A transferable nil-rate band arises when one party to a marriage or civil partnership dies, and the amount of their estate chargeable to IHT does not use up all of their nil rate allowance. In such circumstances, the unused relief can be transferred to the surviving spouse or civil partner when they subsequently die. The effective rate is that applicable at the date of death of the second to die. It only applies to deaths occurring after 9th October 2007 and has yet to be ratified by the Finance Act 2008. It is therefore prudent to keep details of the first person to die's estate, as such evidence will be required by HMRC when making such a claim.

Do I need a new will, in particular if I have a Nil Rate Band Discretionary Will trust in my existing will?
Not necessarily. If the trustees are agreeable, they may wish to appoint all the assets of the trust to the surviving spouse within two years of the first to die, and for IHT purposes, it is read back into the will as if the deceased left the whole estate to their spouse (utilising the spouse exemption). On the second death, the PR's can apply for the transferable nil rate band. By winding up a trust in this way, the nil rate band available at the date of the first would be enhanced by that available at the date of the last to die.

A widow(er) who has remarried is also able to use any unused portion of their deceased spouse's nil rate band, but the maximum that can be added is 100% of the nil rate band applicable at their death - £600,000 in tax year 2007/08 i.e. 2 x £300,000 (the current IHT allowance).

Iain Robson, a partner at Close Thornton, specialises in this area.
Please contact iain.robson@close-thornton.co.uk for individual advice.

BACK