Understanding the Transferable Nil Rate Band: Making the Most of Your Inheritance Tax Allowance

When someone dies, their estate may be subject to inheritance tax (IHT). The nil rate band (NRB) is the amount you can leave before IHT is due—currently £325,000 per person. Anything above this is usually taxed at 40%. However, married couples and civil partners can often double this allowance by using the transferable nil rate band (TNRB).

What is the Transferable Nil Rate Band?

The TNRB allows any unused portion of the NRB from the first spouse or civil partner to be transferred to the survivor’s estate. This means, together, a couple can potentially pass on up to £650,000 tax-free (plus any residence nil rate band, if eligible).

How Does It Work?

• When the first spouse or civil partner dies, if they leave everything to their partner, no IHT is due because of the spouse exemption.

• Their own NRB is unused, so 100% of it can be transferred to the survivor.

• On the second death, the survivor’s estate can claim both their own NRB and the unused percentage from their late partner.

• The transferable nil rate band is not applied automatically. You must submit IHT402 with the IHT400 to claim it, even if you believe the first spouse’s estate was simple or left entirely to the surviving partner.

Example:

John dies in 2010, leaving everything to his wife, Mary. No IHT is due, and none of John’s NRB is used. When Mary dies in 2025, her executors can claim her own NRB (£325,000) plus 100% of John’s unused NRB (£325,000), so £650,000 is tax-free.

If John had used part of his NRB (for example, by leaving £100,000 to his children), only the unused portion (about 69%) would be available to transfer.

How to Claim the Transferable Nil Rate Band

• The claim is made by the personal representatives (executors or administrators) of the second estate, using form IHT402 alongside the main inheritance tax return (IHT400).

• You’ll need the first spouse’s/civil partner’s death certificate, marriage or civil partnership certificate, and details of their estate and any gifts made.

• The claim must be made within 24 months of the end of the month in which the second death occurs.

Best Ways to Use the TNRB

• Plan ahead: Make sure wills are up to date and assets are structured to take advantage of the TNRB.

• Consider the residence nil rate band (RNRB): If you leave your home to direct descendants, you may be able to claim an extra allowance, which is also transferable.

• Keep records: Store all relevant documents from the first death, including probate papers, will, and details of any gifts or trusts.

• Review gifts and trusts: Large gifts or trusts made by the first spouse may use up some of their NRB, reducing what’s available to transfer.

Common Mistakes to Avoid

• Missing the deadline: If you don’t claim within 24 months, you may lose the extra allowance.

• Not keeping paperwork: Without the right documents, it can be difficult to prove the unused NRB.

• Assuming it’s automatic: The TNRB must be claimed—it isn’t applied automatically.

• Overlooking gifts: Gifts made in the seven years before the first death can use up some of the NRB, so check carefully.

• Ignoring the RNRB: Many families miss out on the residence nil rate band, which can add a further £175,000 per person (as of 2024–25), also transferable.

IHT402: Common Misconceptions and Areas of Ambiguity

• Not realising what evidence is needed: You’ll need copies of the first spouse’s/civil partner’s will, grant of probate (or death certificate if no grant was taken out), and details of their estate. If you can’t find these, you must show what steps you’ve taken to try to obtain them.
  
  

• Misunderstanding what counts as ‘unused’ nil rate band: If the first spouse made gifts or left legacies to anyone other than their spouse or civil partner, this may have used up some of their nil rate band. It’s not always 100% transferable—work out the percentage carefully.
  
  

• Overlooking the impact of lifetime gifts and trusts: Gifts made in the seven years before the first death, or assets held in trust, can reduce the available nil rate band. These must be included in your calculations on IHT402.
  
  

• Confusion over residence nil rate band (RNRB): The RNRB is claimed separately, but if it was unused by the first spouse, it can also be transferred. Don’t assume IHT402 covers this—you may need to complete additional forms (such as IHT435).
  
  

• Missing the deadline: The claim for the transferable nil rate band must be made within 24 months of the end of the month in which the second death occurs. Missing this can mean losing out on a significant tax saving.
  
  

• Not explaining uncertainties: If you’re unsure about any figures or can’t get all the information, explain what you’ve done to try to find it and provide as much detail as possible. HMRC will consider your efforts and may still allow the claim if you’ve shown reasonable care.

Final Thoughts

The transferable nil rate band is a valuable tool for families to reduce inheritance tax. With a little planning and careful record-keeping, you can make sure your loved ones benefit fully. If you’re dealing with an estate, take your time, gather all the paperwork, and don’t be afraid to ask questions if something isn’t clear.

If you’d like a step-by-step checklist for claiming the TNRB, or want to see how it works alongside the residence nil rate band, just let me know.