Transferable Nil Rate Bands for Married Couples and Civil Partners

What is a nil-rate band?

A nil-rate band, otherwise known as the inheritance tax threshold, is the boundary by which an individual does not have to pay any tax on their estate when they day. Every person that owns an estate can benefit from the nil-rate band – anything that remains in the estate above the nil-rate band will be liable to inheritance tax. Currently, the existing nil-rate band stands at £325, 000. The measure is designed to reduce the burden of inheritance tax for most families as it has made it easier to pass on the family home to direct descendants, without the tax charge. The nil-rate band is featured in section 7 of the inheritance tax act 1984.

Is the nil-rate band transferrable?

As of October 2007, the nil-rate band became transferrable between married couples and civil partnerships meaning that the deceased’s nil-rate band will not be wasted and can be transferred over for the surviving spouse and their estate. If your spouse has died and you are the surviving partner in the marriage, you will need to make a claim to HMRC to have the nil-rate band transferred over for use towards your assets after your later death. If HMRC accept your claim, then the nil-rate band that will be applied when you (as the surviving spouse) dies, will be increased by the nil-rate band passed onto you by your other half, which could have occurred many years ago. The NRB is unused when a person with an estate less than £325, 000 dies.

An example of transferring a nil-rate band:

If a person in a marriage or civil partnership dies with, for example, an estate worth £150, 000 then over half of their nil-rate band, will of course go unused. With the new law in place, that nil-rate band can be transferred over to their remaining spouse and the total NRB will increase by over 50%, meaning the threshold is even higher and whoever the estate is being passed down to will have less of a chance of being hit with inheritance tax.

Details and Paperwork

Upon the death of the first spouse and after your NRB has been accepted by HMRC, it is important that full details and paperwork regarding the estate are kept in a safe place so that they are retrievable upon the death of the second spouse. Important documents to keep include the death certificate, a copy of inheritance tax forms, a copy of the will if there was one and if there was no will, an official note explaining how the estate was passed.

Please note that if the surviving member of the marriage’s estate is below the NRB/Inheritance tax threshold when they die, then they will not need to make use of the transferred NRB.

Claiming the Transfer

  • The claim for the transfer is made by the representatives of the estate of the survivor.
  • They will ask for any documentation you have regarding the estate of the first deceased.
  • The claim has to made by the representatives within 24 months from the end of the month in which the survivor dies.

Are Trusts Affected?

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