Transferable Nil Rate Band: the facts

Learn the practical steps surrounding the transfer of the inheritance tax nil rate band.

Background

Since 9 October 2007, it has been possible to transfer any unused percentage of the inheritance tax (IHT) nil rate band (NRB) from a deceased spouse or civil partner to the surviving spouse or civil partner. The ‘transferable NRB’ is available to survivors of a marriage who die on or after 9 October 2007, regardless of when the first spouse died. For civil partners, the first death must have occurred on or after 5 December 2005, the date the Civil Partnership Act became law in the UK.

No transfer is possible where the first death occurs after the couple have divorced. If first death was before 1975, the full NRB may not be transferable as the amount of spouse exemption was then limited.

For the remainder of this bulletin, any references to marriage, married couples or spouses, will apply equally to registered civil partnerships and civil partners.

The transferable NRB legislation can be found in IHTA84/S8A–C.

HMRC has details of the thresholds back to 1914.

Note that this article doesn’t consider the provisions of the main residence NRB.

How to claim

A formal claim must be made when the surviving spouse dies and not when the first spouse dies. HMRC should not be contacted on first death to agree the transferable NRB.

When the claim is made after second death, the appropriate form is provided by HMRC IHT402.

The time limit for claiming is generally 24 months from the end of the month in which the surviving spouse died. Form IHT402 and the supporting documents will therefore be sent to HMRC by the personal representatives, together with IHT400, after second death.

Where the time limit is approaching, HMRC may allow the personal representatives to make a provisional claim if they are having difficulty getting all the supporting documents. In this regard note that,

• a copy of a grant of representation or confirmation and copy wills are available from the Court Service (for England & Wales, for Scotland and for Northern Ireland); and
  
  
• copy death certificates are available from the General Register Office (for England & Wales, for Scotland, and for Northern Ireland).

Where the personal representatives do not make a claim to transfer unused NRB – perhaps because there is no need to take out a grant – any other person liable for tax on the survivor’s death, for example, the trustees of a settlement or the donee of a gift, may make a claim, but only when the initial period for claim by the personal representatives has passed.

Where a valid transfer claim is made, the NRB of the surviving spouse is increased by the proportion of the NRB unused on first death, even if that person has been married on more than one occasion. The size of the estate of the first deceased is irrelevant.

For example, Janet died in 2008/09 when the NRB was £312,000. She left £156,000 to the children and everything else to her husband John who subsequently died when the NRB was £325,000

• 50% of Janet’s NRB was unused.
  
  
• John’s NRB may be increased by 50% to £487,500.

Consider also Tom who died in 2007/08 when the NRB was £300,000. The value of his estate was Nil. His surviving spouse Geraldine died when the NRB was £325,000.

• 100% of Tom’s NRB was unused.
  
  
• Geraldine’s NRB may be increased by 100% to £650,000.

More than one marriage

The survivor’s NRB can never be increased by more than 100%.

Examples of second marriage and impact on survivor’s NRB

Non-exempt gifts made by the deceased in the seven years before death

On an individual’s death, IHT is calculated in a chronological manner. Accordingly gifts made will eat into the NRB available at death and consequently reduce the amount available for transfer.

Records which should be kept after first death

After first death the personal representatives should calculate how much of the NRB is transferable, and advise the surviving spouse accordingly. Records to be kept in support of that claim may comprise of:

• a copy of the IHT200/400, IHT205 (C5 in Scotland) or full written details of the assets in the estate and their values
  
  
• death certificate
  
  
• marriage certificate
  
  
• copy of the grant of representation (Confirmation in Scotland)
  
  
• copy of the will, if there was one
  
  
• a note of how the estate passed if there was no will
  
  
• a copy of any deed of variation or other similar documents where appropriate
  
  
• any valuations of assets that pass under Will or intestacy other than to the surviving spouse or civil partner
  
  
• the value of any other assets that also passed on death (e.g. jointly owned assets, assets held in trust in which the deceased had a qualifying interest in possession and gifts made in the seven years prior to death
  
  
• any evidence to support the availability of relief (such as agricultural or business relief) where the assets pass to someone other than to the surviving spouse.

Although HMRC do not expect taxpayers to provide all this material in support of a claim, it will nevertheless be easier to make the claim if these documents are gathered.

Where the first death was many years ago, the supporting evidence may not always be available. Where records don’t exist, personal representatives are entitled to complete the claim to the best of their ability and based on the information available. Provided there is no evidence that any other assets were chargeable, HMRC can accept the claim.

Surviving spouse makes a chargeable lifetime transfer (CLT)

Consider a surviving spouse who makes a lifetime transfer into a discretionary trust exceeding the NRB. As the gift exceeds the NRB, lifetime IHT at 20% will be due on the excess. It is not possible to reduce lifetime tax payable by claiming that the NRB is higher due to a transferable NRB from first death.

Unused NRBs can only be transferred against the survivor’s estate on death.

Domicile

From 6 April 2025, the existing rules for the taxation of non-UK domiciled individuals ended. The concept of domicile as a relevant connecting factor in the UK tax system is replaced by a system based on tax residence. The test for whether non-UK assets are in scope for IHT will be whether an individual has been resident in the UK for at least 10 out of the last 20 tax years immediately preceding the tax year in which the chargeable event (including death) arises.

All individuals whether resident or not, are entitled to a Nil Rate Band of £325,000.

Under the Pre 6 April 2025 rules, the non-domiciled spouse or civil partner of a UK domiciled individual could elect to be treated as deemed UK domiciled for IHT purposes. This meant that transfers from their spouse or civil partner could benefit from an uncapped exemption. Also, the non domiciled spouse or civil partner was treated as UK domiciled for transfers made by them

From 6 April 2025, the election rules are amended so that the spouse or civil partner of a long-term resident who is not themselves long-term resident can elect to be treated as long term resident. The election will last until 10 consecutive tax years of non-residence has elapsed.

After 6 April 2025, it will still be possible to make a domicile election which covers a period prior to 6 April 2025. In this case, the spouse making the election will be treated as deemed UK domiciled until 5 April 2025 and then long-term resident from 6 April 2025 until 10 consecutive tax years of non-residence have elapsed.

Elections made before 30 October 2024 will remain in place, with the spouse making the election treated as deemed UK domiciled until 5 April 2025 and then long-term resident from 6 April 2025 until 4 consecutive tax years of non-residence have elapsed.

Once an election has lapsed due to the requisite period of non-residence, the electing spouse’s IHT position going forward will depend on whether they satisfy the long-term residence test.