The Nil Rate Band Explained | The Calder Group

If you’re exploring topics like the Nil Rate Band, it’s very likely that the issue of inheritance is currently part of your life. Whether you’re due to receive inheritance or organising your affairs so that you may gift it, the Nil Rate Band is an important topic that effects everyoneeventually. This makes it important to understand.

The Nil Rate Band itself is conceptually similar to the “Personal Allowance” tax threshold – which states that the first £12,500 of anyone’s income is entirely tax-free (with exceptions). In the case of the Nil Rate Band, it dictates that the first £325,000 of someone’s estate will receive an inheritance tax bill of 0% (again, with exceptions), and it will remain at this value until at least April 2026.

This means that we all benefit from knowing that the first £325,000 of our estate will pass to its intended recipients entirely tax-free. With that said, the value of your Nil Rate Band can change – for better and worse.

The Potentially Except Transfer

One way of effecting the size of your Nil Rate Band is through “Potentially Exempt Transfers”, which can work out in your favour, or against you.

The Potentially Exempt Transfer (PET) is something that is held in status until someone passes away. It can be broken down by the following:

The “transfer” part of a PET is a transfer made as a gift to friend or family.

The “exempt” part of a PET is it’s potential to be exempt from an inheritance tax liability in the case of someone’s death.

The “potentially” part of a PET is due to the fact any PET is subject to failure if the benefactor dies within 7 years of the transfer.

So, if you were to write a cheque today for £150,000 to your eldest son, it would have 7 years to fall outside of your taxable estate.

By contrast, there are also ways of having a greater Nil Rate Band. One of which is called the Residence Nil Rate Band, which is an additional money that can be passed tax-free against the value of a family home, which is currently worth £175,000.

Naturally, this is a tightly wound rule, and the residence nil rate band is limited to being received by your direct descendants exclusively. No nieces or nephews.

A £2,000,000 Estate

Again, much like the “Personal Allowance” is structured, the Nil Rate Band tapers at estates that are worth over £2,000,000, by £1 for every £2 the estate is worth over the £2,000,000. Ultimately, this means that estates worth over £2,350,000 may not qualify for having a Nil Rate Band.

You may notice that I said “may” not qualify. This is because this rule is not cardinal, and there are ways to maximise the Nil Rate Band in estates worth over £2,000,000. However, it is an incredibly complex area of law, and requires specialist advice. If you need guidance over this matter, contact us today to see how we can protect your assets.

Transferable Nil Rate Bands

Transferable Nil Rate Bands are another opportunity to increase the size of your Nil Rate Band. The Transferable Nil Rate band is an opportunity for couples to gift the surviving member additional help and support.

If a husband dies, leaving a widow, any of his unused Nil Rate Band can be “transferred” to his widow as a % (rather than a monetary amount).

This can mean your Nil Rate Band could be £650,000, for example.

However, yet again, this is entirely dependent on situation and individuals. To uncover how to make the most of your Nil Rate Bands, contact us today.