long as the person making the gift survives at least 3 years.
Whilst leaving all to a spouse can be good for tax mitigation – it is not without risk. The survivor would need to be trusted to "do the right thing" in terms of providing for others and would have to be satisfied that there is enough left over for them to live on. Quite what is the right amount to give and the right to amount to keep is a matter of opinion and could become a cause of family friction.
Sarah Walker is an Associate Solicitor in the Wills, Trusts, Tax and Probate team at Top 45 national law firm Weightmans LLP.