Example – Transferring unused Nil Rate Band
Euphrasie dies in 2017 with an estate valued at £565,000. She leaves £65,000 to her son, Hector, and the remaining £500,000 to her husband Jim. Because of the spouse exemption, none of the £500,000 passing to Jim will be subject to inheritance tax. It will therefore not ‘use up’ any of Euphrasie’s Nil Rate Band. The £65,000 to Hector will, however, meaning £260,000 of her original £325,000 Nil Rate Band will be unused. Euphrasie’s estate will not pay any inheritance tax, but 80% of her Nil Rate Band has not been used.
When Jim dies, he can add the unused percentage of Euphrasie’s Nil Rate Band to his own Nil Rate Band. This is transferred as a percentage because the actual Nil Rate Band at the time of Jim’s death may be different from that at the time of Euphrasie’s. The figure he can apply will not necessarily be £260,000.
However, assuming the Nil Rate Band is unchanged at the time of Jim’s death, he would be able to apply his own Nil Rate Band of £325,000 plus 80% of Euphrasie’s unused Nil Rate Band (£260,000) to have a total Nil Rate Band of £585,000.