If a person's estate does not fully utilise the nil-rate band for Inheritance Tax (IHT) purposes, the unused proportion of the nil-rate band can be used on the death of that person’s spouse or civil partner. This is termed the ‘transferable nil-rate band’ (TNRB).
However, making use of the TNRB can be difficult where the estate of the first deceased has merely passed across to their spouse or civil partner and the formal documentation relating to the estate was either not prepared or not retained. This has been a relatively common occurrence, especially where the estate of the first deceased was small and the will is an ‘all to other’ type, wherein the whole estate passes to the survivor. Such transfers are normally exempt from IHT.
HM Revenue and Customs have attempted to make things simpler by issuing a new code of practice which allows an estate making use of the TNRB to be an ‘excepted estate’ provided certain conditions are met.
In practice, this will simplify the administration of a large number of estates. However, there are still conditions which may cause difficulties for many people, such as the conditions that the first deceased:
- must have been domiciled in the UK for IHT purposes at the date of death; and
- must not have had any foreign assets (i.e. a holiday home) worth more than £100,000 at the date of death.
With more than 400,000 Britons owning holiday properties abroad, complexities in dealing with IHT and estates may be more common than thought.
