Transferable Nil rate band

The ability to transfer the nil rate band between the estates of married couples or civil partners was introduced in October 2007.

This change in legislation will make a significant difference to the inheritance tax planning schemes for many married couples.

The effect of the transferable nil rate band means that, when a surviving spouse or civil partner dies the nil rate band available on their death will be increased by the proportion of the nil rate band that was not used on the earlier death of their spouse or civil partner.

The transferrable nil rate band is available where the surviving spouse or civil partner has died on or after 9th October 2007. For married couples, the first death can have occurred at any time before or after that date. For civil partners the first death must have occurred on or after 5 December 2005.

While the benefit of the unused nil rate band passes to the estate of the surviving spouse or civil partner, assets do not have to be passed to the spouse or civil partner on the first death. The legislation refers to the unused nil rate band rather than to whom the assets have been passed to.

Where the value of an estate is below the IHT nil rate band at the date of the first death, the balance of the nil rate band that is not used is available for transfer.

For Example:-

On the first death, if the entire estate was valued at £150,000 and left to the deceased’s children and the nil rate band at the time of the first death was £300,000, this would result in 50% of the nil rate band being available to transfer to the surviving spouse or civil partner.

It is always worth investigating where assets where passed to because assets passing as an exempt or relievable transfer i.e to charity or for national purposes or assets that attracted 100% business or agricultural relief, do not use up the nil rate band.

If any tax or duty was paid on any part of the estate on the death of the first spouse or civil partner, the nil rate band will have been fully used on the first death and there is nothing left to transfer on the second death, in most cases.

The unused nil rate band can only be transferred from one spouse or civil partner to the survivor when the relationship is brought to an end by the death of one party to the relationship. Where a marriage or civil partnership has ended because of divorce or dissolution of the civil partnership and one of the parties to the relationship then dies, any unused nil rate band on their death is not available for transfer on the death of their former spouse or civil partner. Unless the divorcee or former civil partner remarries or enters a new civil partnership, any unused nil rate band on their death will remain unused.

The claim to transfer unused nil rate band must be made by personal representatives within the ‘permitted period’. The period is 24 months after the end of the month in which the second deceased died, or, (if it ends later) the period of 3 months beginning with the date on which the personal representatives first acted as such.

If you would like to find out more about the transferable nil rate band, please feel free to contact us for a no obligation discussion or complete the Enquiry form.