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The Transferable Nil Rate Band by Sue Ledger

Posted on: June,4,2014

Jeromes are a long established family firm which is proud of having served generations of families and we like to foresee issues which might affect both existing clients and potential clients. Even if a family member’s demise does not come as a surprise it is a traumatic event and we like to ensure the survivors are not unnecessarily upset by the work involved in dealing with an estate. The work needed to minimise the amount of Tax paid on someone’s death is an example of this.
The Transferable Nil Rate Band (TNRB) introduced by this government is excellent news for many families. Put simply, for many families, it means on current allowances there is £650,000 rather than £325,000 available to pass on before Inheritance Tax (IHT)is payable.
The legislation is more complex than appears from that simple statement and the TNRB is available in certain situations where it might first seem unlikely to apply. For example there is no provision that the beneficiaries must be related (let alone closely) to the person who has died. There is no requirement that there must be a Will so the TNRB is available even if the second spouse does not leave a Will. The basic rule is that if on the death of the first spouse none of the Nil Rate Band (NRB) then available is used, when the second spouse dies the estate benefits from twice the NRB allowance available at the date of the second death. If on the first death part of the NRB is used the amount of the TNRB available will be calculated according to the percentage of the original NRB used on the first death.
If Fred dies in 1990 and leaves everything he owns to his wife Freda he has not used up any of his NRB. When Freda dies in 2014 and she leaves an estate worth £400,000 her NRB covers £325,000 and Fred’s TNRB covers the rest so no IHT is payable. That is the case even if Freda’s estate is worth £650,000 and the NRB at the time of Fred’s death was only £100,000.
The challenges often start as the family try to prove the TNRB is available. Fred and Freda need to have been married (or in a Civil Partnership). Easily proved if the marriage certificate is available but trickier if it is not; when and where did the marriage take place? Families often know the day of the year of the wedding anniversary but not the year. Sometimes it is merely assumed parents were married but when digging starts it is discovered they weren’t! In the “good old days” divorce was much less common and more difficult than now and often couples separated but never divorced . As a consequence when entering in to a new relationship marriage was not an option for the new couple. In this scenario a TNRB would not be available even if the new relationship appeared to be a longstanding marriage to the outside world.
If a widowed spouse remarries and then dies before the new spouse it is quite likely part or all of a TNRB would be available but this might not be obvious to the solicitor or known to the family. Your solicitor might seem to be asking probing questions as to the history of your family but it is for a purpose and can be financially very worthwhile if an unused TNRB is discovered.
Even more challenging can be showing how the estate of the first spouse to die was distributed. If a Will existed and a Grant of Probate was obtained this is easier than in other cases but even so sometimes there is no figurework left in existence (particularly if the first spouse died many years before the second). If no Will is left or there was no need to obtain a Grant proving the situation can involve much background research and solicitors have to attempt to establish evidence of the distribution of the estate on the death of the first spouse. This is particularly so as the family home and perhaps historic papers seen as worthless have been disposed of when an elderly person becomes resident in a care home. In particular there are time limits within which the TNRB must be claimed and if not claimed at the time when the estate is administered IHT might have to be paid. This might cause difficulties in an estate such as the sale of the family home to fund paying IHT which might then claimed back at a later date.
The work involved and inevitable delay caused can be very distressing for the family left dealing with the situation at a time when they wish to be left to mourn the loss of a loved one. There are some steps which can be taken minimise the trauma caused at a later stage.
If you have not made a Will do so as soon as possible because estates are much easier to administer if there is a Will than if there is an intestacy. Jeromes have generations of experience of Will making in all sorts of family situations and can ensure you receive advice appropriate to your personal circumstances. Ensure your executors (or us as your solicitors) know your marital history and have the paperwork to support it. Consider if you should tell your family now of any surprises or skeletons lurking in the cupboard; it is sometimes better to hear such matters from you than others! If your spouse has already died check what paperwork you have and come to see us so we can ensure you have all that will be needed to show the availability of the TNRB. The work done now by you and us will save hours of work and possible heartache for your loved ones in the future.