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IHT transferable nil rate band: how do I claim it?
For inheritance tax (IHT), there are possibly two nil rate bands available. The first option is the nil rate band, which is open to everyone and has a cap of £325,000 until the 5th of April, 2026. An estate doesn’t have to pay any IHT up to this amount.
The second nil rate band is the residence nil rate band (RNRB) (RNRB). This is accessible if the primary residence is passed down to a direct descendant, such as a grandson or daughter. Until the 5th of April 2026, the RNRB is set at £175,000. The RNRB, in contrast to the nil rate band, is reduced when the estate’s value exceeds £2 million. Therefore, the RNRB is lowered by £1 for every £2 by which the estate’s worth surpasses £2 million, making it unavailable for estates worth above £2.35 million.
No IHT is due on anything a person passes to their spouse or civil partner under an IHT inter-spouse exemption. For IHT reasons, each spouse or civil partner has their nil rate band and RNRB. IHT rules enable any unused RNRB to be transferred to the surviving spouse/civil partner and claimed by their executors upon death. This is helpful if a married couple wants to leave their estate to their surviving spouse or civil partner first and then to their children after the death of the surviving spouse or civil partner, but they do not want to waste their nil rate bands.
If the couple was married or in a civil partnership at the time of the first death, the unused portion of the nil rate band may be claimed by the estate of the surviving spouse or civil partner within two years after the death of the surviving spouse or civil partner. Remember that only the unused amount of the nil rate band is transferred, not its entire value. In the death that the nil rate band shifts between the first and second death, this will automatically adapt.
Whether or not a complete IHT return (IHT400) is required, the claim procedure will be different. Claims for a claim should be sent to HMRC on form IHT402 if a complete return is necessary (and any other required forms). The IHT400 must be sent to HMRC within a year after the death. If the death occurred after the 1st of January 2022 and the estate is an exempted estate, the transferable nil rate band can be claimed when applying for probate.
The unused portion of the RNRB, like the nil rate band, is transferable to the estate of a surviving spouse or civil partner. But, again, this must be claimed. This is done on form IHT435, which should be delivered to HMRC with the IHT400.
Example : Polly died in June 2017, leaving her estate estimated at £600,000 to her husband, Paul. The nil rate band was £325,000, and the RNRB was £100,000 at the time of her death. Paul dies in May 2022. He leaves his real estate, estimated at £1.4 million, to his daughter Poppy. In addition to his nil rate band of £325,000 and his residence nil rate band of £175,000, his estate is allowed to claim the unused amount of Polly’s nil rate band and RNRB, which is 100 percent in each case.
Consequently, Paul’s estate is entitled to benefit from a second nil rate band of £325,000 and a further residence nil rate band of £175,000. Instead of receiving the total value of the RNRB when Polly died (i.e. £100,000), Paul’s estate receives the unused percentage (i.e. £175,000) of the RNRB upon Paul’s death (i.e., as a result, IHT is only due if his estate is worth more than £1 million (2 times £325,000 + 2 times £175,000).