26th April 2022
Nil Rate Band Allowance – Part 1
This article builds on articles that this firm published some five years ago.
All of us have what is called a nil rate band allowance which is currently set at £325,000. That can either be used on death as an allowance threshold of assets that can pass free of inheritance tax to non-exempt beneficiaries, or, it can be used during the individuals’ lifetime.Currently, if used now, provided one survives seven years from the date of use of the nil rate band allowance, perhaps by making a chargeable transfer, the nil rate band allowance ‘regenerates’ and is once again available on the gifting individual’s death subsequently.
Whether it is lifetime made ‘chargeable transfers’ ( placing assets into trust generally speaking) or whether it is the more usual ‘potentially exempt’ transfers, as most gifts to non-exempt beneficiaries are, it is very important to keep a record on a rolling seven year basis of those potential lifetime use of the nil rate band so that your executors understand what is, and what is not, claimable out of your nil rate band allowance on the occurrence of your death. If they mistakenly claim allowance figure for your estate which it is not entitled to and this is ascertained by HMRC, then that will have adverse implications for the Executors, personally, particularly if they have not taken reasonable steps to ascertain the true position themselves.
Since 2007, we have had legislation which enables the survivor out of a married couple or the survivor out of a civil partnership to claim their non-surviving spouse’s/civil partner’s own, unused nil rate band, thus potentially doubling up the nil rate band to £650,000.
Again care needs to be had with that as the Executors will need to be able to show that the deceased were married or in a civil partnership with their pre-deceased spouse or civil partner ( as evidenced by a marriage certificate etc.), that there was no divorce or dissolutionment of the civil partnership before that individual’s death, and that by the probate or by the operation of the rules as to succession for those with no Will or no valid Will (intestacy) or by operation of survivor-ship of joint tenancy held assets, that assets passed ‘nowhere else from the pre-deceased spouse’s or civil partner’s hands other than to the surviving widow/widower/surviving civil partner, i.e. that there were no assets passing to children or other non-exempt beneficiaries for the purposes of IHT law.
Since 2015 we have had the advent of the ‘residential nil rate band allowance’ being a secondary inheritance tax allowance usable on their own death.
In the simplest terms, for this to be accessible for a family, the person for whose estate it is claimed:
- must have had a property which, when the value of that is considered with their other assets is in excess of the nil rate band and any transferable nil rate band which may be available; and
- the property must pass either as a specific devise or as part of the residuary estate to children, grandchildren, stepchildren or step grandchildren.
The residential nil rate band allowance is therefore not usable by siblings of the deceased, their nephews and nieces or other non-exempt beneficiaries you may wish to benefit should you not have children or grandchildren. If the Residential Nil Rate Band Allowance is unlikely to be available to benefit your choice of beneficiaries, please start a conversation with our Edward Walter firstname.lastname@example.org or 01892 520320 as to what may assist in your own circumstances.