Every person has their own nil rate band (NRB). This is the amount that can be distributed on their death without inheritance tax being payable. Since 9th October 2007, an unused NRB from a deceased spouse can also be claimed when the surviving spouse dies.
There are a number of misconceptions about the transferable NRB that we wish to make clear.
How much is available to be transferred?
The amount available to be transferred is calculated on the basis of what percentage was used. That percentage is then applied to the value of the NRB at the date of second death.
For example, Bob died in August 2006 when the NRB was £263,000. He left £65,750 worth of assets to his daughter and everything else to his wife Ann. 25% of his NRB would be used on his death to cover the assets passing to his daughter, leaving 75% available to be transferred.
Ann died in August 2018. Ann’s personal representatives can claim both her own NRB of £325,000, plus T1’s 75% unused NRB, which at the date of T2’s date is a further £243,750. This gives T2 a combined allowance of £568,750.
It is irrelevent how much assets the late spouse had or how much they transferred to their spouse. All that is relevant the percentage of NRB that was used on the late spouse’s death.
When must the first spouse have died?
Full NRB can only be transferred where the first spouse’s death occurred on or after 13 March 1975. There may be limited transferable NRB where first death occurred between 21 March 1972 and 12 March 1975. There will be no transferable NRB available where first death was before 21 March 1972. These limitations are due to changes in the tax regime in previous years.
For civil partners, first death must have occurred after 5 December 2005 when the Civil Partnership Act 2004 came into effect.
Is the transfer completed automatically?
Transferable NRB is not transferred automatically. The personal representatives of the surviving spouse will need to apply to have a NRB transferred within two years of the surviving spouse’s death.
No claim is required on first death, although detailed records should be kept.
The testator has been widowed multiple times, how many transferable NRB can they claim?
If the surviving spouse has been widowed multiple times, the personal representatives will be able to claim multiple unused NRB. The claims however are limited to the value of one additional NRB.
For example, a deceased has been widowed twice. Her first husband left a 70% unused NRB. Her second husband left a 50% unused NRB. Although her executors would need to make a claim for both NRBs, the maximum they could claim is 100%, even though there was an additional 20% unused.
The testator was married to someone who was entitled to transferable NRB. How much can they claim?
If the first spouse to die had survived a previous marriage and was entitled to an unused NRB from their previous spouse, when considering how much transferable NRB the surviving spouse is entitled to on second death it is possible to consider that previously unused transferable NRB from the late spouse’s first marriage.
If the first spouse’s personal representatives did not claim the unused NRB from the first spouse’s earlier marriage, the personal representatives on the second death should be able to make the claim as long as it does not affect that tax that was payable on the first spouse’s death.
The calculation to work out how much NRB is unused is easier to demonstrate using an example.
Jeffrey dies leaving most of his estate to his wife Audrey. He leaves an 80% unused NRB. Audrey later marries Frank. Audrey dies in 2017 with an estate of £400,000. She left 25% of her estate (£100,000) to her children the remainder to Frank.
On Audrey’s death her executors would be entitled to transfer Frank’s 80% unused nil rate band to her. Her available NRB for this purpose is £325,000 + (£325,000 at 80%) = £585,000.
Combined NRB (£585,000) – chargeable transfers (£100,000) = £485,000
485,000 as a percentage of the NRB value at death (£325,000) = 137.98490 %
The maximum NRB that can be transferred is limited to 100%. Therefore, Audrey’s unused NRB is 100%. When Frank dies, his executors could claim 100% unused NRB from Audrey.
(*all references to a spouse, apart from in section 2, include a civil partner.)