The level above which Inheritance Tax (IHT) is payable has remained at £325,000 since 2010. Above this level, IHT is payable upon all your assets, including any held in trust, as well as any gifts you made within seven years of your death. The first, tax-free £325,000 is known as the “nil rate band”.
Since October 2007, married couples and registered civil partners have been able to carry over any unused NRB on their joint estate when the second partner dies; to a maximum of £650,000.
Married couples and registered civil partners are also allowed to pass assets from one spouse or civil partner to the other during their lifetime or when they die without having to pay Inheritance Tax (no matter how much they pass on) as long as the person receiving the assets has their permanent home in the UK.
This is known as the spouse or civil partner exemption.
If you leave everything you own to your surviving spouse or civil partner in this way:
ο Your whole estate would be exempt from Inheritance Tax, and
ο Your NRB remains unused
That unused NRB is therefore available to increase the NRB of your spouse or civil partner when they die – even if your spouse had re-married. Your spouse or civil partner’s estate can therefore be worth up to £650,000 before any Inheritance Tax is payable.
In practice, the executors or personal representatives must apply to HMRC within 24 months of your spouse or civil partner’s death to transfer your spouse or civil partner’s unused NRB.