CIOT: Low Incomes Tax Reform Group: Campaigners challenge unfair rules on inheritance tax
Campaigning tax advisers are calling on the Government to correct a tax quirk which is unfairly hitting elderly widows and widowers.
The Low Incomes Tax Reform Group (LITRG) has highlighted the fact that a small number of older people, those whose husband or wife died before March 1972, are being excluded from the ‘transferable nil rate band’ inheritance tax (IHT) relief introduced in 2007. This relief allows the inheritance tax allowance of the first person in a couple to die to transfer to the surviving partner, and can effectively double the amount they can pass on tax-free when they die.
John Whiting of LITRG – who is also Tax Policy Director of the Chartered Institute of Taxation – explained:
“In 2007, the Government introduced a very good inheritance tax relief. When a widow or widower (or bereaved civil partner) dies, their estate can now benefit not only from their own tax-free band, but also up to a second nil-rate band, depending on the proportion unused by late spouse or civil partner. This change was very welcome and has saved a lot of worries and artificial planning.
“However, this admirable change brought with it some unfairnesses, one key example concerning a small number of elderly people whose spouses died many years ago. Essentially, before March 1972, when a modest spouse exemption was brought in, someone who died and left their property entirely to their surviving spouse was always chargeable to Estate Duty (the forerunner of modern day IHT). They used up all of what we today call the nil rate band, which means that, under today’s rules, the surviving spouse has no additional nil rate band available on their death.”
LITRG has come across a small number of individuals affected by this: mainly long-widowed, now elderly ladies, who had to cope as single parents for many years and who feel very unfairly treated by the new rule. Typically, a now elderly lady was left a few thousand pounds by her late husband; had her husband survived until March 1972, in many cases she would not be looking at an IHT bill on her own estate.
John Whiting concluded:
“The change needed here is simple, would cost a very small amount and would remove a tarnish from an enlightened and sensible tax measure. Why can’t that change be made?”
Notes to editors
More information on this issue is available in an article by John Whiting on the LITRG website: http://www.litrg.org.uk/news/index.cfm?id=733
The nil rate band for Inheritance Tax is currently £325,000. This means a married couple currently have a total effective nil rate band of £650,000 between them.
The Low Incomes Tax Reform Group (LITRG) is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is a charity and the leading professional body in the United Kingdom concerned solely with taxation. The CIOT’s primary purpose is to promote education and study of the administration and practice of taxation. One of the key aims is to achieve a better, more efficient, tax system for all affected by it – taxpayers, advisers and the authorities.
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George Crozier
External Relations Manager
D: +44 (0)20 7340 0569
M: +44 (0)7740 477374
The Chartered Institute of Taxation
Registered charity number 1037771
www.tax.org.uk
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