Nil rate bands Flashcards
Do all individuals have a NRB for IHT purposes?
Yes
What is the basic NRB?
£325,000
(the first £325,000 of a transfer subject to IHT is taxed at 0%)
Can an individuals surviving spouse/civil partner inherit the unused portion of their basic NRB?
Yes - aka TNRB
What is the current additional NRB for individuals who leave their family home to direct descendants?
£175,000 - aka RNRB
Can RNRB be transferred to an individuals surviving spouse/civil partner?
Yes
Before 9 October 2007 - would the basic NRB be wasted when a deceased passed their estate entirely to their surviving spouse?
Yes - because spouse exemption applied there was no use for the NRB
Individuals would often try to make the most of both NRBs by leaving a portion of their estate to other family members or setting up trusts - what were they known as?
Nil rate band trusts
What are nil rate band trusts?
discretionary trusts which cover the amount of the NRB & include the surviving spouse as a potential beneficiary - this allows the survivor to benefit without the trust property forming part of their estate for IHT purposes
Where one spouse held the bulk of the couples assets - what would they often be advised to do?
To try and equalise their estates, to ensure both had enough assets to make the most of their own NRB
(become less common since the intro of the TNRB in the Finance Act 2008)
What does the TNRB allow?
Allows a surviving spouse to take advantage of the unused portion of the deceaseds basic NRB
How does the TNRB work?
If a married individual dies and some or all of their NRB remains unused, the PRs of the surviving spouse can claim an increase in the survivor’s NRB equal to the unused percentage of the first spouse’s NRB - the TNRB
Is the TNRB the unused amount carried forward?
No it’s equal to a % of the NRB sum on the date the survivor dies
- this operates in favour of the taxpayer because the estate of the surviving spouse will benefit from any increase in the NRB threshold which occurs after the first death
Example…
- If the NRB was £312,000 when the first spouse died but had increased to £325,000 by the time the second spouse died, the amount of the TNRB would be calculated with reference to £325,000 not the lower figure of £312,000.
- Therefore, if the first spouse to die had used 50% of their NRB, when the second spouse died the transferable amount is £162,500.
If the NRB amount hasn’t changed between the date of the first & second death - will the unused amount and unused % be the same?
Yes
The TNRB is only available when…
the surviving spouse dies
Can a TNRB be claimed in respect of a chargeable lifetime transfer when it’s made by the survivor?
No
Does the date of the first spouses death matter?
No - ie it can predate the intro of the TNRB…the TNRB can apply provided the survivor’s death occurred after the intro of the TNRB
Can individuals who have survived more than one spouse claim the TNRB in respect of all of them?
Yes - subject to a cap of 100% of a full nil rate band being transferred
Can individuals who would be entitled to claim a TNRB with regards a previous marriage/civil partnership pass this on to any subsequent spouse they have?
Yes - capped at 100% of a full NRB
Example - outliving multiple spouses
- A and B were married. B later died. Following B’s death, 20% of his NRB was used (leaving 80% unused).
- A then married C. C later died. Following C’s death, 50% of his NRB was used (leaving 50% unused).
- A has just died.
A’s PRs can claim a TNRB from both B and C (80% from B and 50% from C). - However, the total is capped at 100% (one full NRB of £325,000)
- A’s PRs can claim A’s own NRB plus 100% TNRB (from B/C), thus increasing A’s NRB from £325,000
to £650,000.
Example - outliving multiple spouses
- D and E were married. E later died. Following E’s death, 90% of her NRB was used (leaving 10%
unused). - D then married F. F died later. Following F’s death, 70% of her NRB was used (leaving 30% unused).
- D has just died.
D’s PRs can claim a TNRB from both E and F (10% from E and 30% from F).
D’s PRs can claim D’s own NRB plus 40% TNRB (from E and F), thus increasing A’s NRB from £325,000 to £455,000
(£325,000 + £130,000 (40% of £325k))
Example - passing TNRB to new spouse
a) A died 15 years ago, survived by wife, B. A left all assets to B, meaning A’s NRB was unused.
b) B married C five years ago.
c) B died two years ago, leaving her entire estate to the children from her first marriage. 50% of her NRB remained unused. B’s PRs didn’t need to claim TNRB from A because B didn’t use her whole NRB.
d) C died recently, leaving his estate (worth £700,000) to his siblings. He has a full NRB available.
- C’s NRB doesn’t cover the full value of his estate. His PRs will therefore want to claim the TNRB from B’s estate.
- B’s total available NRB included B’s own NRB (of which 50% remained unused) and A’s full NRB, to which B’s estate was entitled but did not claim (worth £325,000).
- The claim by C’s PRs for a TNRB will be capped at one full NRB. C’s PRs can increase C’s NRB to £650,000, but no more, even though B’s total ‘available but unused’ NRB would be worth more than £325,000.
Does a claim need to be made when the first spouse dies?
No
Within how long must the PRs of the surviving spouse make a claim for the TNRB in the IHT return?
Within two years of the end of the month of death (or within three months if the PRs first acting, if this is later)
- if they fail to do so, anyone else who’s liable to pay the IHT on the surviving spouses death can make the claim after the deadline for the PRs to make the claim
