By Probate Case Manager, Angela Mui
In England and Wales, the first £325,000 of everyone's taxable Estate is free from Inheritance Tax. If this allowance is not used up and the deceased's spouse or civil partner dies after them, the remaining allowance can be transferred to the second spouse's Estate. This is called the transferable nil rate band.
This article explains how to claim the transferable nil rate band, including which Inheritance Tax forms to complete and what information to provide.
For free initial advice and guidance call our Probate Advisors on 03306069584 or contact us online and we will help you.
What is the Nil Rate Band and Transferable Nil Rate Band?
Upon death, whether a person's Estate is subject to Inheritance Tax depends on the value of their taxable Estate and who is benefiting from it. The limit as to when Inheritance Tax becomes payable on an individual's Estate is usually £325,000 and this is known as the nil rate band.
If the value of the entire taxable Estate is less than £325,000 then there is normally no Inheritance Tax to pay. If the value of the taxable Estate is over £325,000 then the Estate is potentially subject to Inheritance Tax.
If there is any unused nil rate band from the Estate of the predeceased spouse, this can be applied to the Estate of the spouse who died second. This is known as the transferrable nil rate band.
The transferable nil rate band means that the Inheritance Tax threshold of £325,000 can potentially be increased up to £650,000.
Claiming the Transferable Nil Rate Band
The transferable nil rate band can be claimed by the Estate of someone who was married or in a civil partnership, if their spouse or partner died before them and didn't use up their full allowance.
With married couples, the transferable nil rate band is available when the second spouse has died on or after 9 October 2007, even though the first spouse might have passed away before this date. With civil partners, the transferable nil rate band is only available if the first partner died on or after 5 December 2005. This is the date that the civil partnership laws came into force.
The first step in applying the transferable nil rate band will be to determine how much of this is available. The starting point here would be to look at the pre-deceased spouse's Estate. If they had a valid Will leaving everything either to their spouse or charity, and they had done nothing else to affect the availability of their nil rate band, the full transferable nil rate band would normally be available. This is because spouses and charities are classed as exempt beneficiaries.
If a person passed away without leaving a Will, the rules would be slightly different and it would be best to speak to a Probate Specialist about this. Once you have established whether there is a full or partial transferable nil rate band available, the relevant form will need to be completed. It is important to note that the transferable nil rate band must be claimed within 24 months from the end of the month in which the second spouse or civil partner passed away.
Inheritance Tax Forms for Claiming Transferable Nil Rate Band
There are 2 different Inheritance Tax forms relating to the transferable nil rate band which are used during Probate: IHT217 and IHT402. For more information, see Which Inheritance Tax Form Do I Need to Apply for Probate?
To claim the transferable nil rate band, an additional form will need to be completed and submitted alongside the main Inheritance Tax form. Which one you need will depend on whether the first Estate was an 'excepted Estate' or not.
IHT217 - Claim to Transfer Unused Nil Rate Band for Excepted Estates
The IHT217 form is to be used when the first Estate is an excepted Estate (this is often the case where no Inheritance Tax was payable) and the whole nil rate band is available.
Excepted Estates are Estates where the gross value of the Estate for Inheritance Tax purposes is less than or equal to:
- The excepted Estate limit (currently £325,000)
- twice the excepted Estate limit and a claim to transfer unused nil rate band (form IHT217)
- £1 million and there is no Inheritance Tax to pay because of spouse, civil partner or charity exemption
The form asks for the first spouse's or civil partner's details along with their date of death and if a Grant of Representation was taken out for their Estate. It then asks for the date and place of marriage or civil partnership (which can be found on the marriage certificate or civil partnership certificate). Details then need to be provided about the first spouse's or civil partner's Estate.
The next section relates to the transfer of the unused nil rate band, including confirmation of the second spouse or partner's nil rate band (which is currently £325,000). The two nil rate bands are then combined, bringing the total to £650,000. The form must be signed by the Executor or Administrator in the Declaration section and would accompany the IHT205 Inheritance Tax form.
IHT402 - Claim to Transfer Unused Nil Rate Band
If the predeceased spouse used some of their nil rate band, for example by leaving part of their Estate to non-exempt beneficiaries, the full transferable nil rate band will not be available. However, the unused proportion of nil rate band can be transferred using the IHT402 form.
This form asks for details about the spouse or civil partner who died first. If they left a Will, a copy of the Will is to be sent with the form and the net value of their Estate needs to be stated. The next section calculates the transferable nil rate band available on the first spouse's Estate.
Any lifetime gifts or legacies will need to be detailed here, and exemptions and reliefs can also be taken into account. The form will also ask for pension information. The form must be signed by the Executor or Administrator in the Declaration section and would accompany the IHT400 Inheritance Tax form.
To speak with a Co-op Probate Advisor call 03306069584 or contact us online and we will call you.