Since October 2007, you can transfer any unused Inheritance Tax threshold from a late spouse or civil partner to the second spouse or civil partner when they die. This can increase the Inheritance Tax threshold of the second partner - from £325,000 to as much as £650,000 in 2013-14, depending on the circumstances.
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Everyone's estate is exempt from Inheritance Tax up to a certain threshold: £325,000 in 2013-14. This threshold is also known as the 'nil rate band'.
Married couples and registered civil partners are also allowed to pass assets to each other during their lifetime or when they die without having to pay Inheritance Tax. It doesn't 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 spouse or civil partner exemption.
If someone leaves everything they own to their surviving spouse or civil partner in this way it's exempt from Inheritance Tax. It also means they haven't used any of their own Inheritance Tax threshold or nil rate band. This can be used to increase the Inheritance Tax threshold of the second spouse or civil partner when they die - even if the second spouse has remarried. Their estate can be worth up to £650,000 in 2013-14 before they owe Inheritance Tax.
To transfer the unused threshold, the executors or personal representatives of the second spouse or civil partner to die need to send certain forms and supporting documents to HM Revenue & Customs (HMRC). HMRC calls this 'transferring the nil rate band' from one partner to another.
The threshold can only be transferred on the second death, which must have occurred on or after 9 October 2007 when the rules changed. It doesn't matter when the first spouse or civil partner died. However, if it was before 1975 the full nil rate band may not be transferrable as the amount of spouse exemption was limited then. There are some situations when the threshold can't be transferred but these are quite rare. See the section at the end of this guide.
When the second spouse or civil partner dies, the executors or personal representatives of the estate should take the following steps.
The size of the first estate doesn't matter. If it was all left to the surviving spouse or civil partner, 100 per cent of the threshold was unused. You can transfer the full percentage when the second spouse or civil partner dies even if they die at the same time.
It isn't the unused amount of the first spouse or civil partner's nil rate band that determines what you can transfer but the unused percentage.
If the deceased made gifts to people in their lifetime that weren't exempt, the value of these gifts must first be deducted from the threshold. You can then work out the percentage available to transfer. You may also need to establish whether any of the assets that the first spouse left could have qualified for Business or Agricultural Property Relief.
To see examples of how the unused nil rate band can be transferred follow the link below.
You will need all of the following documents from the first death:
If you need help finding these documents get in touch with the relevant court service or general register office for the country you live in. (See links below under 'More useful links'). The court service may be able to provide copies of wills or grants; the general register offices may be able to provide copies of death certificates.
You must make the claim within 24 months from the end of the month in which the second spouse or civil partner dies.
The forms you'll need to fill in depends on the following:
If 100 per cent of the unused threshold is being transferred and the value of the estate is less than twice the threshold when the second spouse or civil partner dies (£650,000 in 2013-14) the estate may be classed as an 'excepted estate'. Follow the link below though to find out the other qualifying conditions for excepted estates. If the estate does qualify as an excepted estate, you'll need to complete form IHT217 to claim the unused threshold. Return this together with form IHT205/C5 and the forms you need for probate (or confirmation in Scotland).
You'll need to complete form IHT402 to claim the unused threshold. Return this together with form IHT400 and the forms you need for probate (or confirmation in Scotland) if both of the following apply:
You'll need to complete form IHT402 to claim any unused threshold. Return this together with form IHT400 and the forms you need for probate (or confirmation in Scotland) if either of the following applies:
If there is no unused threshold to transfer you'll only need to complete form IHT400 and the forms you need for probate (or confirmation in Scotland).
In the following two cases, the rules for transferring a threshold are different:
The rules are complicated and you might want to contact the Probate and Inheritance Tax Helpline for advice.
Copies of grants and wills in England and Wales - justice website (Opens new
Probate - Northern Ireland Courts and Tribunal Service (Opens new window)
Copy of will or confirmation - Scottish Courts (Opens new window)
Certificate ordering service - General Register Office for England and Wales (Opens new window)
Order a death certificate - General Register Office for Scotland (Opens new window)
Guidance on death and bereavement - nidirect government services (Opens new window)