Money
Tax and benefits
Taxing issues over inheritance
Inheritance concession presents problems for many older widows, says Paul Lewis
There are concerns that an Inheritance Tax concession is unworkable for many older widows who fear their heirs may not be able to take advantage of it when they die. Last October the Government announced that the £312,000 tax-free allowance for the tax would be doubled when a widow or widower died if their spouse had left everything to them.
Even after other bequests, whatever proportion of the tax-free allowance was unused could be used by the widow or widower on their death. For example, if the first to die left money to his children which used up half the tax-free limit, when his widow died the heirs would get her tax-free limit – £312,000 – and half her late husband’s which would be worked out as a proportion of the limit. So they would get an extra £312,000 x 50% = £156,000, making a total of £468,000 before any IHT was due.
But the scheme depends on knowing what the first spouse left to whom and being able to prove it. If there was a will and the estate was large a copy can be obtained from public records. But if the estate was small and most was in a jointly owned house, probate would not be needed and the will would not be registered or publicly available. Even if a solicitor was used the firm may have destroyed any documents more than seven years old. So the people who inherited everything and should have a full transferable allowance may have no proof of the fact.
The Revenue says it will accept all reasonable claims but it is sensible to get the widow and any other relatives or friends who remember what happened to write the facts down. You could get that statement sworn as an affidavit by a solicitor.
Older widows
Another problem with the new scheme is that before March 22, 1972 there was no specific amount that could be left to a spouse without estate duty (as it then was) being charged. That means that any amount left to a wife (or husband) used up some or even all of the tax-free allowance.
For example, in 1970 the maximum tax-free amount that could be left was £10,000. If a spouse was left a share of a house then a big chunk, perhaps all, of that allowance would be used up. So there may be little or no allowance left to transfer when the widow dies.
* For more details of the Inheritance Tax rules see the retirement section of our online money channel
* Paul Lewis is the editor of Saga Magazine's Money News section and the presenter of BBC Radio 4's Moneybox. This article first appeared in the September 2008 edition of Saga Magazine. Paul's opinions are his own and for general information only. Always seek independent financial advice.
