Inheritance Tax Nil Rate Band

Chancellor Alistair Darling announced in his Pre-Budget speech a change to the way in which the inheritance tax (IHT) nil rate band of £300,000 can be used for married couples and civil partners.

Before the introduction of this change, where an individual died and left some or all of their property to their spouse or civil partner, then that transfer was exempt from IHT. However, on the death of the second spouse or civil partner, only one nil rate band was available, meaning that a nil rate band had been effectively wasted. This is because of the IHT exemption for transfers between spouses or civil partners. 

The Pre-Budget change means that the proportion of any nil rate band unused on the first death may be used when the surviving spouse or civil partner dies.

This change is effectively backdated for situations where a spouse or civil partner died before the announcement of the change, as long as the ‘surviving’ spouse or civil partner dies on or after 9 October 2007.

This is a significant change that will affect many families and HMRC have now issued the relevant form IHT216 to claim a transfer of any unused IHT nil rate band.

Please do contact us if you would like more advice on this issue.

Internet Links:

IHT216 form