inheritance tax allowance

Can I Transfer Inheritance Allowance?



Posted on: 10th December 2021

When someone close to you passes, one of the things that may not immediately cross your mind is how IHT (Inheritance Tax)/ inheritance tax allowance will come into play. Many people will not know how to turn things around for the better, which is why it is always recommended to engage with independent financial advisers Manchester before or around the time that this becomes a reality.

The good news is that it is possible for a transferring of any unused percentage of the inheritance tax NRB (Nil Rate Band) from a spouse who has passed away (or a civil partner) to the surviving spouse/civil partner.

Reducing Inheritance Tax

Many ask the question, how can I reduce my inheritance tax bill. There are many ways to reduce the amount of inheritance tax before a person passes away. This involves a bit of preparation and forwards planning in making a will, taking out life insurance and giving assets away or making gifts out of excess income.

If the person granting these gifts to the family lives for seven years after granting them, the family or children will not be subject to an inheritance tax after the granter passes away.

Nil Rate Band

The NRB (Nil Rate Band) is the amount up to which an estate has no inheritance tax to pay, which is why it is also known as the IHT threshold.

Each individual has a personal NRB which is around the figure of £325,000. The chargeable IHT rate on any part of the estate up to this threshold is 0%. Any part of the estate exceeding this threshold is chargeable to IHT, up to 40% on death. NRB typically applies to the taxable, non-exempt estate passing via death – along with any taxable gifts made in the seven years before the death.

Who can Transfer the NRB?

Not everyone is eligible to transfer some or all of the unused NRB upon an individual dying. However, there is an exception for married couples and civil partnership members.

A portion of the NRB of the first spouse or civil partner can be transferred to the other half for use on their later death. HMRC accept a claim to transfer the unused NRB available when the surviving spouse or partner passes also, increasing the proportion of the unused NRB on the first death.

Put simply, if the first death on the estate of the spouse was £162,500 and the NRB is £325,000 – 50 per cent of the NRB is unused. If the survivor passes on with an NRB of £350,000, the total NRB will be increased by 50% of that figure, making the NRB a total of £525,000.

It does not matter what size the first estate was, whatever proportion of the NRB is unused is eligible to be transferred to the surviving spouse – even if their total estate was worth only £100,000 and everything was left to the survivor. They will have not used up any of their nil rate band, meaning 100% of that NRB is transferable.

For the best guidance on how inheritance tax relief works, inheritance tax allowance, or to discuss your circumstances and how they work to reduce inheritance tax, contact the experts at Haven IFA today to better prepare for your financial future.

Posted in Tax