Transfer of nil rate band on IHT

aroominyork

Is it correct that if a Will leaves £325,000 in gifts to children/grandchildren and the balance of the estate to a surviving spouse, when the surviving spouse dies their estate has a £650,000 nil rate band for IHT?

snootleboop

Unfortunately, no. It is incorrect.

The surviving spouse inherits the unused percentage of Nil Rate Band. So if everything was left to the surviving spouse, they would inherit 100% of the NRB (as the spousal exemption means no NRB is utilised) and therefore their estate would benefit from 200% of whatever the NRB is at the time of their death (so £650k currently).

In your scenario, as £325k is left to children/grandchildren, the entire NRB is utilised on first death. As such, the surviving spouse’s estate would only be able to utilise one NRB. This could ultimately end up being more tax efficient, as any growth on the £325k assets never enters the surviving spouse’s estate.

The above does not take into account the Residence NRB, which may change some of the figures, if for example some of the £325k was in the form of the deceased’s home.

SeniorSam

Remaining one nil rate band allowance plus two residential allowances of £175k may be possible. So total maximum allowance of £675,000

aroominyork

SeniorSam said:

Remaining one nil rate band allowance plus two residential allowances of £175k may be possible. So total maximum allowance of £675,000

First spouse dies in 2011, leaving gifts to children/grandchildren, and residue (including martial home) to surviving spouse. Second spouse spent last few years in care home, with marital home sold and proceeds invested under PoA. Second spouse dies recently. Do those two residential allowances apply?

noh

aroominyork said:

SeniorSam said:

Remaining one nil rate band allowance plus two residential allowances of £175k may be possible. So total maximum allowance of £675,000

First spouse dies in 2011, leaving gifts to children/grandchildren, and residue (including martial home) to surviving spouse. Second spouse spent last few years in care home, with marital home sold and proceeds invested under PoA. Second spouse dies recently. Do those two residential allowances apply?

Yes if house was disposed of after July 2015.
https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

"The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants."

getmore4less

How much did the house sell for?