Transferable Nil Rate Band and Nil Rate Band Will Trusts

In October 2007 the Government introduced the Transferable Nil Rate Band (TNRB). All individuals have their own Nil Rate Bands (NRB) which has stood at £325,000 since 2009 and will remain at this level until at least 2026. The NRB is that part of the estate of a Deceased person that is taxable @ 0%.

Put simply the introduction of the Transferable Nil Rate Band meant that where one of the married couple or civil partnership has left his or her entire estate to the surviving spouse or civil partner then, because their own NRB has not been used (since the gift is spouse or civil partner exempt), it can be transferred and added to the NRB of the survivor when they die.

If only part of the deceased’s NRB is used (for example on legacies to children) the unused NRB of the first spouse/civil partner to die can also be transferred to the survivor.

Before the introduction of the TNRB an individual’s NRB was effectively “wasted” if he or she simply left their entire estate to one another. Well advised parties instead passed an amount equivalent to their existing NRB into a Discretionary Trust and left the rest of their estate to the survivor. This meant that both parties could take full advantage of their individual Nil Rate Bands. At the time there was a saving of Inheritance Tax by such means of up to £120,000.

It was thought that once the TNRB had been introduced it would no longer be necessary to create these types of Nil Rate Band Trusts (NRB Trusts). At the stroke of a pen the Government had achieved for all married couples or civil partners what the well advised had been doing for a number of years. 

As a result, many people who had Wills incorporating NRB Will Trusts reverted to straightforward family Wills in the knowledge that there were no longer any good Inheritance Tax reasons not to do so.

The question arises however as to whether there are any reasons why, notwithstanding the introduction of the TNRB it is still sensible to retain Wills incorporating NRB Trusts?  The answer to this is “it depends”.

• Where a couple may have been married or civil partners before and there may be some doubt as to whether the surviving spouse/civil partner will treat step children exactly the same as their own children, then it may be sensible to retain the NRB Trust.

• Where the parties are of advanced age and it is possible that the survivor may require residential care (still currently means tested) it may be appropriate to retain the NRB Trust (although there may however be other types of Wills which may be more effective in the circumstances such as Wills incorporating Life Interest Trusts).

• An NRB Will Trust often contains flexible arrangements which can be used to advantage with decisions only needing to be made after the Deceased has died. 

In the circumstances it is not simply the case that the introduction of TNRB automatically negates the need for Wills incorporating NRB Will Trusts. The key is to review Wills made prior to October 2007 to ensure that the Will that you currently have is suitable for your particular circumstances.

If you would like to review your Will please contact a member of our Private Client Department who will be happy to assist.

Further, if you are the executor of a Will that incorporates a Discretionary Trust, or indeed any type of trust, we would recommend that you take legal advice at the earliest opportunity so that you can fully understand the terms of the Will, what actions will need to be taken to administer the estate and also to consider the longer-term advantages and disadvantages of retaining the trust. Our Private Client department would also be pleased to assist with this.