Budget 2011 announced a small but significant change to the rules governing inheritance tax.

As expected, the Personal Allowance or Nil Rate Band (the amount which passes free of inheritance tax on your death) will remain frozen at £325,000 until April 2015.

However, from 6 April 2015, the Nil Rate Band will increase annually in line with the Consumer Price Index. In the case of husbands and wives or civil partners, the unused portion of the Nil Rate Band on first death will still be rolled over or combined on second death to give a joint allowance today of £650,000.

The significant change concerns a gift or legacy to charities. Any gift made in your will to a charity registered in the UK is at the present time exempt from inheritance tax, but from 6 April 2012 inheritance tax will be levied at a flat rate of 36%, and not the current 40%.

This is because if you leave more than 10% of your estate to a charity, then as well as the gift to the charity being exempt from inheritance tax, the net balance of your taxable estate - if any - will attract a reduction in the rate of inheritance tax of 10%. 

If you've any queries concerning the above, or would like to discuss changes to your will, please contact Trevor George, Charlotte Dunn or Susan Sorrie.