Nothing is certain but death and taxes and Stockport accountants, IN-Accountancy certainly agree, however there may be exceptions when it comes to inheritance tax (IHT). In certain situations there is a way to escape IHT completely on death, but it’s an escape that no-one wants!
Last goodbye’s together?
A general law describes that where two or more people have died, but in a circumstance in which it is impossible to determine the order of death, they are normally presumed to have died in order of age, i.e. the younger to have survived the elder, this is called the commorientes rule.
Due to IHT rules and without an alleviating clause the potential effect of the commorientes rule could double (or multiple) IHT charges on such deaths. The IHT legislation states that where it isn’t clear which persons have survived the other, they should be assumed to have died at the same instant. Therefore, in the case of a married couple where their wills state the passing of estates to each other, the elder spouse’s nil rate band will be essentially unused, and the younger spouse’s estate can benefit from it.
Case study example
Stephen and Caroline are married and live in Warrington, Stephen is 45 and Caroline is 40. Their estates are worth £500,000 each. In a tragic car accident, they died simultaneously in September 2016. Stephen is deemed to have died first, so his estate would pass to Caroline however for IHT purposes, Stephen and Karen are assumed to have died in the same instant. Therefore, Stephen’s estate is exempt from IHT and £500,000 goes to the children. Only Caroline’s estate of £500,000 is subject to IHT and with the inclusion of both spouse’s nil rate bands, their assets are worth £1.1 million which is passed onto their children.
Further IHT rules regarding survivorship and other clauses in wills, state the different potential problems of double (or multiple) IHT charges on successive deaths. This rule applies to deaths which follow within a short period of one another rather than simultaneous. The rule states that if the a person holds the property for a period of no more than six months before death, then the beneficiary is entitled to the property under the same IHT position under the commorientes rule.