The law allows you to leave an estate worth up to £325,000 (2009/2010) without having to pay any Inheritance Tax upon it. This £325,000 is called the ‘Nil Rate Band’. After the first £325,000, or the Nil Rate Band, the remainder of your estate will be charged 40% Inheritance Tax (IHT).
From 9 October 2007, spouses and civil partners can transfer their Nil Rate Band allowances so that any part of the Nil Rate Band that was not used when the first spouse or civil partner died is transferred to the individual’s surviving spouse or civil partner for use on their death.
The transferable allowance is available to all survivors of a marriage or civil partnership who die on or after 9 October 2007, no matter when the first partner died/dies.
The increased Nil Rate Band does not replace the single Nil Rate Band available to the survivor that determines whether or not their estate is an excepted estate.
How the transfer will work
Where a valid claim to transfer unused Nil Rate Band is made, the Nil Rate Band that is available when the surviving spouse or civil partner dies will be increased by the proportion of the Nil Rate Band unused on the first death. For example, if on the first death the chargeable estate is £150,000 and the Nil Rate Band is £300,000, 50% of the Nil Rate Band would be unused. If the Nil Rate Band when the survivor dies is £325,000, then that would be increased by 50% to £487,500.
The amount of the Nil Rate Band that can be transferred does not depend on the value of the first spouse or civil partner’s estate. Whatever proportion of the Nil Rate Band is unused on the first death is available for transfer to the survivor.
Good Inheritance Tax Planning can help reduce or eliminate any IHT due by using exemptions and releiefs within the Inheritance Tax rules.