Unused NRB (Nil-Rate Band) can be very valuable for reducing the level of inheritance tax that may have to be paid in a given case. In her latest article, Laura Richardson explains the process for you . . .

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 NRB 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 the unused portion of NRB from a deceased spouse of civil partner to count towards your NRB after you die, however, strict conditions apply in order to be granted additional NRB:

  • 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 NRB where a couple had divorced.
  • The transferable portion of unused NRB can be up to 100%, effectively doubling the NRB for the most recently deceased spouse or partner!
  • The transferable NRB is calculated as a percentage and applied at the rate of NRB 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 NRB which stood at £300,000 at the time, and her surviving spouse John died in 2020 when the NRB rate stood at £325,000, John’s Estate can benefit from the unused 100% of Jennifer’s NRB but this is applied at the 2020 rate meaning that the total NRB for John’s Estate would be a whopping £650,000!

Interestingly, it is possible to transfer unused portions of NRB from multiple people. For example, if Alison and Mark were married and Mark died in 2008 leaving 10% of his NRB unused, and following this Alison married Jack who subsequently died leaving 25% of his NRB unused, Alison’s Estate would be able to benefit from both of these unused portions of NRB from Mark and Jack. It is worth reiterating here that the transferable NRB 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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