Yes, you can effectively inherit your late husband's unused Inheritance Tax (IHT) allowance, specifically the nil-rate band (NRB). This is a significant benefit designed to ensure that married couples and civil partners can combine their allowances, potentially doubling the amount that can be passed on free of Inheritance Tax.
Understanding the Transferable Nil-Rate Band (TNRB)
The standard Inheritance Tax nil-rate band is the amount up to which an estate pays 0% IHT. For many, this is £325,000. When someone dies, any portion of this allowance they didn't use can be transferred to their surviving spouse or civil partner. This transferred allowance is known as the Transferable Nil-Rate Band (TNRB).
It's not just the standard NRB that can be transferred; if applicable, the unused portion of the Residence Nil-Rate Band (RNRB) can also be transferred. The RNRB applies when a main residence is passed on to direct descendants (children, grandchildren, etc.).
How the Transfer Works
The transfer of the nil-rate band is based on the percentage of the allowance that was unused by the first deceased spouse or civil partner, rather than a specific monetary amount.
For example:
- If your late husband used none of his nil-rate band (perhaps because he left all his assets to you, which is an IHT-exempt transfer), then 100% of his allowance is unused.
- If he used 50% of his nil-rate band (e.g., by leaving gifts to other beneficiaries), then 50% of his allowance is unused.
This unused percentage is then added to your own nil-rate band when you pass away. This means that the total allowance available to your estate could be up to double the standard nil-rate band, or potentially more if the RNRB is also applicable and transferable.
It's important to note that the formal claim process for the transferable nil-rate band occurs when the surviving spouse or civil partner dies, not at the time of the first death.
The Claim Process
When the surviving spouse or civil partner dies, the executors or administrators of their estate will make a claim to HM Revenue & Customs (HMRC) to use the transferable nil-rate band from the first deceased spouse.
Here's a general overview of the process:
- Identify Eligibility: Confirm that the first spouse or civil partner died on or after 9 October 2007 (when the TNRB was introduced) and was legally married or in a civil partnership with the surviving spouse at the time of their death.
- Calculate Unused Percentage: Determine the percentage of the nil-rate band that was unused by the first spouse's estate. This might involve reviewing their will, probate documents, and the value of any assets that were not passed to the surviving spouse.
- Make the Claim: The executors of the surviving spouse's estate will include details of the claim on the Inheritance Tax forms (IHT400) submitted to HMRC.
- Provide Documentation: HMRC may request supporting documents, such as the death certificate of the first spouse, their will, and grant of probate/letters of administration, to verify the claim.
Key Considerations and Practical Insights
- Maximum Transfer: The maximum amount of nil-rate band that can be transferred is 100% of the first spouse's allowance. This means that, effectively, an estate can potentially benefit from up to two full nil-rate bands.
- Estate Left to Spouse: If the first spouse left all their assets to their surviving spouse, no Inheritance Tax would typically be payable on the first death, and 100% of their nil-rate band would be available for transfer.
- Using Part of the Allowance: If the first spouse used some of their nil-rate band (e.g., by leaving gifts to children or other beneficiaries), only the remaining unused percentage can be transferred.
- Multiple Marriages: If you have been widowed more than once, only the unused nil-rate band from your last deceased spouse or civil partner can be transferred.
- Keeping Records: It is crucial to retain all relevant documents from the first spouse's estate, including their death certificate, will, and details of how their nil-rate band was used (or not used). This information will be vital when making the claim for the transferable nil-rate band upon the second death.
Here’s an example illustrating how the allowances can combine:
| Spouse | Nil-Rate Band (NRB) Used | Unused NRB Percentage |
|---|---|---|
| First Spouse | £81,250 (25% of £325k) | 75% (£243,750 unused) |
| Surviving Spouse | N/A (Allowance claimed upon their death) | +75% from first spouse |
| Total Allowance for Surviving Spouse's Estate | 175% of current NRB |
In this scenario, if the current NRB is £325,000, the surviving spouse's estate would have an allowance of £325,000 (their own NRB) + 75% of £325,000 = £325,000 + £243,750 = £568,750 before Inheritance Tax is due.
What This Means for Your Estate Planning
Understanding the transferable nil-rate band is vital for effective estate planning. It can significantly reduce the potential Inheritance Tax liability on your estate. By being aware of this allowance, you can make informed decisions about how assets are passed down.
For more detailed information on Inheritance Tax, you can refer to official government guidance on Inheritance Tax and how Inheritance Tax is calculated. You can also find specific information about the Residence Nil-Rate Band.
Given the complexities involved, especially with various assets, trusts, or multiple marriages, it is always advisable to seek professional advice from a qualified solicitor or financial adviser specialising in estate planning. They can help ensure your estate planning is as tax-efficient as possible and that all available allowances are claimed.
