The Nil Rate Band (‘NRB’) is a straightforward concept. However, this basic idea is getting ever more complicated and specialist advice is often needed.
An individual’s estate is subject to Inheritance Tax (‘IHT’) at 40% to the extent that it exceeds the NRB (currently £325,000). Other IHT exemptions and reliefs may apply, but the first £325,000 of an otherwise taxable estate is taxed at 0%.
It is now just over nine years since the Transferable Nil Rate Band (‘TNRB’) was introduced on 9th October 2007, whereby the unused proportion of the NRB of a deceased spouse or civil partner can be transferred to the surviving spouse or civil partner’s estate. The measure has led to IHT savings for many families, but thought is needed in certain cases to ensure that TNRBs are not wasted or disregarded.
A TNRB can be claimed by the executors of the survivor of a marriage or civil partnership, regardless of how long ago the first spouse died, and regardless of whether or not the survivor has remarried. It is possible to make successful claims in cases where the first spouse died many years ago and there are no records held by the family or H M Revenue & Customs. In cases where the survivor has remarried, care must be taken not to waste the first spouse’s TNRB. No-one can inherit more than one full TNRB, so if a person dies having outlived two spouses, they will only be able to claim one TNRB, not two. However, careful planning when drafting Wills can ensure that all possible NRBs are used.
The Residence Nil Rate Band (‘RNRB’) and Transferable Residence Nil Rate Band (‘TRNRB’) are set to complicate matters further. The RNRB will come into effect in April 2017, starting at £100,000 and increasing by £25,000 per year until it reaches £175,000 in April 2020. It will be available to individuals who leave a residence on death to direct descendants (widely defined to included step-children and foster children and certain types of trusts for descendants), but the allowance will be tapered where the net value of the deceased’s estate exceeds £2m. There are downsizing provisions which will come into play where the deceased owned a house which would have qualified, but sold it or downsized after 8th July 2015. It will be possible to claim the unused RNRB of a deceased spouse, including those who died before the introduction of the RNRB. In order to make full use of the tax savings offered by RNRB, however, much thought and care is needed in the drafting of Wills, and estate planning may be required in cases where the £2m taper threshold might be exceeded.
For more information, please contact the partner having responsibility for your affairs or any partner in the Private Client Department.