Additional NRBs 

Transferable NRB

Prior to 2007, if a married person died leaving his or her entire estate to their spouse then their estate would be free of IHT but when that surviving spouse died only £325,000 could be deducted from their IHT bill. In essence this meant that the first spouse had not used their NRB and it had in effect been wasted. 

This led to some creative IHT planning measures involving discretionary trusts up to the value of the NRB with loans being made to the surviving spouse. 

However, in 2007 the Transferable NRB was introduced.  

This means that in the above circumstances, the unused portion NRB on the first death can be added to the value of the survivors NRB and this amount will pass tax free. 

So for example, when no gifts have been made, up to £650,000 can be left tax free on death on the second death of a married couple.

Residence NRB 

In April 2017 additional residence nil rate band was introduced which can in certain circumstances mean that a further £350,000 can be left tax free. 

To qualify for this the value of the residential property (or interest) needs to be at least the value of the tax-free allowance otherwise some of this allowance is lost. 

Further, the estate needs to include a residential property or interest in a residential property, and this must be left to their lineal descendants (i.e. children including adopted and step children and others considered a child of the family or other direct descendants). 

Finally to qualify fully for the allowance, the estate must not exceed £2million in total. 

To the extent it does exceed £2,000,000, £1 of the RNRB is lost for every £2 it is over that limit. 

The rules surrounding the RNRB are particularly complex and are beyond the scope of this course.