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Transferring the unused Inheritance Tax nil rate band

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Married couples and registered civil partners are allowed to transfer assets to each other during their lifetime or when they die without incurring an Inheritance Tax charge. There is no limit to this relief as long as the receiving spouse or civil partner is UK domiciled.

This relief is known as the spouse or civil partner exemption.

Everyone’s estate is currently exempt from Inheritance Tax if valued, including gifts in the last seven years, at £325,000 or less – the so-called nil rate band. If the entire estate is passed to a surviving spouse or civil partner no Inheritance Tax would be payable due to the spouse or civil partner exemption, so for these couples the nil rate band used to be potentially wasted on the first death. To counter this, legislation was introduced that allowed the unused nil rate band on a first death to be passed, by claim, to the surviving spouse. This applies to second deaths on or after 9 October 2007.

Accordingly a surviving spouse or civil partner could have a nil rate band of up to £650,000 on their death. 

This additional relief should be taken into account when you are planning your estate tax position. Evidence of the position from the first death should be retained.

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