These inheritance tax (IHT) rules apply for anyone passing away on or after 9th October
2007. If they had been previously widowed (at any date) and their late spouse did
not exploit all of their own IHT-free allowance (the ‘NRB’ or the equivalent for
the tax rules that applied at the time) then the unused proportion of the allowance
can be transferred to offset IHT on the 2nd estate.
What does that mean? Well, for most married couples (or legal Civil Partners) it
means that the first to pass away can leave everything to the survivor and then the
survivor’s estate can use both NRB allowances to offset against IHT (that is a total
of £650,000, based on the current level of the NRB).
As ever with tax rules there are regulations around this and it does NOT happen automatically.
The Executors on the 2nd estate have to claim the transfer. They have to prove that
the 1st estate did not use its NRB, which means that they need the paperwork from
the administration of the 1st estate. All too often this paperwork is minimal and
perhaps was not kept at all. Therefore it is all the more important to handle probate
and estate administration carefully and this places an extra burden on whoever acts
as Executor - even when it is simply a couple leaving everything to each other.
Even if the Transferable NRB does save IHT, it does nothing to protect family assets
against other attacks. That is why it is still important to make appropriate Wills,
such as with Trusts, to protect your family’s inheritance.
There are special circumstances where it is possible for a couple exploit 3 or even
4 NRB allowances - i.e. where either or both of the couple have been previously widowed
from an earlier marriage and their first spouse did not exploit their NRB allowance
and the couple now create special Wills with IHT-saving trusts in them. If you think
this could apply to you then you definitely need our detailed advice.
When the IHT rules were changed many newspapers said that the Nil Rate Band for couples
had doubled. That was misleading and could cause any families to miss out on their