Financial planning

Where there's a Will, there is possibly another way

There has been a long-standing assumption that a mirror Will is the most practical way for married couples or civil partnerships to leave their assets on death. As there is no inheritance tax (IHT) chargeable on the transfer of assets from one spouse to another, it allows individuals to pass their whole estate to the survivor, making it relatively straightforward.

Rachel Ryan
Senior Technical Specialist (Wealth)
30 October 2023
2 minutes

This status quo in Will planning is in part due to the transferrable nil rate band (NRB), which was introduced in October 2007 and the equally transferrable residence nil rate band (RNRB), introduced in April 2017.

Providing the deceased did not make any gifts within the seven years prior to death, their full NRB allowance of £325,000 can be passed to the survivor, meaning they have the combined ability to transfer £650,000 to their beneficiaries without tax. IHT of 40% is then applied to any remaining funds or assets not qualifying under any separate exemption.

Unlike the NRB, the RNRB of up to £175,000 per person, has certain restrictions, ensuring residential property is only left to direct descendants. In addition, the total value of the estate affects the amount of the allowance, with estates over £2 million having this benefit tapered by £1 for every £2 over the threshold. This means anyone with over £2.35 million will not benefit, although upon second death the taper level is increased to £2.7 million.

It is easy to see why a mirror Will has been the typical family’s preferred option until now, as these dynamics are mostly aligned with the Government exemptions and for many it is simple to understand. However, in the current climate of rising interest rates, and following the Autumn statement 2022 announcement that both the NRB and RNRB will remain frozen at their current levels until April 2028 , some of our clients are starting to wonder whether there is a better way.

All content correct at time of writing.

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