Inheritance Tax (IHT)

The IHT nil-rate band – effectively the ‘exemption’ – on the death of one spouse or civil partner was specific to that individual death estate and could not be carried forward. In many cases, this resulted in a large IHT liability on the death of the surviving spouse or civil partner.

With effect from second deaths on or after 9 October 2007 the unused percentage of the nil-rate band from the first death estate can be carried forward and added to the nil-rate band available to the second.

For example:

• On the first death none of the original nil-rate band was used because the entire estate was left to a surviving spouse. Then if the nil-rate band when the surviving spouse dies is £350,000 that would be increased by 100% to £700,000.
• If on the first death the chargeable estate is £150,000 and the nil-rate band is £300,000, then 50% of the original nil-rate band would be unused. If the nil-rate band when the surviving spouse dies is £350,000, then that would be increased by 50% to £525,000.

A similar provision will apply to alternatively secured pensions (ASPs). This will make the same proportion of the original owner’s nil-rate band that was not used by their death estate available against the ASP charge on the cessation of the relevant dependant’s pension benefits.