Nil Rate Bands for Inheritance Taxes
It is well known that everyone in the UK has inheritance tax nil rate bands:
Married and Civil Partnerships
Gifts between spouses and civil partners on death are free of inheritance tax anyway so on 1st death, none of the nil rate bands are used unless you leave assets and wealth to others family members, friends or charities.
Unused NRBs – Double Nil Rate Band
If you leave all your wealth to your spouse/civil partner, your nil rate bands are unused. Your unused allowances (£500,000) can be passed to your surviving partner on 1st death meaning that your survivor has their own allowances of up to £500,000 plus they can double this by another £500,000 (deceased partner’s unused allowance) meaning a total in nil rate band allowances of £1m.
Get Married Again - Treble Nil Rate Bands
The Question: Can a widow (or widower) who remarries and is then widowed again i.e., their 2nd spouse also dies before them, keep their existing £1m in combined nil rate band allowances from the first marriage and then add a new unused nil rate band allowance from their now deceased 2nd spouse? This would mean they have would have 3 nil rate bands i.e.. up to £1.5m.
Answer: No and Yes.
Examples for Double, Treble and Quadruple Nil Rate Bands
2nd Marriage: Scenario 1 – Double Allowance. Jayne and Bert comfort each other over their bereavements, become very close and decide to get married. Jayne then dies leaving everything to Bert having not used any allowances. Could Bert claim Betty’s unused allowance plus Jayne’s unused allowance plus his own? On Bert’s subsequent death, his executors and trustees are only allowed to claim one additional unused nil rate band i.e., up to £1m.
2nd Marriage: Scenario 2 – Treble Allowance. Both widows Jayne and Bert still get married. In each of their wills on marriage, they leave a discretionary nil rate band trust i.e., up to £500,000 to their own respective children, families and other ones loved. On death of Jayne (and vice versa). Jayne leaves £0.5m in a discretionary trust (in life or on death) for loved ones meaning she has gifted £500,000 and has just one inheritance tax allowance left and the rest of her estate to Bert. Bert then dies and he too can only have the double nil rate band allowance. This means 3 nil rate band allowances have been used. There is no guarantee that Bert will leave any assets (including inherited wealth from Jayne) in his will to Jayne’s children/grandchildren from her first marriage to Harry.
Co-Habit/Do Not Marry: Scenario 3 – Quadruple Allowance. Widows Jayne and Bert do not get married but decide to live together and be life companions. They leave up to £1m each of all their assets on death in a discretionary will trust for their children with a life interest trust for their ‘life companion’ (so that should either one die), the survivor can still use/benefit/borrow from the assets held in trust for their own children/grandchildren. Jayne dies leaving £1m in a trust in her will for her children and loved ones. She still had two nil rate band allowances (her own and her first husband Harry’s unused allowance) i.e., Double allowances have been used up to £1m. Bert can still use the assets in Jayne’s trust as he has a life interest to use the assets in Jayne’s Trust that is beneficially owned by Jayne’s children with Harry. Bert then dies, he too has two nil rate band allowances (his own and his first wife Betty’s unused allowance) i.e., Double allowances have been used again up to £1m. Result: Quadruple i.e., 4 X Nil Rate Band Allowances have been used overall.