THE NIL RATE BAND 'nrb' EXPLAINED

  1. For single people - which includes widows, widowers, divorcees etc. - the nrb is currently £325,000.
  2. For couples who are married or in a civil partnership, an nrb is available on both the first and second death.
    1. Any nrb not used on the first death can be transferred in percentage terms to the survivor. And that percentage is applied to the nrb in force at the date of the second death. (See Example a.)
    2. Assets passing on the first death under the Spouse Exemption do not use up any of the available nrb.
  3. Any unused nrb from the first death need only be claimed at the time of the second death. So good records should be kept. This is because the second death may occur many years after the first death. And at that time the survivor will not be around to consult as to what happened on the first death. (See Example b.)
  4. The maximum allowable nrb that can be transferred under any circumstances is 100% of the value of the nrb applying on the death of the survivor.

    This could be relevant for those who have become a widow/widower more than once and for divorcees who have come through several marriages. (See Example c.)
    So even for those who have survived several marriages, the maximum nrb remains at, in todays terms, £650,000. (See Example c.)

EXAMPLES

a.  If none of the nrb is used on the first death, the nrb available on the second death will be 200% of the nrb in force at the date of the second death.

Taking the above scenario, if the second death occurs between 9th October, 2009 and 5th April 2010 the level of the nrb will be 200% of £325,000 i.e. £650,000.

b.  Suppose Mr. Wilfer had died in tax year 1996/97 when the nrb was £200,000. On his death he left £50,000 (25% of his nrb) to his children.

If Mrs. Wilfer were to die in May 2009, the amount of nrb available would be 175% of the current nrb of £325,000 i.e. £568,750.

c.  Mrs. Wegg dies in November 2007. She leaves her widowed husband who (alas...!) has now outlived three wives. Neither of his two previous wives had made use of their nrb but in her Will, Mrs. Wegg left £120,000 to her children. This sum represented 40% of the 2007/08 nrb of £300,000.

Suppose Mr. Wegg dies when the nrb has risen to, say, £350,000. His total nrb will be 160% of £350,000 i.e. £560,000.

 

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