When someone dies, the first £325,000 of their estate is exempt from Inheritance Tax (IHT).
If they don’t use all of this allowance, it can be transferred to their spouse’s or civil partner’s estate in due course. This is known as the transferable nil rate band.
This increases the exempt amount for the partner’s estate when they die, meaning they could have a potential IHT threshold of up to £650,000.
The relevant dates
The transfer of the nil rate band can be applied for if the remaining spouse or civil partner died on or after 9 October 2007.
In respect of civil partnerships, the transferable nil rate band can be claimed only if the first partner died on or after 5 December 2005, the date that the Civil Partnership Act became law.
How much nil rate band is transferable?
Where the first spouse or partner to die leaves all of their assets to the remaining spouse or partner, no IHT is payable, so the entire £325,000 can be passed to the remaining spouse, subject to the deduction of any non-exempt gifts made during the previous seven years.
How to apply to transfer the nil rate band
Two forms need to be sent to HM Revenue & Customs (HMRC). The first is the standard IHT form, while the second is the application to transfer the unused allowance. There are two options for this second form.
Form IHT217 Claim to Transfer Unused Nil Rate Bank for Excepted Estates
This form should be used when the estate of the first person to die is an excepted estate, ie. IHT was not payable, for example where the estate is worth less than £325,000 or where the assets are left to charity.
Form IHT402 Claim to Transfer Unused Nil Rate Band
Where some of the £325,000 IHT allowance was used by the estate of the first spouse to die, then only the remaining balance can be transferred to benefit the second estate. Other financial information will need to be included on the form, for example gifts made within the last seven years and pension details.
Both forms need to be signed by the estate Executor or Administrator and sent to HMRC together with the main IHT form, IHT400.
A probate lawyer will be able to work out the correct figures to be included on the form, which isn’t always straightforward, for example in the case of disposal of cash or assets by the deceased prior to their death or where gifts are made to charities, which could potentially reduce IHT liability.
To speak to one of our probate specialists, ring us on 0117 952 0698 or email us at firstname.lastname@example.org.