Overview
Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who’s died.
There’s normally no Inheritance Tax to pay if:
- the value of your estate is below the £325,000 threshold (nil rate band)
- you leave everything to your spouse or civil partner, a charity or a community amateur sports club
If you’re married or in a civil partnership and your estate is worth less than £325,000, or if you don’t use all of your threshold, you can transfer any unused threshold to your partner when you die.
This means their threshold can be as much as £650,000.
The amount of the unused threshold (nil rate band) can be transferred to the survivor of the marriage or civil partnership to increase the value of the threshold available on their death.
The transfer doesn’t happen automatically, you must claim to transfer it.
You must make the claim when the second spouse or civil partner dies.
How the transfer works
On the deceased’s death, the threshold that’s available to their estate is increased by the percentage of the threshold that was unused when their spouse or civil partner died.
Example
A spouse or civil partner died and the threshold was £250,000. They left legacies totalling £125,000 to their children with the remainder to the surviving spouse or civil partner.
The legacies to the children would use up half of the threshold, leaving the other half (50%) unused. On the deceased’s death, the threshold was £325,000, so their threshold would be increased by 50% to £487,500.
If the deceased’s estate doesn’t exceed £487,500 there’ll be no Inheritance Tax to pay on their death. If it does, there’ll be Inheritance Tax to pay on the value above that figure.
Source: HMRC