Inheriting a nil-rate band: making the process easier
Autumn 2009
Many people have not caught up with the change in the inheritance tax (IHT) rules, allowing people to inherit their deceased spouses' nil-rate band (NRB). 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 the NRB.
The NRB allows the first part an estate, currently £325,000, to be free of IHT. However, the law changed on 9 October 2007.
Since then, any part of the NRB that has not been 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 amount of the second one.
The claim for any balance of NRB from the first spouse should be submitted to HM Revenue & Customs (HMRC) following the death of the surviving spouse. The claim must be made within 24 months from the end of the month in which the second spouse died. As well as the appropriate forms, HMRC expects the executors to send evidence proving that some or all of the unused NRB can be transferred.
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. Because a grant of probate will not be given by the Probate Office until clearance from HMRC is received, this too can be held up.
Apart from the form, to make a successful claim for the transfer of an NRB the following documents must be supplied: the first spouse’s will, if there was one; a copy of any deed of variation, if one was used to vary that will; and a copy of the grant of probate on the first death, or the death certificate, if no grant was taken out.
As some of these may have originally been issued many years ago there is a fair chance they could have gone astray. Your proof does not have to be the original documents or official copies, certified copies will do: copy documents can be obtained from the General Register Office. Your family solicitor may also have copies of these documents, and if so they can issue a certified copy (ask about the cost first).
Anyone whose spouse has died and is not sure whether their spouse had any unused NRB to transfer should take action now. This should avoid important information and documents being “lost in the mists of time”.
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 can claim 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 can be transferred to a surviving spouse to save on IHT. We can help you to calculate the proportion of NRB unused by the first spouse, complete the relevant IHT form to keep with your will, and provide additional copies for your family and executor.
