Nil Rate Band Trust Wills

The death of you or your partner can have an impact on the taxation of your/their estate, and taking into account current property values, more and more of us will be liable to pay inheritance tax on the estate.

The Inheritance Tax threshold currently stands at £325,000 (frozen until 2019), over which all would be taxed at the 40% rate on any inheritance monies over the threshold amount (after funeral costs etc. are covered).

This threshold can quickly be surpassed, even by people on modest incomes if there is a property involved in the estate. So, you ask yourself, is there anything my partner or I can do with our wills to minimise the amount of 40% inheritance tax our estate would be liable for?

Yes, there is: you can prepare an NRBT which will help the living partner minimise how much 40% inheritance tax is due from your estate. Click here to find out why you should choose us for will writing service!

This will arrangement is a helpful tool that comes into play when a married couple wants to bequeath what remains of their estates to each other, while at the same time ensuring that each makes the best of their inheritance tax allowance.

Circumstances are often such that a husband and wife may have individual funds, but the funds are required by the living spouse to live in a comfortable manner after their partner’s death. Click here to find out what happens if you die without a will!

In such cases bequeathing funds to children and suchlike may not be a feasible option. Should an additional property be part of the estate, no tax would be payable on a property left by one spouse to the other, until the living spouse dies: at which point the total joint estate is liable for the tax.

Conversely, circumstances may be such that a spouse bequeaths funds to their family, and when they die, the £325,000 nil rate band tax amount to which they are entitled, plus that of the remaining spouse could then be utilised when he or she dies. See our Prices!

However, if the entire estate is bequeathed to the living spouse, any advantage of the first spouse’s Inheritance Tax allowance is in effect lost. 

Nil Rate Band Trust

Nil rate band can also be referred to as the inheritance tax (IHT) threshold. This is the amount of money up to which tax is not deducted from the inheritance money that is left on a will (Nil tax). Nil rate band(NRB) is simply the amount of money up to which the state does not impose IHT on. Since April 2017, the amount was set to £325 000. For up to this amount nil tax is charged on IHT. For any amount exceeding this, a rate of 40% is charged as inheritance tax.

The nil-rate-band applies on the whole estate left behind after passing on. This also includes all the taxable gifts given within a period of seven years before death. This means that if there was property given to family seven years prior to death of the owner, IHT is imposed. For any amount up to £325 000, there is nil IHT but the extra has to be deducted with a rate of 40% taxed known as IHT. Nil rate applies when the band is below IHT threshold. Click here to see more about our blogs!

If the deceased passed on from April 2017 moving on to present, a tax known as the residence nil rate band is imposed. This is the rate of band deducted other than nil-rate-band regarding the residence of the deceased. This form of tax is complex and thus a solicitor should be consulted to offer appropriate advice. It works different whereby, the diseased downsized their home prior to their passing on. This can be in situations like, when they live in a residential place or when they sell their home and buy a less valuable home.The band value of the home left behind is used to determine the amount of residence NRB.

Each person has his or her own NRB. It is impossible to transfer the NRB to another person. However, it can be done under special circumstances. NRB can be transferred between married couples. It can also be transferred to members of civil partnership. Meaning, when a spouse or a civil partner dies, NRB can be transferred to the spouse that is alive. When HMRC transfers unused NRB, the available NRB of surviving spouse gets an increase by proportion of the unused NRB from the first demise.

An executor or a personal representative may be required to help in transfer and planning of NRB from the first to the second spouse. If the second spouse or civil partner’s estate is below their own NRB band, then there is no need for transfer of the first spouse’s NRB that was not used. The rate at this point is close to nil.

When an executor or a personal repetitive needs to transfer unused NRB of first spouse they need to follow a few steps for successful transfer. They should start work out NRB percentage available for transfer. All necessary documents from the deceased spouse should be gathered to support the claim. Lastly, they should fill and submit the relevant forms to HMRC. It should be done within 24 months from the time the second spouse passes away. Click here to see our locations!

 Inheritance Tax was put in place from March 1986. Before its introduction, estate taxes such as estate duty and capital transfer tax were being applied. If a spouse died before introduction of IHT, it is possible to claim transfer of NRB to the surviving spouse. The claim depends solely on the band rate imposed on the time during the first demise and the various rules that were being applied at that time.

In some special cases, IHT is nil. The scenarios include when an estate is of low value or when it is an excepted estate. An estate can be exempted for spousal or charitable reasons. For this you can submit IHT205 form instead of IHT400 to HMRC, which is a simpler and shorter way. You can contact solicitors and HMRC representatives for clarifications on any additonal issues.

Different procedures are followed during transfer if NRB for cases involving divorce or marriage. When the first spouse dies and the remaining spouse remarries, NRB from the first spouse can be transferred to the second spouse. If the remaining spouse remarries and dies before their new spouse, NRB of the surviving spouse will be increased by any unused NRB of the deceased spouse. It is important to note that 100% NRB can be added for the tax year in which the individual passes on. Tax planning ensures that your inheritance is not overly taxed. This helps a business that was left behind to continue growing even after the owner passes away.

Nil rate band (NRB) is the threshold amount up to which inheritance tax (IHT) cannot be imposed. Residence nil rate band is the fees imposed on top of (NRB). It can be imposed on the home left behind if it is not a residential home. It is possible to transfer NRB from one person to the other given that they were either spouses or they were in a civil partnership. To get more help you can contact solicitors, a tax adviser or a trust and estate practitioner. They will offer you informed advice to help you with proper planning for your benefit. They will charge you convenient fees for all the services rendered.

This is where a NRBT can help upon the death of a spouse:

A couple should prepare mirror wills so, at the first spouse’s death, their will stipulates that a proportion of their Inheritance Tax zero tax rate allowance is put into a discretionary trust. Beneficiaries of the trust are listed and should include the living spouse. Thus, the trustees use the capital or income to provide for the living spouse. Click here to see more about our FAQ!

If the living spouse doesn’t need the bequeathed funds in the trust, then the money could alternatively be bequeathed to their children. The Trust will be ended/closed by the Trustees, usually when the other spouse dies, and any remaining funds and assets pass to the couple’s children/grandchildren. Hence the full use of both spouse’s Inheritance Tax zero rate provision is made with such a will arrangement, and the living spouse has been able to make use of any capital/assets held in the trust: i.e. their entire joint estates. Other benefits of such an arrangement include asset protection from business creditors or divorce settlements, and trust assets aren’t part of means testing should your spouse need nursing home care.

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