Retaining records after a person has died is essential in order to be able to demonstrate the amount of Inheritance Tax (IHT) ‘nil rate band’ that is available on the death of a surviving spouse or civil partner. It might easily be thought that once an estate has been probated and the assets have passed to the surviving spouse or civil partner, then that is the end of the matter and the paperwork (including the will) can be consigned to the shredder after a suitable period of time – but that is not the case.
Leaving aside the need to retain some documents (e.g. those which might have a tax impact if there is a subsequent query from the tax authorities), it is important to hold onto the will and details of the estate tax returns.
The reason for this is that the way IHT now works is to allow the beneficiaries of the surviving spouse or civil partner to make use of the ‘unused percentage’ of their late partner’s IHT nil rate band, no matter when they died.
The way it works is as follows:
Assume a husband has died and left a net estate of £50,000 at a time when the IHT nil rate band allowance is £150,000. That leaves 2/3rds of the allowance unused. If his wife subsequently dies when the IHT nil rate band is £200,000, her allowance will be increased by 2/3rds of that amount (i.e. £133,333).
The calculation is more complex where there has been a remarriage after one of the partners has been widowed.
The newspapers have recently contained several accounts of estates of widows of men killed in the Second World War which have avoided substantial amounts of IHT because the original documentation relating to the husband’s estate could be produced to justify a claim.