The TNRB rules apply for anyone passing away on or after 9th October 2007. If they
had been previously widowed (at any date, including before 2007) and their late spouse
did not exploit all of their own IHT-free allowance (the ‘NRB’ or the equivalent
under the tax rules that applied at the time) then the unused proportion of the allowance
can be transferred to offset IHT on the 2nd estate.
What does that mean? Well, for most married couples (or legal Civil Partners) it
means that the first to pass away can leave everything to the surviving spouse tax-free
and then the survivor’s estate can use both NRB allowances to offset against IHT
(that is a total of £650,000, based on the current level of the NRB). But be careful
if one or both of you are considered ‘domiciled’ outside of the UK, since it brings
in some limitations to how this works.
As ever with tax rules there are regulations around this and it does NOT happen automatically.
The Executors on the 2nd estate have to claim the transfer. They have to prove that
the 1st estate did not use its NRB, which means that they need the paperwork from
the administration of the 1st estate. All too often this paperwork is minimal and
perhaps was not kept at all. Therefore it is all the more important to handle probate
and estate administration carefully and this places an extra burden on whoever acts
as Executor - even when it is simply a couple leaving everything to each other.
Even if the Transferable NRB does save IHT, it does nothing to protect family assets
against other attacks. That is why it is still important to make appropriate Wills,
such as with Trusts, to protect your family’s inheritance.
There are special circumstances where it is possible for a couple exploit 3 or even
4 NRB allowances. This is where either or both of the couple have been previously
widowed from an earlier marriage and their first spouse did not exploit their NRB
allowance and the couple now create special Wills with IHT-saving trusts in them.
If you think this could apply to you then you definitely need our detailed advice.
It is proposed that from April 2017 there will be an extra tax allowance, the Residence
Nil Rate Band (RNRB). This can be offset against a qualifying property (normally
your main home), provided it is being passed to what are defined as ‘close relatives’.
The allowance will start at £100,000, rising to £175,000 by 2020. If the allowance
is unused it could be transferred to the estate of a spouse (or Civil Partner), but
the details of how this can be used look to be even more complicated than for the
basic Transferable NRB. In particular it would seem even more vital that very detailed
records are kept when the first member of a couple passes away. Therefore, executors
should seek guidance when dealing with an estate, even if initially it all appears
very simple and does not need a grant of probate.
When the IHT rules were changed many newspapers said that the Nil Rate Band for couples
had doubled. That was misleading and could cause any families to miss out on their