Chapter: 2 - Inheritance Tax Mitigation: The Basics

Estate Duty surviving spouse exemption

2.2.12

Where Estate Duty was paid (or would have been payable but for reliefs or the threshold) on the death before 13 November 1974 of the first spouse to die and the survivor has a life interest under the Will, no IHT is chargeable on the second death (IHTA 1984 Sch 6 para 2). However, the related property rules may affect the chargeable value of the free estate or other property taxed on death.

Note that there will also be no IHT implications arising from an inter vivos termination of the life interest (even if death follows within seven years), though in that event the CGT-free uplift on death would have been wasted.

TAX TIP:  An ‘Estate Duty protected life interest’ should be kept in place until the death of the survivor.  The fund will be free from IHT and the acquisition cost of the assets will be market value, with the CGT-free uplift in value on death.