What is a transferable nil-rate band?

It is an inheritance tax relief which is only available on the death of the second spouse or civil partner. That is, a widow or widower.

In this scenario, it may be possible to transfer the inheritance tax threshold (the “nil-rate band”) of the spouse or civil partner who died first.

It could greatly reduce – or eliminate – inheritance tax on the second death. It is applicable to a minority of estates.

The nil-rate band

Everyone has an inheritance tax threshold, also known as a “nil-rate band”. Currently, it is £325,000, and it’s due to stay that way until 2015. See our video “Inheritance tax: the basics”.

An estate worth more than £325,000 (after debts and inheritance tax exemptions are taken off) will be subject to inheritance tax.

There is one exception: transferring the nil-rate band of the first spouse or civil partner. This could double the nil-rate band on the second death, perhaps eliminating or reducing inheritance tax.

An unused nil-rate band

Only the unused amount of the first nil-rate band can be transferred. For example:

1. The first spouse or civil partner gave everything to the surviving spouse or civil partner. Because such gifts are tax exempt, the nil-rate band was completely unused. Today, the second nil-rate band can be increased by 100%, from £325,000 to £750,000.
2. The first spouse or civil partner gave £100,000 to their children and the rest to the surviving spouse or civil partner. At the time, the nil-rate band was £200,000. Because gifts to children are not tax exempt, half the nil-rate band was used. Today, the second nil-rate band can be increased by 50%, from £325,000 to £487,500.

Not always available or required

The transfer of the nil-rate band may not be possible, for example if the first nil-rate band was used up, if the deceased was survived by a spouse or civil partner, or if the deceased never married or entered into a civil partnership.

Furthermore, if an estate is too small to be taxable with just one nil-rate band, there is no need to apply for a transfer.

What form do I need to transfer a nil-rate band?

To apply for the transfer of a nil-rate band, see our guide “How to transfer a nil-rate band”.