This Content Was Last Updated on February 9, 2017 by Jessica Garbett


Recent developments in inheritance tax legislation and new guidance from HMRC have given rise to changes to the inheritance tax code. 

Nil rate provision in legacy

In the case of Loring v Woodland Trust, the transfer and use of Mrs Loring’s husband’s unused nil rate band gave rise to some difficulty in interpretation. The deceased’s (Mrs Loring’s) will left a legacy ‘equal to such sum as is at the date of my death the amount of my unused nil rate band for inheritance tax’. The residue was left to a charity, the Woodland Trust.

This gave rise to the question as to whether the amount of the legacy should be:

  • the deceased’s nil rate band only (£325,000)
  • the total nil rate band available on her death ie £650,000.

The former would leave residue of £355,805 and the latter £30,805. The court decided that the amount should be calculated by reduction by the testator’s nil rate band, as increased by her late husband’s transferable nil rate band. 

Gifts with reservation of benefit

Buzzoni and Others v HMRC was a case heard by the Upper Tribunal, on the subject of gifts with reservation of benefit.

Mrs Kamhi had a leasehold interest in a property and granted an under-lease containing a good repair covenant to a family trust in 1997. The under-lease reduced the value of the head-lease. Mrs Kamhi died more than seven years after the transfer to the trust and the executors completed the IHT forms on the basis that the transfer had been exempt.

HMRC contended that the transfer had been a gift with reservation, resulting in a substantial IHT charge. Both tribunals agreed. The Court of Appeal found that the good repair covenant had not affected the enjoyment by the trustees because the same covenant had been in the head-lease. There was therefore no reservation of benefit. 

Non-domiciled spouses

The limit of exempt gifts to a non-domiciled spouse has been increased from the old £55,000 to the nil rate band (currently £325,000). This is a lifetime limit and is not renewed after seven years. It is possible to elect to treat the non-domiciled spouse as UK domiciled for IHT purposes only. The election can be made during lifetime or post mortem and is irrevocable. Also see this guidance from HMRC.

Article contributed by ACCA