What did Mr and Mrs Smith do wrong?
They failed to use Mr Smith’s tax free band. By giving everything to his wife, Mr Smith wasted the first £285,000 and paid more tax than necessary. Instead, Mr Smith might have given the £285,000 to his children. This would cut the tax bill by £114,000. The difficulty with this approach is that the survivor may need the £285,000 you’ve given to your children. It is therefore out of the question. This is particularly so where your home is your major asset, as you would have to give away part of your home to satisfy the gift of £285,000 – giving away part of your home is far too risky. So what should Mr and Mrs Smith do? Mr and Mrs Smith should make new Wills. But these aren’t conventional Wills. They incorporate a special tax-saving technique called the Nil Rate IOU Trust. The Nil Rate IOU Trust The Nil Rate IOU Trust involves a special trust, which can make loans to the survivor. The Nil Rate IOU Trust enables Mrs Smith to inherit her husband’s entire assets subject only to a loan from
