Inheriting a nil-rate band: making the process easier
Many people have not caught up with the change in the inheritance tax (IHT) rules, allowing people to inherit their deceased spouses’ nil-rate bands (NRBs). It is common for people to leave all their assets to their spouse or civil partner when they die. This used to mean losing any unused part of their NRB, which allows the first part of an estate, currently £325,000, to be free of IHT.
Since the law changed in October 2007, any part of the NRB not used at the first spouse’s death can be added to the surviving spouse’s own NRB (even if they died before October 2007). When the surviving spouse dies, it is up to their executors to claim any unused portion of the NRB from the first spouse, plus the full NRB of the second one.
HMRC has recently stated that up to 80% of estates fail to provide the evidence needed to support their claim. It has also said that it will not process a claim until it receives the necessary documents. The Probate Office will not issue a grant of probate until clearance from HMRC is received, so this too can be held up.
Anyone who has been widowed and is not sure whether their spouse had any unused NRB to transfer may wish to take action now to avoid important information and documents being lost.
The transferable NRB can work in unexpected ways. For example, if Mukesh dies leaving all his estate to his wife Sunita, his NRB for IHT remains unused. Sunita remarries and on her death her new (surviving) spouse claims both her unused NRB and that of her previous spouse, Mukesh. Be aware of the need for professional advice if a member of your family has remarried after the death of their first spouse.
An unused NRB may be transferred to a surviving spouse to save on IHT. To ensure that this is achieved without any problems, let us help you calculate the proportion of NRB unused by the first spouse. It is also a good idea for the relevant IHT form to be kept with your will and to have extra copies for your family and executor.