Can a spouse inherit the Inheritance Tax nil-rate band?

Full answer

The transferable nil-rate band lets married couples and civil partners pool their Inheritance Tax allowances. Each person has a nil-rate band of GBP 325,000. When the first partner dies, transfers to the surviving spouse are exempt from IHT, so the deceased often uses little or none of their band. The unused percentage then transfers to the survivor's estate. It works as a percentage, not a fixed sum. If the first death used none of the GBP 325,000 band, 100% transfers, giving the survivor two full bands -- GBP 650,000. If, say, 20% had been used (for example through gifts to others), 80% transfers, adding GBP 260,000 to the survivor's own GBP 325,000. On top of this, the residence nil-rate band of up to GBP 175,000 per person is also transferable. It applies when a main home is left to direct descendants such as children or grandchildren. A couple can therefore combine up to GBP 350,000 of residence band with GBP 650,000 of standard band -- a headline GBP 1 million tax-free. Note the residence band is tapered away for large estates (broadly those above GBP 2 million), and the standard nil-rate band is frozen at GBP 325,000. Worked example: Tom dies leaving everything to his wife Sara -- no IHT, and 100% of his GBP 325,000 band is preserved. When Sara later dies leaving a GBP 800,000 estate including a home passed to their children, her executors claim her GBP 325,000 plus Tom's transferred GBP 325,000, plus residence bands. The estate can fall fully within the combined allowances, with anything above taxed at 40% (or 36% if 10%+ goes to charity). The transfer is not automatic -- the survivor's executors must claim it using form IHT402 within 2 years of the second death, providing details from the first estate. Use an Inheritance Tax calculator to estimate the position.

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