Transferring your NRB to a surviving partner
In the pre-budget report of October 2007, Alistair Darling introduced the Transferable Nil Rate Band.
In the case of a married couple or Civil Partners the NRB can be transferred to the survivor IF NOT used up by the first to die. The survivor inherits the tax free band at the level it is when the surviving spouse dies and not at the level it was when the first spouse died.
Example 1: Husband and wife both make Wills leaving everything to the other. Husband dies 1 May 2007 (when NRB was £300,000). Wife dies in 2020 when NRB might be £350,000. Wife has a combined nil rate band of £700,000 (not £650,000).
Example 2: Civil Partners’ Wills leave £150,000 to siblings on first death. Partner 1 dies 5 May 2007 (when NRB was £300,000). The gift to his siblings uses half of his NRB – the other half is transferred to Partner 2. Partner 2 dies in 2020 when NRB might be £350,000. Partner 2 has a combined Nil Rate Band of £525,000 (1.5 x £350,000).
This applies to all existing widows/widowers/civil partners where their spouse/civil partner has already died irrespective of the date of death. It would seem that there can only be one carry-forward in the case of those who marry more than once.
There are many advantages to still incorporating the Nil Rate Band Trust into both wills. Some key benefits are summarised below but a full list of these benefits can be viewed here:
- You can 100% guarantee that both NRBs will be used. Under the new rules the personal representative of the second to die has to make a claim for the NRB of the first to die – it is not “a given”. Documentation from first death must be provided including marriage or civil partnership certificate, death certificate, Will and IHT account. With deaths that are many years apart this documentation may not be available which could, therefore, lead to an unsuccessful claim.
- Growth of assets held in the trust fund will be held outside of the estate of the second to die and will not, therefore, be taxed at 40% (although there is the potential for a charge to IHT every 10 years of around 6%).
- Ringfencing the Nil Rate Band from claims against the surviving spouse, e.g. the Local Authority should the survivor need long term care, creditors or a spouse from subsequent remarriage.
- Keeping the estate of the survivor below the taper threshold above which their estate would fail to qualify for the Residential Nil Rate Band.