When the Chancellor announced the “Transferable Nil Rate Band” many couples thought
that was the end of worrying about Inheritance Tax. Don’t be caught out by a false
sense of security.
These IHT rules were brought in for anyone passing away on or after 9th October 2007.
If they had been previously widowed (at any date) and their late spouse (or civil
partner) did not exploit all of their own IHT-free allowance (the ‘NRB’) then the
unused proportion of the allowance can be transferred to offset IHT on the 2nd estate.
As ever with tax rules there are regulation around this, but for most married couples
it means that the first to go can leave everything to the survivor and then the survivor’s
estate can have 2 NRBs available to offset against IHT. In addition, unused elements
of the new Residence Nil Rate Band (available from April 2017) can be transferred
to a legal spouse.
A critical factor is that this transfer does NOT happen automatically. The Executors
on the 2nd estate have to claim the transfer. They have to show that the 1st estate
did not use its NRB or RNRB, which means that they need the paperwork from the administration
of the 1st estate. So often this paperwork is minimal and perhaps was not kept at
all. Therefore it is all the more important to handle probate and estate administration
carefully and this places an extra burden on whoever acts as Executor - even when
it is simply a couple leaving everything to each other.
Even if transfer of allowance is successful in saving IHT it does nothing to protect
family assets against other attacks. That is why it is still important to make appropriate
Wills, such as with Trusts, to protect your family’s inheritance for the future.