Transferring Nil Rate Band for Inheritance Tax

Individuals, executors, and families dealing with an estate where a spouse or civil partner has already passed away and where unused Inheritance Tax (IHT) nil-rate band may be transferable. Helps explain how any unused IHT nil-rate band from a deceased spouse or civil partner can be transferred to the surviving partner’s estate. Guidance from a tax advisor can help ensure the allowance is correctly understood. If the transfer is correctly claimed, it can increase the amount that can be passed on before Inheritance Tax becomes payable. If it is not claimed, the estate may pay more tax than necessary.

Transferring the Nil Rate Band

The Inheritance Tax residence nil rate band (RNRB) is a transferable allowance for married couples and civil partners (per person) when their main residence is passed down to a direct descendent such as children or grandchildren after their death. The allowance increased to the present maximum level of £175,000 from 6 April 2020. The allowance is available to the deceased person’s children or grandchildren. Any unused portion of the RNRB can be transferred to a surviving spouse or partner. The RNRB is on top of the existing £325,000 Inheritance Tax nil-rate band. The allowance is available to the deceased person’s children or grandchildren. Taken together with the current Inheritance Tax limit of £325,000 this means that married couples and civil partners can pass on property worth up to £1 million free of Inheritance Tax to their direct descendants. The transfer does not happen automatically and must be claimed from HMRC when the second spouse or civil partner dies. This is usually done by the executor making a claim to transfer the unused RNRB from the estate of the spouse or civil partner that died first. This transfer can also happen even if the first spouse or civil partner died before the RNRB was introduced on 6 April 2017. There is a tapering of the RNRB for estates worth more than £2 million even where the family home is left to direct descendants. The additional threshold will be reduced by £1 for every £2 that the estate is worth more than the £2 million taper threshold. This can result in the full amount of the RNRB being tapered away. The RNRB maximum rate of £175,000 and the taper threshold are currently frozen until at least April 2026.

How the Transfer Works

• If the first spouse or civil partner left everything to the surviving partner, their nil-rate band is usually unused.
• This unused allowance can then be transferred to the estate of the surviving spouse or civil partner.
• The transfer is calculated as a percentage of the unused allowance rather than a fixed amount.

Claiming the Transfer

The transfer of any unused nil-rate band does not happen automatically. A claim must be made to HM Revenue & Customs (HMRC) by the executor or personal representative of the estate. Supporting documentation may be required, including details of the estate of the first spouse or civil partner who died. In some cases, an AI accounting firm may assist with organising estate documentation and tax calculations.

Real-World Application

In many cases, assets are left entirely to a surviving spouse or civil partner. Because transfers between spouses or civil partners are generally exempt from Inheritance Tax, the first estate may not use any of the available nil-rate band. This unused allowance can then be applied to the estate of the surviving partner.

Risks and Compliance Considerations

• If the transfer of the unused nil-rate band is not claimed, the estate may lose the additional allowance.
• Incomplete documentation or missing information may delay the claim with HMRC.
• Executors are responsible for ensuring the correct allowances are claimed when administering the estate.

Speak to an Accountant About IHT Allowances

Understanding how the transferable nil rate band works can significantly reduce the Inheritance Tax payable on an estate, particularly for married couples and civil partners. Many families miss this relief or apply it incorrectly when calculating liabilities. At Cigma Accounting, we help individuals and families across Farringdon, Aldgate, and Bank understand and claim available reliefs with support from an experienced tax accountant in London.

Applying the transferable nil rate band correctly requires careful estate calculations, documentation, and compliance with HMRC rules. Cigma Accounting provides structured inheritance tax planning London to ensure estates benefit from all available allowances and reliefs while managing IHT exposure effectively, with physical offices across London.