Who is the Nil Rate Band Transferable to?
The Inheritance Tax residence nil rate band (RNRB) is a proportion of an estate on which tax is payable at a rate of zero percent for married couples and civil partners (per person) when their main residence is passed down to a direct descendent such as children or grandchildren after their death.
How much is involved?
The value increased to the present maximum level of £175,000 from 6 April 2020. It is available to the deceased person’s children or grandchildren. Any unused portion of the RNRB can be transferred to a surviving spouse or partner. The residence nil rate band is in addition to the existing £325,000 Inheritance Tax nil-rate band.
This means that married couples and civil partners can pass on property worth up to £1 million free of Inheritance Tax to their direct descendants
How to transfer Nil Rate Band
The transfer does not happen automatically and must be claimed from HMRC when the second spouse or civil partner dies. This is usually done by the executor making a claim to transfer the unused RNRB from the estate of the spouse or civil partner that died first. Transferring the nil rate band can also happen even if the first spouse or civil partner died before the RNRB was introduced on 6 April 2017.
In order to Claim this transfer of RNRB you need to complete the IHT 402 Form and submit it to HMRC. You don’t need to contact HMRC after the first death to agree the RNRB transfer.
After the second death there is a time limit to submit these forms to HMRC. You have 24 months from the end of the month in which the surviving spouse died. Before this time runs out it is important that you collect all relevant and required documentation such as your IHT 400/402 and any other supporting documents.
The supporting documents to be submitted with your IHT 402 are.
- A copy of the grant representation to the estate of the spouse or civil partner
- A copy of the death certificate
- Confirmation that the property has been listed in the will
- If a deed of variation or other similar document was executed to change the people who inherited the estate of the spouse or civil partner, a copy of that document
How does the tapering work?
There is a tapering of the RNRB for estates worth more than £2 million even where the family home is left to direct descendants. The additional threshold will be reduced by £1 for every £2 that the estate is worth more than the £2 million taper threshold. This can result in the full amount of the RNRB being tapered away.
The RNRB maximum rate of £175,000 and the taper threshold are currently frozen until at least April 2026.
Contact a tax specialist
If you need help with your residence nil rate band transfer. Contact a member of our specialist tax team. To help you prepare documents and make the transfer process as straight forward as possible.