Tax Planning | March 20, 2024 — 3 Minute Read

The Transferable Nil Rate Band: Inheritance Tax Explained

Inheritance Tax (IHT) is a topic that can often be daunting and confusing, especially when navigating the various thresholds and exemptions. One crucial aspect to understand within the context of IHT planning is the Transferable Nil Rate Band (TNRB).

This provision allows married couples and civil partners to maximise their tax-free allowances, potentially reducing the burden of Inheritance Tax on their estate.

In this article, we’ll explore what the Transferable Nil Rate Band entails, how it works, and how you can claim it.

Understanding the Nil Rate Band (NRB) and the Residential Nil Rate Band (RNRB)

Before examining the Transferable Nil Rate Band, it’s essential to grasp the concept of the Nil Rate Band (NRB) and the Residential Nil Rate Band (RNRB).

Nil Rate Band (NRB): The NRB is the amount an individual can pass on their estate upon death without incurring any Inheritance Tax. As of the tax year 2023/2024, the NRB stands at £325,000.
Residential Nil Rate Band (RNRB): Introduced in April 2017, the RNRB applies to estates where the deceased owned a residential property that is passed on to direct descendants. This additional allowance is £175,000 as of 2023/2024.

What is the Transferable Nil Rate Band (TNRB)?

The Transferable Nil Rate Band (TNRB) allows a surviving spouse or civil partner to inherit any unused portion of their deceased partner’s Nil Rate Band.

How Does the Transferable Nil Rate Band Work?

When one partner dies and does not use the entirety of their Nil Rate Band, the unused portion can be transferred to their surviving spouse or civil partner.

This effectively increases the survivor’s Nil Rate Band, potentially providing a higher threshold before Inheritance Tax becomes payable on their estate.

For example:

If Partner A passes away and uses only £100,000 of their £325,000 Nil Rate Band, £225,000 remains unused.

Upon Partner A’s death, the unused portion of their Nil Rate Band (£225,000) can be transferred to Partner B.

Partner B’s estate will then have its own Nil Rate Band (£325,000) plus the transferred amount (£225,000), resulting in a total Nil Rate Band of £550,000 for Partner B.

*Note: When most or all of a person’s estate passes to their surviving spouse or civil partner, those assets are generally exempt from Inheritance Tax. This means that the Nil Rate Band available on the first death is typically not utilised and may be transferred to the surviving spouse. This will effectively double their tax-free allowance.

How Can You Claim the Transferable Nil Rate Band?

Claiming the Transferable Nil Rate Band involves notifying HM Revenue and Customs (HMRC) of the unused portion of the deceased partner’s Nil Rate Band. This typically occurs during the administration of the deceased’s estate.

The following steps are generally involved in claiming the TNRB:

Gather Necessary Documentation: Collect all relevant documents relating to the deceased’s estate, including their Will, death certificate, and financial records.
Calculate the Unused Nil Rate Band: Determine the unused portion of the deceased partner’s Nil Rate Band by subtracting any used allowance from the maximum threshold.
Complete the Inheritance Tax Return (IHT400): The Executor of the deceased’s estate will need to complete the Inheritance Tax Return (IHT400) form, declaring the unused Nil Rate Band and applying for the transferable allowance.
Submit the Form to HMRC: Once the IHT400 form is completed, it should be submitted to HMRC along with any required supporting documents.
Await HMRC’s Confirmation: HMRC will review the submitted documentation and provide confirmation of the approved Transferable Nil Rate Band allowance.