Transferability of Unused Nil-Rate Band Print
Any unused nil-rate band arising on the death of the first spouse may be claimed by the estate of the surviving spouse, irrespective of the date on which the first spouse died. The additional relief is based on the lifetime allowance at the time of the survivor’s death.
Darby died in May 1999 when the Nil-rate band was £231,000. He left £103,950 (45% of the lifetime allowance) to his children, and the balance of his estate to his wife, Joan. He had made no other lifetime transfers during the 7-year period prior to his death. Joan dies in January 2022 when the Nil-rate band is £325,000. She has not made any lifetime transfers. On Joan’s death, her estate will be able to claim her full Nil-rate band of £325,000, plus the balance of Darby’s allowance, which amounts to 55% of the Nil-rate band at the time of Joan’s death, being £178,750, making a total allowance of £503,750. Assuming Joan is not entitled to any other reliefs, or exemptions, the balance of her estate is chargeable to IHT at 40%.
Where the surviving spouse has been married more than once, there is a restriction to the amount of additional Nil-rate band that may be accumulated, and this is restricted to the value of the Nil-rate band in force at the date of death of the survivor. Accordingly, the maximum amount of unused Nil-rate band that can be claimed by the estate of the surviving spouse is £325,000.
The transferability of the unused lifetime allowance to the surviving spouse reduces the need to consider transferring assets to children or remoter relatives before the death of the surviving spouse. In particular, with smaller estates, this means that it is no longer necessary to enter into arrangements such as owning the family home as tenants-in- common to protect the couple’s main home from IHT.
Consideration should still be given to transferring assets where the survivor has substantial wealth, or where certain assets have relatively low values, and it is expected that they could increase in value significantly before the death of the survivor, and the survivor has no need for those assets.