Unused Nil Rate Band can offer a vital means to reduce the level of inheritance tax that could have to be paid on the value of an individual’s estate. Laura Richardson explains more in her latest article . . .

Inheritance Tax is applied to the value of your estate after you die. Thankfully everyone is entitled to a tax-free allowance or ‘Nil Rate Band’ on their Estate. Currently, the Nil Rate Band stands at £325,000, and therefore if your Estate is worth less than this, there will be no Inheritance Tax due. However, if your Estate is worth more than £325,000 then Inheritance Tax will be charged on the portion above this value.

It is possible to transfer any unused Nil Rate Band from a deceased spouse or a civil partner to count towards your own Nil Rate Band after you die, however, strict conditions apply in order to be granted additional Nil Rate Band:

  • This additional relief only applies to married couples or couples in a Civil Partnership. Cohabiting couples do not qualify.
  • For married couples, the relief only applies where the surviving spouse died on or after 9th October 2007.
  • For those in a civil partnership, the first death must have occurred on or after the 5th December 2005, which is the date that the Civil Partnership Act was brought into force in the UK.
  • In either case, there can be no transfer of Nil Rate Band where a couple had divorced.
  • The transferable portion of unused Nil Rate Band can be up to 100%, effectively doubling the Nil Rate Band for the most recently deceased spouse or partner!
  • The transferable unused Nil Rate Band is calculated as a percentage and applied at the rate of Nil Rate Band that is in effect at time of the surviving spouse or partner’s death. For example, if Jennifer died in 2007 using none of her Nil Rate Band which stood at £300,000 at the time, and her surviving spouse John died in 2020 when the Nil Rate Band rate stood at £325,000, John’s Estate can benefit from the unused 100% of Jennifer’s Nil Rate Band but this is applied at the 2020 rate meaning that the total Nil Rate Band for John’s Estate would be a whopping £650,000!

Interestingly, it is possible to transfer the unused Nil Rate Band from multiple people. For example, if Alison and Mark were married and Mark died in 2008 leaving 10% of his unused Nil Rate Band, and following this Alison married Jack who subsequently died leaving 25% of his Nil Rate Band unused, Alison’s Estate would be able to benefit from both of these Nil Rate Bands that were unused by both Mark and Jack respectively. It is worth reiterating here that the transferable unused Nil Rate Band cannot total more than 100%, so if Mark had left 50% unused and Jack had left 60% unused, Alison’s Estate would only benefit from the maximum possible transfer of 100%.

When it comes to Estate planning and utilising exemptions and reliefs it is important to be aware that there are strict penalties applicable for miscalculation of Inheritance Tax and therefore it is highly advisable to seek advice from a suitably qualified Solicitor with relevant experience in this field in order to avoid costly mistakes!

Whether you are acting as Executor for a loved one and need advice on calculating Inheritance Tax liability, or whether you are interested in finding out ways to minimise the Inheritance Tax liability for your own Estate, call Andrew Douglas Wills & Legal Services today! As specialists in this field we can ensure that you avoid any legal pitfalls and maximise the legacy that you leave your loved ones, so why not call today to arrange your free initial consultation

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