Transferable Nil Rate Bands for Married Couples and Civil Partners

  • On 9th October 2007, the government changed how married couple or civil partners can use their individual nil rate bands
  • This allowed couples to let the survivor of them have the benefit of their combined assets, without wasting the nil rate band of the first to die
  • Each individual is entitled give away assets to the value of the nil rate band (currently £325,000), within seven years of their death or by Will, free from inheritance tax
  • Gifts between spouses/civil partners are exempt from inheritance tax

Prior to 9th October 2007, if a spouse or civil partner left everything to each other on death, their exemption would be used and the opportunity to use their own nil rate band was lost.

From 9th October 2007, nil rate bands between spouses and civil partners became transferable.

Who is eligible for this allowance?

This allowance is available to all survivors of a marriage or civil partnership who die on or after 9th October 2007.

This means that on the death of the first spouse or partner, if everything is left to the survivor:

  • The deceased’s unused nil rate band (or the remaining part of it) can be transferred to the surviving spouse or partner when they die

How does this work?

For example, a husband dies leaving assets to his wife:

  • Spouse exemption applies and there is no tax to pay on the first death
  • None of husband’s nil rate band is used
  • Wife then dies

Her executors can use both her nil rate band and transfer her husband’s nil rate band to her estate, and:

  • This is deducted from the total estate before tax becomes due
  • The transferred nil rate band is also up-rated

It works by looking at the proportion of the nil rate band that was unused, rather than the amount.  This is then up-rated to the nil rate band available on the second death.

If husband dies in 2007, then:

  • The nil rate band at the date of his death is £300,000
  • 100% of this is unused as everything is left to wife and spouse exemption applies
  • Wife dies in 2010
  • The nil rate band has now increased to £325,000

Her executors can deduct both her available nil rate band and her husband’s transferred nil rate band (now up-rated to £325,000) from wife’s estate, with inheritance tax being calculated on the remaining estate. 

This means that £650,000 can pass to the beneficiaries, with tax being calculated on anything over this.

How to claim the transfer

In order to claim the transfer, it is important that full records are kept of the assets within the estate of:

  • The first to die
  • Details of the assets’ distribution

Remember:

  • The claim for the transfer is made by the representatives of the estate of the survivor
  • They will be asked for information and documentation regarding that estate of the first deceased
  • The claim has to be made by them within 24 months from the end of the month in which the survivor dies

What about trusts?

Previously, we have sought to ensure that the first nil rate band was not wasted by the use of a discretionary trust. 

Remember that these trusts are still useful where individuals wish to secure assets for the next generation. For example:

  • Where there may be children from a previous marriage; or
  • When the surviving partner is likely need residential care, in order to protect assets and prevent them from being included in any means testing for the care funding

Are you concerned by either of these issues? Then you should seek legal advice on what is the most appropriate type of Will to make.

Getting in touch

For more information please contact David Endicott on 01295 204005 or email dendicott@se-law.co.uk