BOGOF for Inheritance Tax - The Transferable Nil Rate Band

Nil rate bands - now you can ‘Buy–One–Get–One-Free’– otherwise known as the transferable nil rate band (NRB).

Most people will probably be aware of the proposals effectively to double the NRB for married couples and civil partners.  The individual NRB is now £312,000 (going up to £350,000 in 2010/11) so potentially married couples (and civil partners) could leave up to £624,000 (£700,000 in 2010/11) between them without paying inheritance tax - but this is not automatic.

The proposals, if passed into law when the Finance Bill receives the Royal Assent, will make it possible to transfer the unused proportion of the NRB, when the first spouse dies, to the surviving spouse so it can be used on the second death. The actual amount that can be transferred depends on how much of the NRB was not used on the first death. The unused NRB has to be claimed by the executors within two years of when the second spouse dies. This is done by completing a claim form and filing supporting evidence so that HM Revenue & Customs can calculate how much NRB is available to transfer on the second death.  HMRC will need copies of:-

• Any Inland Revenue account filed on the first death (or details of the assets in the estate and their values if no account was filed) ;
• Death and marriage or civil partnership certificates;
• Grant of Probate;
• The Will (or note of how the estate passed if there was no Will);
• Any Deed of Variation;
• Valuations of any assets that did not pass to the surviving spouse;
• Values of jointly owned assets, assets held in trust and gifts made in the seven years before the first death;
• Evidence to support claims for reliefs (other than Spouse Exemption) where the assets did not pass to the surviving spouse.

The executors of the first spouse to die should work out how much of the NRB is transferable and ensure that the surviving spouse is given sufficient information and documents to support the claim that could be made when they die. 

There are going to be many cases where the first spouse died some years ago and some of these documents and information will have been lost or disposed of. I would advise that surviving spouses start looking for these papers and information and get copies of any that are missing. It could be a lot harder for executors to get the information they need when both parties to the relationship have died.

You also need to remember that just because the NRB has effectively been “doubled” does not mean you no longer need to make a Will. You make a Will to ensure you control the disposition of your estate, provide for your family and dependants and make the most of tax-saving opportunities  – do not assume the transferable NRB deals with everything. You still need to take responsibility for your own affairs and the best way is to make a Will.

Julie Sou is a solicitor specialising in probate, wills and trusts.  To contact Raworths telephone 01423 566666 or visit our offices at Eton House, 89 Station Parade, Harrogate, HG1 1HF. Alternatively you can email Julie - julie.sou@raworths.co.uk.